The growing popularity of decentralized finance (and NFTs) has led to the largest blockchain networks becoming congested with transactions, resulting in high network fees. At peak usage, token swaps on decentralized exchanges like Uniswap ballooned to the equivalent of over $1000 for a single transaction. A far cry from what retail traders have become accustomed to with zero commission brokers.
Developers of decentralized applications on the Ethereum network have been searching for alternatives to continue their projects growth. Polygon may be the solution they are looking for.
What is Polygon?
Polygon is a protocol and a framework for building and connecting Ethereum-compatible blockchain networks. The open-source technology provides developers with the tools to readily deploy a stand-alone network or a secure sidechain that can optionally leverage the security of the Ethereum network via smart contracts. Nonetheless, Polygon is designed to reduce costs and complexities and to improve the speed of transactions on Ethereum.
In technical terms, Polygon bills itself as a layer-2 network, meaning it acts as an add-on layer to Ethereum. MATIC is used as the unit of payment and settlement between participants who interact within the Polygon network.
How Polygon Works
Polygon validators periodically perform checkpoints against the Ethereum main-chain. This process provides a mechanism to settle any transaction disputes that occur on the sidechain through a cryptographic proof.
With this protocol, users can transfer tokens across Matic without incurring third-party risks and market liquidity limitations. Tokens that leave the Ethereum network are locked and represented as newly minted pegged tokens on the Matic network(1:1). The pegged tokens are burned when the user moves back to the Ethereum network.
The security provided by the Ethereum network is important to how Polygon functions, but it’s ability to maintain security while allowing for scalability is what makes it interesting. Unlike the proof-of-work consensus protocol Ethereum uses today, which is costly in terms of computing resources, Polygon already uses the proof-of-stake mechanism Ethereum 2.0 aims to achieve sometime in late 2022 or early 2023.
In addition to the proof-of-stake consensus mechanism, Polygon uses an architecture popularized by Cosmos, called Heimdall. Unlike traditional proof-of-work blockchains, where any participant (miner) can validate transactions and produce blocks, Heimdall randomly chooses block producers randomly chosen from the proof-of-stake validators in the network.
This dual-consensus architecture allows for decentralization with a high transaction throughput, resulting in scalability of the network. Internal test networks have seen up to 7,000 transactions per second (TPS) on a single sidechain, which dwarfs the current throughput of the Ethernet mainnet of 14 TPS.
If you would like to learn more, the following video is very helpful, including illustrations to help explain how Polygon works.
Brief History of Polygon
Polygon launched in October 2017 under the name Matic by a team who contributed to a number of projects associated with the Ethereum ecosystem. The Polygon team implemented the first version of Plasma, a framework now used by the Polygon Network as proposed by the co-founder of Ethereum, Vitalik Buterin.
Polygon (MATIC) rebranded from the Matic Network to its current name in February 2021. During this time, the ERC-20 token saw a massive rise in price from the 1st of the year, catapulting from $0.0175 to $0.446 on March 12th, or a 2,548% increase in value. The local peak on March 12th coincided with a recent listing on Coinbase a couple days prior, March 10th.
During the later days of March and into April, a number of cryptocurrency projects announced they were moving, or were planning to add support for smart contract execution on the Polygon network, allowing their applications to scale beyond the current Ethereum main net limitations.
How to Buy Polygon
Is Polygon a Good Investment?
Like all other cryptocurrency investments, you should only invest what you are willing to lose. While the cryptocurrency markets are well on it’s way to becoming mainstream, there are still many known and unknown risks.
That said, as network congestion continues to plague users on layer 1 networks, layer 2 technologies like Polygon provide a great opportunity to participate in the ever expanding world of decentralized finance without paying absorbent transaction fees to miners.
Inventors should closely monitor the projects that bring their smart contract capabilities to the Polygon network, as well as investigate the growth associated with their participation. Additionally, investors should be aware of competing layer 2 solutions such as Polkadot and Binance Smart Chain as cryptocurrency traders continue to look for scalable solutions to their blockchain-based needs.
Frequently Asked Questions
Is Polygon a layer 1 or layer 2?
Polygon is a layer 2 network that runs on the Ethereum blockchain.
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