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Polkadot (CCC:DOT-USD) is now the eight-largest cryptocurrency, according to the Coinmarketcap. Its market capitalization was $36.55 billion at $37.73 just after the market close on Sept. 14. Just a month and a half ago in late July, when I last wrote about the crypto, it was the ninth-largest crypto.
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DOT tokens are clearly gaining popularity, which is why Polkadot tokens are rising in price. For example, from a recent trough on July 19 of $10.98 per DOT token, it is now up 244% over the past month and a half. Moreover, year-to-date Polkadot is up 370% from $8.07 at the end of last year.
One reason for this may be Polkadot’s ability to enable smaller cryptos. Polkadot acts as a bridge across all other blockchains, including private, public and permissionless networks. It acts “like how HTML allows sites, browsers, and servers to interact with each other.”
Polkadot: Making DeFi Better
Polkadot was started in 2017 by one of the founders of Ethereum (CCC:ETH-USD), Dr. Gavin Wood, a British computer scientist. He built Polkadot to allow developers to create their own blockchain that can talk to other ledgers, forming a system of parachains. Polkadot does not support smart contracts on its main blockchain. But it can support small smart contract apps on its system of parachains.
One of the functions that he wants to help make more efficient is Defi (decentralized finance). Polkadot is gaining acceptance due to its ease of use and scalability with smart contracts. For example, a Defi app called Acala uses the DOT blockchain network. Acala signed a deal with a NY-based bank called Current. They are focused on the “unbanked” who lack access to traditional banking products.
This is not to say that Polkadot is trying to compete against Ethereum and its popular Ethereum Virtual machine (EVM). EVM is the software inside Ethereum’s blockchain that allows it to execute smart contract bytecode. Gavin Wood is developing a system of interconnected parachains that will assist the implementation of Ethereum and other crypto smart contracts.
The founders of Polkadot want to spur innovation and efficiency in developing decentralized applications and services. If Polkadot becomes successful in its efforts, DOT could continue to rise even higher over the next year.
Institutions Getting Behind the DOT Crypto
Recently a Chinese fund, LD Capital, announced that it was investing $10 million in a new Polkadot Ecosystem Fund. It is designed to provide capital support, development advisory, community building and marketing to early stage founders who believe in building Polkadot’s blockchain. LD Capital is one of China’s oldest venture capital firms focused on blockchain technology.
Earlier this year a crypto staking company, Moonstake, teamed up with a Singapore company RockX, to “accelerate the spread of Polkadot in the blockchain industry through staking.” Moonstake chose RockX because of its expertise in Polkadot blockchain. RockX wants to develop the Polkadot ecosystem. It not only runs its own Polkadot’s node but in September, launched a USD $20 five-year investment program.
Where This Leaves Investors in Polkadot
One major feature of DOT that has helped increase its appeal is its authentication system. Polkadot does not use proof-of-work, that other mining cryptos, including Ethereum presently use. Polkadot has a proof-of-stake system. This is where nominators back validators with their own money (i.e., DOT tokens) as a show of faith in the good behavior of the backed validator.
This system could be one subtle reason why the DOT tokens have been rising, along with Polkadot’s increasing push into Defi and smart contracts. Investors may want to get in on this, even though the crypto has risen a good bit already. This does not mean that it is done rising, especially if the founders of Polkadot are successful in their Defi focus.
On the date of publication, Mark R. Hake held a long position in Ethereum but not any other security mentioned in the article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.
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