Parachains are sovereign blockchains running in parallel within the Polkadot and Kusama networks. Polkadot and its canary network Kusama are built with the same design, consisting of a central Relay Chain that coordinates the system and provides security for up to 100 parachains.
Parachains can be custom built to serve any use case. Conceived by Gavin Wood, co-founder and former CTO of Ethereum, parachains bring the future of the internet to a whole new level, allowing the scalability, interoperability, and security needed to really turn the promise of blockchain into the next generation of the internet, Web 3.0.
What is the difference between a parachain and a smart contract?
Smart Contracts are small pieces of software that run on a dedicated blockchain like Ethereum. As they all run on the same blockchain, competing for the computing resources of this blockchain, this leads to congestion, long execution times and unpredictable running costs. This can be considered as one of the major blockers for real-world adoption of blockchain systems. In contrast, parachains are individual and independent blockchains designed for a single purpose. Each blockchain serves one purpose and has almost unlimited capacity for its clients. The individual parachains are able to communicate with each other, building a high-performing network of blockchains rather than a single blockchain trying to solve all problems on one virtual computer. In this way, the Polkadot ecosystem works against chain maximalism.
How do parachains work?
Each parachain can be built with its own consensus and governance. This means it can be permissioned or permissionless, have its own tokens and be optimised to suit individual requirements. Polkadot places no restrictions over what parachains can do except that they must be able to generate their own blocks for the Relay Chain.
These blocks are verified by validators in the system that have been assigned to the parachain. After verification, the Relay Chain returns a “finalised block”.
The majority of parachains are built using Substrate, a modular framework that allows blockchains to be built to specification within hours. Since the Relay Chain is built on Substrate, any Substrate-based blockchain can easily connect to the network.
Becoming a Parachain
A blockchain can become a parachain by obtaining a “lease” at auction. This lease requires bidding in KSM (the native token of Kusama) or DOT (the native token of Polkadot). Projects may either self-finance or raise funds with a crowdloan. The tokens bid are locked for the duration of the lease, which can be up to two years, and are returned at the end of the lease period. Parachains will launch on Kusama first, with auctions there expected to begin soon.
Parathreads are blockchains that connect to Polkadot using a pay-as-you-go model. Projects may switch between being parachains and parathreads depending on their needs and on the availability of parachain slots on the Relay Chain. For example, a weather oracle might only need to update weather once per hour, not every six seconds.
Why are parachains such a groundbreaker?
The design of the Polkadot ecosystem enables parachains and parathreads to interoperate and communicate with each other, allowing the exchange of data and assets, and to connect to external chains outside the network, such as Bitcoin or Ethereum, using bridges. Bridges are also being built to connect Polkadot and Kusama. This creates the kind of interoperable network needed for real-world use and expands the services available. A service on one blockchain, can be easily used by other blockchains within or connected to the system.
Additionally, the shared security provided by the Relay Chain means that blockchain builders have reduced requirements and costs to secure their chain. As the parachains are processing transactions in parallel, when fully operational the system is predicted to be able to process up to 1'000'000 transactions/second.
The current design of the system allows up to 100 parachains to connect to the Relay Chain. This does not mean that only 100 applications will be enabled on the system, as one parachain may host several applications, and applications may also be hosted on the parathreads.
Parachain Use Cases
The Polkadot ecosystem is continually growing with a huge diversity of use cases, including:
- Decentralised Finance (DeFi)
- Decentralised Data Storage
- Internet of Things
- Identity Verification
- Non-fungible tokens (NFTs)
- Digital Wallets
The Relay Chain of the Polkadot Network has been live since May 2020. Parachains are currently being tested on the Rococo testnet and it is anticipated that the first parachain auctions will begin in the first half of 2021.