Blockchain technology is a hot topic in most industries and the general public. It helps trace and verify multi-step transactions that help make transactions secure. Blockchain technology also speeds up data transfer processing and reduces compliance costs.
Polkadot is a decentralised protocol and token that you can buy and sell through crypto exchanges. If you have never heard about Polkadot before, read on to know what is Polkadot?
Understanding Polkadot Blockchain
Polkadot is a protocol that allows unrelated blockchains to communicate with each other securely. It facilitates the flow of value and data between two blockchains.
For example, Polkadot can help Bitcoin and Ethereum blockchain communicate without an intermediary.
Furthermore, Polkadot is fast and scalable as it allows several parallel blockchains to take the load off the main blockchain.
Understanding Polkadot Token
The Polkadot has two main functions – It acts as a governance token, and the token holder has the right of say in the protocol’s future. Secondly, it is also used for staking, allowing the Polkadot network to verify the token and issue new DOT that can be bought and sold on crypto exchanges.
Now that you understand what is Polkadot, let’s learn how to get started with it.
How to Get Started With Polkadot?
Staking in refers to the process where you hold funds in your wallet to support the blockchain operations on the Polkadot network. In return, you receive rewards for your contribution. Polkadot uses the NPoS (Nominated Proof of Stake) protocol to secure its blockchain network. If you have DOT tokens and are ready to stake your tokens in validating transactions, you can do it by becoming a validator. A validator needs a 24×7 working node. Alternatively, you can nominate a validator and become a nominator.
Polkadot allows you to build wealth through rewards. A nominator can passively grow your assets by participating in the Ledger. First, the validators validate blocks of transactions for which they receive rewards. Then, the validator redistributes rewards to its nominators.
As per the latest report, the current yield of Polkadot is 10% for nominators minus the validator’s commission rate. It’s best to be careful while selecting validators, as rewards you receive depend on their actions.
For example, suppose your chosen validator does not behave while validating blockchain transactions. In that case, they are slashed out from the transactions, and you lose the DOT token that you would have received.
How to Start Building Your Wealth With Polkadot?
Firstly you need to create an online account on a leading crypto exchange. When you create an account, you gain access to all services provided by the crypto exchange, including staking. During staking, you have to transfer your DOT token from the crypto wallet to the Ledger or buy DOT tokens directly from the exchange and transfer it to the Ledger.
After the transactions are validated in the Ledger, you get your DOT tokens back along with rewards. There is a minimum limit on DOT tokens needed to work as nominators. Experts mention that you need at least 40 DOT tokens to nominate and participate in Polkadot blockchain transactions.
Nominators holding less than 40 DOT tokens can also work as nominators, but they might not get rewards due to their small staking amount. The awards are available for each 24 hours era, and you have to wait until the next era to receive your rewards. For example, if you functioned as a nominator for era G, you must wait until G+1 era to receive your rewards.
Knowing how Polkadot works is essential if you start investing in DOT tokens to build wealth.