TLDR
- This paper provides the first systematic, data-driven study about Polkadot, a cryptocurrency project launched in 2020, which adopts a unique design approach based on the principles of “sharding” and “multi-chains”.
- An in-depth discussion and analysis of the overall architecture of Polkadot are presented in this paper, including its implemented protocols, governance framework, and economic and security models. Several limitations and contradictions of Polkadot are unraveled. The highlighted assertions are then validated by an empirical analysis of data collected from the Polkadot ledger, starting from June 2020 until April 2022.
- The findings call for further research and analysis of Polkadot to propose viable solutions addressing the uncovered limitations.
- The methodology and outcomes of this study extend beyond Polkadot, being applicable to numerous scenarios related to cross-chain communications, Proof-of-Stake blockchains, or sharded environments.
Core Research Question
What are the main limitations and contradictions of Polkadot in terms of its architecture, protocols, and design?
Citation
H. Abbas, M. Caprolu and R. Di Pietro, “Analysis of Polkadot: Architecture, Internals, and Contradictions,” 2022 IEEE International Conference on Blockchain (Blockchain), 2022, pp. 61-70, doi: 10.1109/Blockchain55522.2022.00019. [2207.14128] Analysis of Polkadot: Architecture, Internals, and Contradictions
Background
- Proof-of-Stake (PoS): PoS is an alternative consensus mechanism to Proof-of-Work used to validate and append new blocks to the blockchain. In PoS systems, block authors are selected according to their stake (how much currency they hold) and not their computational capability, like in PoW.
- Sharded Blockchain: Sharding is a proposed solution for scalability that is based on the idea of breaking up the main blockchain into heterogeneous segments, where nodes validate a subset of transactions in parallel, rather than sequentially, hence increasing network throughput and the number of potential users.
- Interoperability: Blockchain interoperability allows different heterogeneous blockchain protocols to transfer arbitrary data types between each other in a trust-free environment (e.g., cross-asset exchange).
- Decentralization: In blockchain technology, decentralization refers to the transfer of control and decision-making from a (trusted) centralized entity to a (trustless) distributed network.
- On-Chain Governance: In this model, governance is a decentralized system that defines how network stakeholders manage and implement updates to the blockchain protocol.
Summary
- Real-world applications demand secure inter-communication, aka interoperability, between different blockchains without a third-party intermediary.
- Sharded blockchains aim to resolve scalability and throughput issues in traditional blockchains.
- Polkadot is a fully-sharded blockchain. Each shard is called a “parachain” which connects to the Relay Chain, the main hub of the network. Parachains are heterogenous blockchains that can be customized per project needs; for example, to host smart contracts or bridges.
- Polkadot adopts a variation of the classic PoS, namely the Nominated Proof-of-Stake (NPoS). The scheme is referred to as “nominated” since validators are backed up by nominators who lock their DOT currency as collateral in exchange for staking rewards. While validators are responsible for authoring and verifying new blocks on the Relay Chain, collators are responsible for maintaining parachains.
- Polkadot uses a hybrid consensus mechanism where finality and block production are two isolated processes.
- Polkadot’s governance consists of three entities: public referenda, council, and technical committee. In theory, any DOT holder has the power to participate in the democracy scheme.
- The Relay Chain offers shared security to the network, a necessary element of cross-chain communication. To revert a parachain block, an attacker needs to revert the entire Polkadot system, including the Relay Chain block and all other parachains.
- Validators are elected into the active set through the phragmen election with two goals: distributing the stake evenly across validators; and, selecting validators based on stake-weighted votes.
- There are several limitations found in Polkadot’s design and protocols, which are related to the following five aspects: (1) validators; (2) nominators; (3) governance; (4) parachains; and, (5) validator elections.
- The highlighted limitations greatly impact the decentralization, inclusiveness, scalability, and hence overall security of the network.
- Future work recommendations include further investigation of the network’s statistical and economical properties, and using network science to understand network characteristics.
Method
- This paper presents the first systematic data-driven study to investigate the Polkadot network, detailing its architecture and identifying several of its limitations and design contradictions.
- In our work, we referred to the available sources of information about Polkadot—all from the gray literature lacking scientific studies—which included: the white paper, light paper, overview paper, Polkadot Wiki, Polkadot network blogs, block explorers, and source code.
- After studying the architecture of Polkadot, we highlighted several limitations present in its protocols and design. To validate our claims and observations, we performed an empirical analysis of the blockchain data to obtain quantifiable evidence.
- To collect the data, we set up and fully synced a Polkadot full archive node on an Ubuntu 20.04 LTS virtual machine. We then queried and parsed the data from the node’s storage into a MySQL database using a Python script. From the data, we investigated the claims related to the NPoS economic security, which included validators’ commission preferences and daily minimum stake from June 2020 to April 2022.
Results
- The paper explores several limitations found in Polkadot’s design and protocols, which are related to the following five aspects: (1) validators; (2) nominators; (3) governance; (4) parachains; and, (5) validator elections.
- Limit #1: Difficulties in becoming a validator. Polkadot supports a limited number of active validators per day, where currently the limit is set to 297. Validators must compete against one another to be elected into the active set and those with the highest stake (self-stake and nominators stake combined) win. This strategy leads to a high minimum stake requirement, making it extremely challenging for new joiners to participate and compete as validators.
- As seen in Figure 2 below, our quantitative analysis identified that the minimum validator stake varies with the number of allowed validators (n). The minimum stake requirement declined as the number of active validators increased, yet the amount is still prohibitive. For instance, in April 2022, the minimum validator stake was around 1.8 million DOT (~32.4 million USD). Nevertheless, It is unknown whether the curve would continue to decrease, since other unpredictable factors, such as competition, impact the validator selection. As shown by the initial stages (for n < 197), the required stake was negligible, possibly since there was much less competition and traction in becoming a validator at that time.
- Limit #2: Problems with becoming a nominator. Just like validators, the nominator set is restricted in size to mitigate network instability problems. Not only that, validators may charge variable commission rates that can be changed without prior notice. Full (100%) commission means that the validator retains all earned block rewards to himself; thus, denying his eligible nominators (top 256 based on bonded stake) the monetary incentives while also subjecting them (including non-eligible ones) to a heightened risk of economic losses (i.e., slashing) if the validator misbehaves.
- As shown in the following figure (Figure 3), the daily percentage of active validators that set full commission is increasing over time—having just passed 60%. According to our observations, such validators typically reserve the minimum self-stake (1 DOT) and accumulate the required backing from a few nominator accounts. Due to these unfavorable conditions (i.e., lack of monetary incentive and high risk of painful slashing), we hypothesize that said nominator accounts also belong to their 100%-commissioned validator who most likely adopts the cited strategy to discourage others from participating. The aforementioned alarming pattern compromises the true intended benefits of the NPoS economic scheme, namely: network inclusiveness, decentralization, and enhanced security.
- Limit #3: Problems with participating in governance. The democracy and decentralization of the governance system are questionable for the following reasons. Both organizations that the technical committee constitutes are run by Gavin Wood, who also happens to be a long-standing member of the council and its prime voter, suggesting that Gavin Wood has a direct influence on governance decisions. Not only that, the council is restricted to 13 members only. Just like validators, council members are elected according to their stake. The competition enforces a high minimum stake requirement restricting the participation in the protocol to a few entities with considerable funds. For instance, in April 2022, the minimum stake value was around 9.5 million DOT, equivalent to 171 million USD.
- Limit #4: Problems with becoming a parachain. The Polkadot network will support only 100 parachains in total. The scarcity of parachain slots is expected to drive the cost of leasing slots (starting from 3 months up to two years max) to prohibitive limits. For example, in December 2021, the least amount of stake to win the first set of auctions was around 9.7 million DOT (~175 million USD).
- Limit #5: Transparency problems with the validator elections. The gray literature does not provide comprehensive or clear reasoning behind some design decisions, which brings forth several security-related concerns. For example, are election results verified by off-chain and on-chain workers? How are parachain validators assigned and rotated?
- Overall, Polkadot sets limits on various parameters—as shown in Table I provided below—to balance the performance and the security of the system. However, these bounds effectively restrict the actual scalability of the network.
Discussion and Key Takeaways
- Polkadot was developed to address some major shortcomings of existing blockchain technologies. However, the introduced solutions do not clearly highlight how those limits are actually overcome. In particular, the concerns remain as per:
- Scalability: Polkadot sets limits on various parameters, more notably on the number of parachains and nominators, which effectively restrict the actual scalability of the network.
- Decentralization and Network Inclusiveness: The strict limits enforced on nominators and validators, in addition to the seemingly not-so-democratic governance, eventually will lead to the exclusion of regular users from network maintenance and governance.
- Miner Pools: Polkadot claims that its NPoS scheme helps to prevent the formation of validator pools, since a large number of nominators back a limited number of validators. However, since a majority of validators charge 100% commission, retaining rewards to themselves, in effect a monopoly is encouraged, thus violating the rules of economic incentivization and security.
- Polkadot is a promising project yet it is similar to other PoS networks in terms of the “rich get richer” and heavy centralization of power amongst the top few who own the most DOT (i.e., “whales” and exchanges centers):
- “Whales” and exchange centers are a typical phenomenon in traditional PoS systems. Due to the size of their holdings, whales have the potential to unfairly influence network decisions and destabilize the system.
Implications and Follow-Ups
- Our results call for in-depth research and analysis of the architecture and ledger of Polkadot to propose viable solutions and mitigate the effects concerning the uncovered limitations.
- Future works include the use of network science and graph theory to characterize the complex topology and user interaction of the Polkadot network.
Applicability
- The novel architecture and design strategy of Polkadot as a multi-chain or sharded blockchain has promising implications for laying the foundation for a truly decentralized Internet and a new era for scalable and interoperable systems. Our study provides researchers interested in the field with a solid knowledge base to understand Polkadot, potentially inspiring them to investigate further the pitfalls of Polkadot, and other similar emerging blockchains, in terms of performance, security, and network aspects.
- Investors continue to be lured by the impressive features that the Polkadot project promises, such as scalability, interoperability, and customizability, where their collective contributions amassed around 20 billion USD at peak market capitalization. Despite the network’s success and reputation, Polkadot was found to exhibit various contradictions, that could severely affect the overall security of the network, in terms of how it is presented to the general public versus how it is implemented.
- The study approach and outcomes are applicable within numerous scenarios pertaining parachain projects, cross-chain communication protocols, or sharded environments.
Disclosure: This publication was partially supported by the Qatar National Research Fund (QNRF), a member of The Qatar Foundation, through the awards [GSRA7-2-0527-20101] and [NPRP-S-11-0109-180242]. The information and views set out in this publication are those of the authors only and do not necessarily reflect the official opinion of the QNRF. None of the authors or the sponsors of the research awards are affiliated with Polkadot in any way.