Research Summary: Analysis of Polkadot: Architecture, Internals, and Contradictions

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.

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Polkadot claims to be the most environmentally friendly blockchain – what do you make of their claim? And do given the costs you mention, what is your overall opinion of Polkadot – is there a place for it in a multichain world?

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@haabbas, the Ethereum merge, which is around the corner, comes with a promise of introducing Sharding based on the complete migration to Proof of Stake consensus mechanism. Sharding can improve the scalability of traditional blockchains. Like you stated, Polkadot runs on the principles of Sharding. How do you think that the introduction of Sharding in Ethereum would affect the Polkadot Blockchain?

Again, as far as I can remember, Polkadot has been performing well. Do you know any practical cases in which the unraveled contradictions have affected the ecosystem output in the past?

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Hi @jmcgirk,

Great questions! Thank you so much for your input.

For your first question:

As opposed to conventional PoW blockchains, PoS-based blockchains are most likely going to have a lower carbon footprint, i.e., they are more environmentally friendly, since less computational power is needed to produce block hashes like in Bitcoin. Amongst existing PoS-blockchains, Polkadot was indeed found to be the most environmentally friendly (Report link: https://www.carbon-ratings.com/dl/pos-report-2022). However, I believe that this is mainly because Polkadot limits its validator set to 297 validators. But I’d like to point out that eventually the network will host 1000 validators like its Canary network, Kusama. I am interested to know what the carbon footprint for Kusama is; it would then provide a fairer comparison. Nonetheless, as pointed out in the summary above, Polkadot sets these limits to strike a balance between network performance and security; however, these restrictions have effectively limited the actual scalability of the network. It is all a big trade-off.

For your second question:
Definitely, Polkadot is a promising project but of course it comes with its limitations. While it adopts a phased-roll out deployment plan, we just have to wait and see how the network evolves and what other breakthroughs it can bring in the future.

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Hi @Ulysses,

Thank you so much for your questions.

I invite you to watch this video (Polkadot Behind the Code, Episode 1: The Idea, featuring Gavin Wood - YouTube) by Dr. Gavin Wood, founder of Polkadot and co-founder of Ethereum. Polkadot was originally designed to complement the new Ethereum (previously known as Ethereum 2.0); however, the full Ethereum merge was only 3 days ago! As far as I know, Ethereum has no restrictions on the number of validators so far, and the stake requirement is only 32 ETH per validator. Indeed, this might encourage higher participation to the Ethereum network.

Indeed, Polkadot has been remarkably performing well in terms of market capitalization. One of the main contradictions I would like to highlight is related to the NPoS scheme, where as originally stated in the white paper, the number of nominators that can participate in the network should have been unlimited. However, in May 2021, the Polkadot runtime crashed after the network reached about 30,000 nominators (and 297 validators). This is due to how the validators-nominators election mapping is stored on the blockchain. Since then, the number of nominators has been limited (See: Polkadot/Substrate Portal) which contradicts with the principles of NPoS security. On Kusama (Polkadot’s canary), the nominators limit is even much lower with 1000 active validator.

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Thanks for this @haabbas it’s really an interesting topic. I can see justice has been done here by some contributors though I’d like to do some toppings.
Firstly I’d like to expatiate on what polkadot is, it’s history and some of my personal thought on risks of polkadot and I’m open to further explanations and corrections if they’re not correct.

WHAT IS POLKADOT & IT’S HISTORY

One of the co-founders of Ethereum and a co-creator of a cto is the person behind polkadot, the founder of polka dots. Because polkadot is a large company and intends to address some of the problems associated with communicating it as well as The important issue is that it is the decentralized center of the polka dots network that has now had a significant security compromise. Although this is not directly related to polkadot itself, it is an Australian stable coin that is based around the polkadot network.

The Polkadot Relay Chain intends to give its customers access to all the decentralized financial capabilities while also encouraging them to take use of its user-friendly design. It is a centerpiece project for the Swiss nonprofit web3 Foundation. When Polkadot’s successful ICO floated in 2017, it did so to great success and raised more than USD 140 million by selling more than 10 million DOT supply.

$DOT was set at 30 cents during that time, and the users’ purchasing trend caused it to reach a resistance level of $6 at the end of August 2020. However, it later declined to $4.15 in the middle of October, but after the pandemic it began a new climb and rose back to $5.88 and hasn’t looked back since.
Recent events include the fourth auction in the auction system, which was won by parallel finance, and the recently announced launch of Polkadot’s anticipated parachain. Provides users with a variety of solutions by integrating multiple blockchains onto a single, cohesive network. This groundbreaking project, carried out using peer-to-peer technology, has many advantages to offer, including the shared, highly unstable security of the central chain and parachain as well as the impeccable governance.
The enhanced infrastructure of polkadot allows abundant functionalities of staking and operability.

Polkadot native token ($DOT) intend 3 main purposes:

  1. Governance over the network
  2. Staking and
  3. bonding

Some risks I feel are attached to Polkadot are

(A). Limited slots on Powerchain :

Fewer than 100 slots are set aside for power threads and other dedicated ridges on the relay chain, which is limited by design to create the illusion of artificial scarcity. As a result, polkadot is unable to integrate all blockchain projects into a single network, and Parachain, Parathreads, and Bridges must post a sizable amount of Dots as a bond in order to access the polkadot network. But it’s impossible to predict how long this business model will last.

(B). Inflation :

Although some blame the United States Treasury for inflation, which ranges from 1% to 3%, everyone wants to make investments because they know that fiat currencies depreciate. Polkadot inflation, on the other hand, has an undefined inflation rate that varies between 8 and 10% and has a number of serious negative effects. We know that a validator can only award up to 128 nominators, so there could only be 1000 validators. As a result, 128,000 people worldwide would be eligible to receive staking incentives while others would receive nothing, which would cause the value of all DOT holders to decline due to inflation. A Parachain is required to deposit a bond for a duration of DOT for a period of two years at intervals of six months. They would lose 18–20% of the DOT’s dollar value due to inflation. The Polkadot ecosystem depends on money; people with more money (DOT) have total power over everything on this blockchain, which may ultimately be this Cryptocurrency’s collapse.
Though comparing all facts, I feel Polkadot is a good project and good to invest in because it’s been doing just fine over the years, and when talking about the inflation rate, an 8-10% inflation rate level shouldn’t be a big deal to beat with pools yielding over 100%.

Thank you @haabbas for your input in this research summary.
I think we must first need to understand the idea of programmable Blockchain. They are ecosystems where applications and other crytocurrencies can be built.

For me I see polkadot as potential
"Ethereum killer "

Here are my reasons;

A. Polkadot is not only faster and more scalable, it’s also designed to work with other networks. This would allow developers to build applications that used both the Ethereum and the Bitcoin Blockchain

B. Polkadot’s parachains reduce congestion. Polkadot uses parachains to solve these problems.

C. Polkadot is an exciting project with a lot of potential. However, there are several competing cryptocurrencies in this space. And so far, few cryptocurrencies have been able to touch Ethereum. If it can upgrade to Ethereum 2.0 before too many developers move to other blockchains, we can expect it to continue to dominate. My opinion!

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@haabbas, that was a nice research summary on Polkadot.
Polkadot is an excellent project with a competent staff and significant adoption, there is no doubt about it. As with other blockchain initiatives, there are restrictions, trade-offs, and problems to be solved. However,i still believe that it is still very early in this field, and solutions to some of these problems are being developed. The introduction of Polkadot is one of the things that considerably improves the present status of blockchain and moves it closer to widespread use. It’s not a zero-sum game, though; some use cases will be better suited to some platforms than others, so there won’t be a single platform to govern them all.

I have this belief that Blockchain will totally transform several businesses as well as the Internet. The more initiatives developing and providing ground-breaking technologies, the better, since they will all learn from one another and encourage one another to achieve that objective sooner. It will be quite intriguing to see how things develop because the current market represents a tiny fraction of what’s to come in terms of value and acceptance.

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