Ethereum (ETH) and Polkadot (DOT) are tokens that power their own chains. They provide users with the ability to collaborate on projects and process transactions, and their chains are both looking to improve the usability of crypto, though in different ways.
Both tokens have become wildly popular due to price increases and excitement surrounding their projects. Let’s break down the similarities and differences of the 2 tokens.
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What is Ethereum?
Ethereum looks to provide services on a large financial scale. Ethereum can be used to send transactions to anyone, anywhere. The development team is extremely focused on the scalability of this process, aiming to provide fast and efficient transactions between anyone with Ethereum 2.0. This can be useful in a variety of scenarios, ranging from supermarkets to investment banks.
What is Polkadot?
Polkadot is a multichain network that can process transactions across parallel chains or parachains. Over 100 chains are linked to the network, allowing for up to 1,000,000 transactions to be processed per second.
These chains can be very beneficial in a variety of scenarios. It furthers decentralization as you can communicate with people on a variety of other chains. One major application of DOT is the loan industry. Centrifuge is a project that is currently being built on the Polkadot network. Its goal is to connect real world currency with DeFi, providing loans of crypto and allowing you to use mortgages, invoices and other tokens as collateral. They are hoping to use Polkadot to spread the system across the blockchain.
Smart Contracts Explained
Smart contracts store data, run code and automate tasks on the blockchain. Once they are programmed and put onto the blockchain, they can facilitate transactions and make blockchain operations more efficient. The programs are often written in their own unique coding languages.
Anyone can deploy a smart contract on a public blockchain. You can also use portions of other smart contracts to help make your own. Actions taken by smart contracts cannot be reversed and smart contracts cannot be deleted. Smart contracts are very similar to vending machines in that they can operate automatically and only require one person to complete a task.
Ethereum and Polkadot both offer smart contracts on their respective chains. They both operate very similarly, but Polkadot is more creativity-driven while Ethereum aims to provide scalability.
Proof of Work vs. Proof of Stake
As of October 2021, the 2 tokens rely on different methods of verification. Polkadot utilizes a proof of stake system to verify transactions. A proof of stake system employs validators who lock up currency for the chance to verify transactions and receive block rewards.
Block rewards are a portion of transaction fees that go to the users verifying transactions. However, block rewards can only be given to one person. To combat this, users stake their funds into pools, allowing them to collectively have a high amount of currency staked and then share the rewards.
Users essentially prove that they have a stake in the coin to receive rewards. This system allows for individuals to lose control of their investment while it is staked. This helps prevent fraudulent activity.
Proof of work, on the other hand, is what Ethereum relies on to complete transactions. Proof of work utilizes computing power to verify transactions. Computers compete to solve difficult math problems to receive block rewards. The block rewards are split depending on the amount of math problems solved.
However, this system uses massive amounts of energy. Because of this, Ethereum announced a switch from proof of work to proof of stake, hoping to unveil “Ethereum 2.0” in 2022.
Ethereum vs. Polkadot Market Capitalization
Polkadot has a market capitalization of just under $27 billion and nearly 1 billion tokens in circulation. It saw highs of nearly $50 in May 2021 and lows of $10 in January 2021. It currently is the 9th most popular cryptocurrency, beating hugely hyped tokens such as Dogecoin and Litecoin.
Ethereum has a market capitalization of over $415 billion, pricing in at around $3,500 per coin. In the stock world, these both would be considered large-cap stocks based purely on market capitalization.
However, Ethereum’s market cap is nearly 16 times the size of Polkadot’s. Many large and institutional investors have placed lots of capital into Ethereum investments. Many of these investors strongly believe in the uses of Ethereum and its chain.
Polkadot also has high growth potential. Its emphasis on connectivity and efficiency can be exciting for many investors. If Polkadot gains the attention of institutional investors, this may increase its market cap significantly. Both tokens are wildly popular and provide strong growth potential.
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Interoperability is an idea that different blockchains can be linked. This is the idea that Polkadot has based its platform on. The project aims to connect different chains and improve the efficiency and scalability of blockchain networks.
The goal is to connect chains and make cross-chain transactions seamless. This is a shortcoming of Ethereum. The Ethereum network operates as an independent entity. It is very difficult to send data from the Ethereum chain to other chains. This takes away from the decentralization and scalability Ethereum can provide on a global scale.
Where to Buy Polkadot and Ethereum
Because Ethereum and Polkadot are so popular, they are available on most crypto exchanges. Some of the most efficient and fastest exchanges are Coinbase, eToro, Interactive Brokers (IBKR) and SoFi. Each platform offers their own incentives and drawbacks, so make sure to pick the exchange you are most comfortable with. If you’re looking for the lowest fees, then IBKR is a great choice.
What Has More Room to Grow: DOT or ETH?
In terms of market capitalization, DOT likely has more room to grow. It is currently trading between $30 and $40 with a market cap of around $34 billion, while ETH is trading between $3,000 and $4,000 with a market cap of over $415 billion.
However, this could be attributed to the age of Polkadot, as it has been trading for less than a year. While DOT has more room for a price increase, ETH has more applications in the real world, revolving around finance, gaming and art applications in 2021. Ethereum’s robust ecosystem may serve as a competitive advantage for the network, especially in the long run.
Current Cryptocurrency Prices
In early October 2021, the Biden administration outlined a plan to address the risk in the crypto sector. The regulation is mainly focused on stablecoins, a cryptocurrency that is backed by a non-digital asset (gold, USD.) The administration said that the coins could be in trouble if many investors quickly decided to cash out on their positions.
Despite the moves to potentially regulate crypto, the U.S. is still very focused on being the leader in digital assets. Many expect crypto to have a future impact and want the U.S. to be a global leader in the sector.
So, What’s Better: Polkadot or Ethereum?
Each token is unique in its own respect. Polkadot aims to connect chains, and Ethereum aims to provide a secure public blockchain for high value transactions. Ethereum is stronger in terms of adoption. It currently has many more practical uses.
Conversely, DOT may have more upside. It is a newer coin that has already seen major price leaps. This could be a sign of more to come. Either way, both tokens have the ability to change the future of crypto.