April 13, 2022

How to Invest in Polkadot (DOT)

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Wondering if Polkadot is a good investment? Read on to learn whether this cryptocurrency and blockchain platform is right for you and your portfolio.

Polkadot, created by a co-founder of Ethereum, is a leading project in decentralized finance.

But is it a worthwhile investment?

In this article, review three unique things Polkadot has going for it. Plus, learn some of the risks involved in the project and the best exchanges for investing in Polkadot.

What is Polkadot (DOT)?

Polkadot is an open-source blockchain platform founded in 2016 by Gavin Wood, former co-founder and CTO of Ethereum. The Polkadot network uses a proof-of-stake consensus algorithm, and its native cryptocurrency is DOT.

The goal of Polkadot is to facilitate a completely decentralized web where users are in control - not corporations. Decentralization and security are fundamental to Polkadot's mission, and the platform wants to enable the trustless exchange of information with its Relay Chain.[1]

Polkadot is a unique blockchain platform due to its use of parachains and parathreads. These chains connect to the Polkadot Relay Chain and can also connect with other networks through bridges.

These bridges allow Polkadot's parachains and parathreads to connect and communicate with external networks like Ethereum and Bitcoin. Part of Polkadot's appeal is this cross-blockchain interoperability.

Why Invest in Polkadot (DOT)?

So why would an investor choose to invest in Polkadot over other cryptocurrencies? Here are three unique bullish factors working in Polkadot's favor.

1. A Leader and First-Mover in Web 3.0

Web3 or Web 3.0 is the next iteration of the World Wide Web. It will incorporate blockchain technology, decentralization, and token-based economics. Many investors are now looking for ways to position themselves for this next stage in the world of technology.

What few people know is that Polkadot's founder Gavin Wood actually coined the term Web 3.0 back in 2014. Wood also serves as President of the Web3 Foundation. It would be difficult to choose a leader with a better handle on Web 3.0 than Wood.

You can already see Polkadot's utility in the Web 3.0 ecosystem with the projects that are currently being built on the platform, including:

  • Smart Contract Chains
  • Oracle Chains (like Chainlink)
  • Data Curation Networks
  • Internet of Things Chains
  • File Storage Chains

2. High Energy Efficiency

There is controversy around Bitcoin's energy usage - especially after the recent report that every Bitcoin transaction consumes $100+ in electricity.[2] This is because Bitcoin operates via a "proof-of-work" mechanism, which results in high energy consumption mining.

Polkadot, on the other hand, consumes a small fraction of the energy used by conventional blockchains like Bitcoin. This is largely due to its "nominated proof-of-stake" (NPoS) model. So far, Polkadot actually has the lowest carbon footprint among proof-of-stake protocols analyzed in recent research.

With the rise of ESG investing (Environmental, Social, and Corporate Governance), Polkadot's higher energy efficiency may make it a more appealing blockchain investment for institutions seeking environmentally friendly assets.

3. User-driven Governance

With rapid inflation and debasement of currencies around the world now making global headlines, many individuals want more control over their monetary system and more control of their liquid assets.

Blockchains and cryptocurrencies like Polkadot utilize a sophisticated governance system where all stakeholders of the token have a voice. This ensures that Polkadot's value and development remain future-proof and community-driven.

How to Invest in Polkadot (DOT)

Looking to invest in Polkadot? You have no shortage of options when it comes to buying on an exchange. However, exchanges have varying levels of security and different fee structures. The following are our preferred exchanges when it comes to investing in Polkadot (DOT):

Crypto.com
DOT is available for direct purchase on Crypto.com. You can buy it in just four easy steps:

  1. Sign up for an Exchange account on their website.
  2. Verify your account by clicking "Connect to Exchange" in the email they send to you.
  3. Deposit fiat or cryptocurrency to fund your account.
  4. Visit the DOT page and click "Buy DOT."

Binance
Binance, the world's biggest crypto exchange (by volume) known for its low fees, offers DOT to purchase:

  1. Sign up for an account on Binance's website or app (Download: App Store, Google Play).
  2. Follow the instructions in their confirmation email to confirm your account.
  3. Visit DOT's page and click "Buy."

eToro
DOT is available for purchase on eToro, a popular exchange for its focus on social trading. Buying DOT on eToro is simple:

  1. Sign up for an account on the eToro website.
  2. Verify your account with a valid U.S. passport, driver's license, or state ID.
  3. Fund your account (minimum deposit is currently $200).
  4. Visit the DOT page and click "Trade."

What Does It Cost to Buy Polkadot (DOT)?

The cost of Polkadot is always subject to change since the blockchain is always open and running transactions, unlike traditional markets.

The key thing to remember when investing in DOT is that you're not just paying for the price of DOT itself. You also have to consider exchange fees.

There are several common fees to be aware of when investing in DOT:

  • Transaction Fees: These are often charged by the exchange to cover the cost of trading.

  • Debit / Credit Purchase Fee: Many exchanges charge more for these purchase methods than others.

  • Withdrawal Fees: Many exchanges charge you for withdrawals. Prices often vary depending on the withdrawal method.

  • Inactivity or Maintenance Fees: These are less common on exchanges, charged for account inactivity usually longer than 12 months.

  • Gas Fees: These are also fairly uncommon on exchanges; they're charged to pay for the cost of executing an operation on the Blockchain.

  • Spread: This is the difference between the sell and buy price, often used by "commission-free" exchanges as a way of profiting from a transaction without disclosing it. Some exchanges charge it on both buy and sell transactions, others only once. This cost is sometimes hidden, and may be unlisted by the exchange.

  • Deposit Fees: Exchanges typically offer a variety of deposit methods. Sometimes they're free, others may be extremely expensive. Common deposit methods include ACH Bank Transfer and Wire Transfer.

Remember, the fees for buying and selling DOT vary by exchange, so make sure to do your own due diligence on the fee structure of your chosen exchange platform.

Where to Store DOT Safely

After investing in DOT, you must decide whether to leave it stored on the exchange or move it to a wallet.

Storing crypto in exchanges is more liquid, but less secure.

  • If you expect to make a short-term buy and trade, you may prefer to leave your DOT on an exchange.
  • If you want more security or plan to hold for the long term, it's best to store DOT on a wallet.

Several popular wallets support DOT, including Atomic Wallet and Exodus Wallet.

Those who want maximum security often choose to store their DOT on an external, cold storage wallet like the Ledger Nano S or X.

Concerned about security? Read up on the safest crypto exchanges to find the best platform for buying and storing your assets.

Is Polkadot (DOT) Worth the Risk?

Every investment carries risk, and DOT is no exception. The biggest threat to Polkadot is its strong competitors, such as Cardano (ADA) and Solana (SOL).

Blockchain technology is still in the early days, so it's not easy to tell from here which of these projects will go on to successfully capture the most market share in the future.

That said, Polkadot's technology does appear positioned to compete effectively. Its Relay Chain now supports up to 1,000 transactions per second, and with up to 100 parachains attached to the Relay Chain, this allows a throughput of up to 100,000 transactions per second.

Bottom Line

DOT has the potential to be a major, energy-efficient blockchain platform well-positioned to create value in the competitive Web 3.0 landscape. However, the project still has risks in the form of growing competition and regulation.

It's up for investors to decide whether Polkadot (DOT) and its risk-reward profile deserve a place in their own investment portfolios.

References

Write to Corbin Buff at feedback@creditdonkey.com. Follow us on Twitter and Facebook for our latest posts.

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