Blog > Technology, Industry > Articles
Polkadot Crowdloans Can Change The Way You Earn Crypto
Table of Contents
Blockchain needs no introduction at this point. We’re all familiar with decentralization, secure transactions and all that good stuff.
But have you ever thought of running your own blockchain?
Polkadot has a way for you to do that and it’s called a parachain. To run a parachain, Polkadot users can pitch in and win it from an auction through crowdloans.
A parachain is connected to its main blockchain network, which is Polkadot in this case. While it does have to eventually answer to Polkadot for verification purposes, a parachain is a self-governing network. Each of these networks has its own set of rules and a native token, depending on the project that runs it.
The independence of a parachain goes beyond just having its own space. For example, activities on it will never reach other networks as they’re all like parallel lines running alongside each other infinitely.
In other words, the tenants of a Polkadot parachain decide what goes on and how things work on it. We say tenants because your stay on the network is temporary, but let’s get to that in a bit.
For now, you can make it happen by participating in a Polkadot crowdloan, which is actually easier to understand than how it sounds.
Earn Your Spot on a Parachain Through Crowdloans
To start running your own parachain, you need a reason for it. This reason is usually an aspiring next-big-thing project. One that involves cryptocurrency, believable promises, and glorious campaigns.
While it doesn’t have to stand next to Axie Infinity or Shiba Inu, your project needs innovation and a certain level of profitability for people to contribute to its crowdloan.
For example, you want to create a crypto-based play-to-earn game with NFT friendly features.
A game like this needs its own blockchain and token, but you just don’t have the heart or the resources to create it.
You go to Polkadot and there is a parachain available. So, you gather your marketing team and start a campaign in the name of the project and open a crowdloan.
Parachains aren’t something we can produce on a whim, so project owners have to bid for them at auctions when one is available.
To bid for a parachain, you need DOT, the native currency on Polkadot. If people are interested in what your project offers, they may contribute DOT tokens they own and that would be the funding for the auction.
Usually, a project would offer its own native cryptocurrency in exchange for contribution in DOT. If there is an NFTs compatibility, like exclusive in-game items, the developers may promise to deliver some to top contributors.
Once the project has a decent amount of tokens, Polkadot crowdloan protocol will start making bids on your behalf. While incentive is important to a project’s bidding power, the auction is held in the Candle style.
For those who aren’t familiar with the concept, a candle auction has a time limit, but the participants will never know when it ends. In other words, you need to make serious bids in the beginning as it may be your last bid.
If your project wins, the parachain is yours to use. Users who supported the crowdloan will also gain access to it and begin earning or playing or whatever it is the project provides.
Why Should Anyone Participate in Polkadot Crowdloan?
Same reason anyone does anything with crypto - to earn. Depending on the project you support, like an NFTs game mentioned above, the rewards you earn will be relevant to that network and that network alone.
Sounds limiting, but remember even though a parachain is independent, its currency is linked to DOT. So, whatever you earned from the project will eventually convert to Polkadot tokens if you so choose.
Also, the DOT tokens locked into the network during the auction will return to their respective owners at the end of the parachain lease. Each lease lasts about 96 weeks but there's no sign of this being a permanent time frame.
The Polkadot Mechanics
While each network on the Polkadot blockchain is independent of each other, the interoperability of Polkadot allows them to interact at some point in the future.
The foundation of Polkadot intends to solve some of the longest-running issues of blockchain, including forks and scalability.
Since each parachain is its own protocol, transactions don’t need to rely on the main chain’s resources and process much faster.
On a regular blockchain like bitcoin, any changes in the network will result in a fork. This is basically a copy of the blockchain but with all the updates either to the coding or software upgrades. Developers can also create new cryptocurrency by attaching a fork to the main blockchain. Think Bitcoin Cash or Bitcoin Gold.
Forks are no longer necessary on Polkadot parachains. Updates and features, even disputes are added and resolved on the same network. This helps reduce complications for users and things to flow more smoothly.
How to Contribute to Polkadot Crowdloans
To start your crowdloan journey, download the Polkadot dashboard on the official website.
Find Parachains under the Network tab.
Here, you’ll see all the projects currently accepting contribution. Choose a project you like and submit whatever amount of DOT tokens you think reasonable.
Make sure to do thorough research on the project as well as its developers before committing to it as you’d have to wait until the auction concludes to get your tokens back.
Also, when locking in your tokens, do so by increments of 1.0. If you have less than 1 DOT when crowdloan closes, the network will delete it.
For example, if you have 3.5 DOT and contributed 3 of them to a project, the remaining 0.5 will be gone as well once crowdloan closes.
Did You Know?
You can purchase DOT tokens on Liquid. It’s more secure than getting it from DEX. So, head over to our platform, grab a couple and become part of an amazing network.
If you want to invest in cryptocurrency and don't know where to start - join Liquid! Founded in 2014, Liquid is one of the world's largest cryptocurrency-fiat exchange platforms serving millions of customers worldwide.