What Is Polygon (Matic) And How Does It Work?

2021/07/05 08:23:57

Polygon was formerly known as the Matic Network and was rebranded as Polygon in February this year. Polygon is an Ethereum Layer-2 scaling solution and an interoperable blockchain scaling framework for building independent Ethereum-compatible blockchains, following the similar model of Polkadot and Cosmos.

Ethereum took over the crypto world by storm, and Ethereum-based solutions make up most of the crypto ecosystem we see today; Defi, NFTs, DEX, you name it. To give you some perspective, there are 3,549 DApps within the crypto ecosystem, and 79.2% of these DApps (2,812) are deployed on Ethereum with 65.36K daily active users doing 163.93K transactions every single day.

However, the total number of new DApps deployed on Ethereum is declining rapidly, mainly due to the age-old scalability concerns and high network congestion. Ethereum is the single biggest smart contract platform and has a lot of users due to the 'network effect', which creates a hurdle for the developers looking to explore newer and scalable smart contract platforms.

Declining number of new DApps on Ethereum | Source: State of the DApps

Moreover, the Ethereum Virtual Machine (EVM) is not suitable to create large-scale and complex decentralized applications on the mainnet because it increases network congestion and results in higher gas fees. Polygon is taking a unique approach towards solving all of these problems with a scalable Layer-2 solution and a framework to create Ethereum-compatible blockchains, where all the computations are offloaded from the mainnet, which increases network capacity and transaction throughput.

What is Polygon?

Polygon is an Ethereum Layer-2 scaling solution that offloads all the computations from the main chain by utilizing sidechains and ensuring asset security using an account-based variant of MoreVP (More Viable Plasma), and a decentralized network of Proof-of-Stake (PoS) validators.

More Viable Plasma (MoreVP) extends the base Plasma MVP (Minimal Viable Plasma) and removes the need for confirmation signatures. MoreVP uses UTXO-based (Unspent Transaction Output) transactions, provides fungibility, and has Exit Priorities that prevent bad actors from stealing user funds by ensuring that all the parties involved validate transactions correctly.

Polygon isn't just a Layer-2 scaling solution for Ethereum. It's also a framework that you can use to launch Ethereum compatible blockchains, supporting a multi-chain Ethereum ecosystem. These blockchains benefit from Polygon's scalable consensus algorithms, custom WASM execution environments, and a higher level of interoperability with native support for ‘arbitrary message passing’ such as contract calls, tokens, etc.

We do have other interoperability-focused blockchains like Polkadot and Cosmos, but they have one limitation; they want to leverage the thriving Ethereum ecosystem, but they only rely on cross-chain bridges and can't communicate with other protocols that are doing the same. Polygon reduces this ecosystem fragmentation by connecting these protocols together, creating a multi-chain Ethereum compatible ecosystem.

Polygon connects Ethereum Compatible Blockchains | Source: Polygon

Polygon Consensus And Bridging

Polygon uses a Proof-of-Stake (PoS) consensus algorithm that relies on a set of validators (operators) to secure the network. To participate in the consensus process, these validators run full nodes, produce blocks, validate the transactions, and commit checkpoints on the Ethereum Mainnet. Each validator is required to stake MATIC tokens (Polygon's native tokens) in ‘staking management contracts’ that reside on the Ethereum mainnet.

If users want to move from Ethereum to Polygon, they are required to lock their funds in an Ethereum contract, and the corresponding tokens are then minted on Polygon. This is called bridging, and the process is run by PoS validators. To withdraw funds from Polygon back to Ethereum, the tokens are burnt on the Polygon chain (governed by PoS validators). The proof of this burn is submitted to Ethereum, which then unlocks the original tokens.

However, there is one drawback to Polygon's variant of the Proof-of-Stake consensus algorithm. All the funds on the chain are secure if 2/3rd of the validators are honest. Otherwise, the chain can stop, and re-ordering can happen. To restart the chain from an earlier state, a social consensus will then be required.

Wrapping Up

Polygon is undoubtedly among the most promising platforms aiming to solve the underlying scalability issues of Ethereum. What's unique about Polygon is that it is not just limited to a Layer-2 protocol but provides a framework to build and connect Ethereum compatible blockchains to reduce ecosystem fragmentation.

MATIC is the native token of the Polygon network, and the Ethereum compatible blockchains built on top of the Polygon network can have their own currency and economics, but they will have to rely on the security provided by Polygon PoS that requires MATIC tokens.

The recent addition of a framework approach on top of being a Layer-2 solution will significantly enhance the utility of the MATIC tokens across the thriving Polygon ecosystem. Many promising players are already building on Polygon, including Aave, Curve Finance, SushiSwap, OpenSea, Decentraland, and many more.