A parachain is a type of independent blockchain that is connected to a larger blockchain network, typically the Polkadot network. Unlike traditional blockchains such as Bitcoin and Ethereum, which are siloed and can’t communicate with each other natively, a parachain operates in parallel with other parachains and is able to communicate with them seamlessly. Parachains also use Polkadot for shared consensus and security.
Kusama and Polkadot Parachains Explained
Polkadot and Kusama are optimized for scalability by hosting specialized blockchains called parachains to communicate and operate in a secure, trust-free environment. Polkadot and Kusama blockchain platforms each have their own relay chain at the center of their structure, coordinating a system of parachains built on it.
Parachains offer a secure, trust-free environment for communication and operation and are optimized for scalability. The relay chain performs only a few transaction types, including governance mechanisms, parachains auctions, and consensus. Other work, such as supporting smart contracts, is completed by the connected parachains.
Parachains are blockchains connected to the relay chain of Polkadot or Kusama. They are application-specific data structures that validate transactions using the relay chain, an underlying structure that supports secure communication between all connected blockchains, also known as parachains. A parachain is like other blockchains like Ethereum but is connected to the shared security model of Polkadot or Kusama. Parachains can have a variety of use cases.
They run parallel transactions, which is where they get their name. Unlike other scaling solutions like subnets and shards, which are smaller parts split from the larger network, Parachains are heterogeneous — meaning they stand alone and have independent structures and functions.
Features and Functionalities of Parachains
Parachains are considered “layer ones” so they can host smart contracts, which Polkadot itself cannot do. DEXes, launchpads, DeFi dApps, wallets, oracle integrations, APIs, bridges, and more can be built as or on L1 parachains.
- Layer 1 blockchains connected to either Kusama or Polkadot
- Unique or specialized for their use case (smart contract platform, Defi, scaling, gaming, NFTs, etc.)
- Natively interoperate with other chains connected to the same relay chain
- Can host smart contracts
- Produce blocks
- Have their validators, governance structures, and native tokens
An Ecosystem of Connected Blockchains
Polkadot is a network of connected blockchains that share security. An ecosystem of uniquely functioning parachains is created through a shared framework that allows for simple communication. Blockchains functioning independently experience challenges sharing information with or transferring tokens and data to and from other chains.
Still, parachains enjoy rich, streamlined interactions thanks to their connection to the relay chain and Polkadot’s cross-consensus messaging (XCM). Parachains are connected yet remain independent with their own set of validators, native tokens, and governance structures. Each parachain can focus on a specific and original use case yet interoperate natively. For this reason, parachains can sometimes be considered “appchains” or application-specific chains.
Parachains are exclusive to the Polkadot and Kusama networks. They are heterogeneous layer-one blockchains unique to a specific project, whether public, permissionless networks, private consortium chains, or other Web3 technologies.
Moonriver and Moonbeam Parachains
Moonriver is a parachain on Kusama, and Moonbeam is a parachain on Polkadot. Moonriver launched first, followed by Moonbeam about a year later. Both parachains are smart contract platforms and use Moonbase Alpha as a testnet.
Moonriver is a companion network to Moonbeam, providing a permanently incentivized canary network. This means that a new code is shipped to Moonriver after Moonbase Alpha, where it is tested under real-world conditions. Once proven, the same code can be shipped to Moonbeam on Polkadot.
Moonbeam is a parachain optimized to launch projects with smart contracts and applications that use the Ethereum technology stack. It also allows developers to design smart contracts that can access the functionality of many remote blockchains through integrated cross-chain messaging.
Moonbeam supports the next generation of web3 applications to access blockchains by integrating general message protocols outside Polkadot and native functions like XCM and XCMP (cross-chain message passing). As parachains, both Moonriver and Moonbeam share in the security of their respective relay chains and enjoy the interoperability and community that comes with it.
What is the Difference Between Kusama and Polkadot Parachains?
The Polkadot relay chain has its own set of parachains, and so does the Kusama relay chain. The Substrate structure of parachains and both relay chains use the same format. Some projects launch two separate parachains, one on Kusama and one on Polkadot, but this is optional as the two ecosystems are separate.
Kusama was built as a testing ground for Polkadot, so new technology often launches first. Parachains can also migrate from Kusama to Polkadot or launch directly on Polkadot. Thanks to Kusama and Polkadot’s innovative structure, parachains are flexible and work in concert to strengthen the ecosystem.
Because parachains can be application-specific, some parachains serve as smart contract platforms like Moonbeam, while others provide other services or common-good services to the entire network.
Storage and Privacy parachains could provide services to other parachains, all from the safety of the Kusama or Polkadot ecosystem. It is possible that Kusama and Polkadot and their respective parachains also connect, but this has yet to happen so far.
What are the Benefits of Being A Parachain?
There are many reasons why a project would want to launch as a parachain rather than a lone blockchain, including scalability, interoperability, security, and more. Parachains provide a dedicated block space where the environment can be managed to meet the community’s needs and the project’s use case with low-level customizability.
Parachains can optimize for their purpose without worrying about establishing their own security system from scratch, which is a challenge when starting a new solo blockchain. Parachain communities have a voice in deciding how the chain is governed. Polkadot has a governance structure that overarchingly affects the parachains, but the parachains have their own communities and separate governance systems.
Parachains are autonomous and can launch their token and host other applications. The superior quality of the security created by the Kusama and Polkadot ecosystems and the capacity for rich communication make parachain slots so desirable. This is made possible by the collators and validators of the ecosystem working together to ensure that all the parachain’s security needs are met.
Launching a layer one blockchain is a challenging undertaking. The way that parachains are built and the ecosystems they connect to ease the process while providing the benefits of shared security and interoperability between parachains.
Interoperability: How Do Parachains Work Together?
By the parachain design, Polkadot allows intercommunication and movement of assets and smart contracts regardless of which parachain the assets live on. Typically, moving Blockchain “A” token to Blockchain “B” requires the use of a bridge, which can be inconvenient, expensive, and risky to use.
This issue does not exist within Polkadot and Kusama because any connected parachain can highly secure the movement of these assets from one parachain to another without bridges through a language called Cross-Consensus Communication (XCM).
Polkadot and Kusama parachains can offer bridges, but they make the ecosystem compatible with external blockchains, such as Bitcoin and Ethereum. Bridges are not required for interoperability between the parachains, which is an advantage as blockchain technology becomes more widely adopted. Interoperability is made possible because all the parachains share the underlying Substrate framework.
This consistency makes it easy to build blockchains and let them communicate. One protocol that enables this is Cross-Chain Message Passing (XCMP). Amongst the parachains on the network, there is native asset movement, which means smart contracts on Moonbeam can access and communicate with assets on other parachains and any assets bridged into those networks.
There may be hybrid DApp scenarios where projects build smart contracts on one parachain, reference storage on another parachain, and reference assets on a third parachain.
Scalability: How Do Parachains Grow?
Polkadot relays messages at “layer zero” as a meta protocol, and parachains built on Polkadot are considered layer ones. Scalability at layer one instead of layer two is more effective, as on Polkadot, these transactions can be processed simultaneously in parallel without overloading the network.
On Ethereum, scalability is retrofitted onto the chain at layer two instead of layer one, which results in higher gas fees and slower transactions because the capacity can become overloaded with too many transactions.
Shared Security: How Do Parachains Maintain Security?
Parachains borrow the security of the relay chain and contribute their own validation process to support all the other parachains. A parachain can process transactions independently, making network security highly scalable even when several parachains exist. Parachains form their ecosystems, and their work is separate from Polkadot and the other parachains, so what happens on one chain does not affect another.
More importantly, the main chain supplies the security of each parachain, which means that the security of the main chain guarantees the well-being of the parachains. As the number of parachains increases, the magnitude of the security in the whole network also increases. This is a unique benefit enjoyed by Polkadot, Kusama, and the parachains as the ecosystems grow.
How Parachains Communicate
Parachains are all connected to the same relay chain, which creates an environment for native interoperability and a strong community. Parachains can communicate with each other directly by opening channels between them, and Parachains use governance to make these decisions.
This process begins with an HRMP channel from one chain to the other. These channels can also be bi-directional, meaning that assets can close in both directions between the connected parachains. HRMP channels are horizontal relay-routed message-passing channels. It is a stop-gap protocol that passes messages using the relay chain. Opening a channel requires approval from both parachain communities.
Cross-chain communication uses Polkadot-created protocols designed for this purpose. XCM is the language used to describe the message being sent between networks. It does not have to be on Polkadot. XCMP uses the XCM format to allow parachains to talk to each other inside of Polkadot.
How Parachains and the Relay Chain Work Together
The relay chain is responsible for coordinating the parachains, which are all validating transactions simultaneously. As many as 100 parachains will be active on Polkadot at a time, with the eventual goal of over 10,000 parachains simultaneously.
Without parachains, Polkadot can typically push 1,000 transactions per second. With parachains, 1,000,000 secure transactions can be completed per second. This structure increases efficiency significantly and opens the network up to new, exciting possibilities.
Parachains also share a consensus mechanism, although they can modify and expand. Each parachain has authority over who can create blocks, but the block finality is structured into the network as is. As mentioned, parachains produce their blocks, which are then passed to the relay chain to be finalized. Collators are network members that maintain the parachains they participate with by creating and maintaining blocks on the network.
Parachains can choose whether to have a permissionless or permissioned group of collators on their network. Collators in this Proof of Stake system are similar to miners in a Proof of Work system. While miners work to protect the safety of the network, collators maintain:
- Network liveness
- Censorship resistance
- Network security
Collators relay the block to the validators on-chain, where the validators then verify the transaction and pass on the block to the relay chain. Only once this verification takes place can a transaction be added to the distributed ledger to maintain a secure network successfully.
For Moonbeam, Nimbus helps prevent front-running, but other approaches exist. Parachains can benefit from the network’s security, interoperability, governance, and scalability and do not each have to recruit and manage their own set of validator nodes. Instead, they can rely on collator nodes that carry the full transaction data history and the many validators on the Polkadot network.
Parachains can also utilize bridges to connect to networks other than Polkadot and Kusama, such as Bitcoin or Ethereum. This allows projects to expand to the groundbreaking Polkadot ecosystem through a simple, efficient step. With Moonbeam as the hub, parachains and external blockchains connected to Moonbeam can interoperate.
How to Become a Parachain
To become a parachain on either Kusama or Polkadot, a parachain slot is rented, and the building can begin. Anyone can bid for a parachain slot. To rent a parachain slot, an auction must be won. Would-be parachain builders bid with KSM for a Kusama slot or DOT for a Polkadot parachain slot.
If teams require help financing their bid, crowdloans can be used. Attaining and maintaining a parachain slot is designed to be competitive to ensure only the strongest projects remain part of the Polkadot ecosystem.
Slots are limited, so teams compete for available slots. After a set term, leases must be renewed. The lease cost of a parachains slot varies and depends on the demand for the slot being auctioned.
Parachain Auctions and Leases
A parachain auction decides which parachains will be connected to the relay chain. Projects compete for a limited number of slots on Polkadot, so the amount of KSM or DOT required to win an auction varies depending on the competition. Parachains lease a slot, and when the lease expires, renew it in a new auction. A team can self-fund their rent or renewal cost, and crowdloans are an option if they want to raise additional DOT or KSM for bidding.
Teams can opt to hold a crowdloan that takes place during a parachain auction. Polkadot values community participation, and crowdloans are an opportunity for KSM and DOT token holders to lock their tokens in support of projects they hope to win a specific parachain auction.
The number of locked community tokens is added to the amount put up by the bidder. The community tokens are never given to the parachain team, but their value is added to the bid as a show of support. Crowdloaned tokens are released back to their owners after the lease for the slot expires. Tokens locked in support of teams that do not win the auction have their tokens returned when the auction ends. After an initial crowdloan, successful projects renew their lease after a set term.
Crowdloans are not required but are available as parachains grow and become financially self-supporting. Once a parachain, projects must build and thrive to maintain their position and renew their lease. Projects that are not able to renew their lease will automatically become parathreads. This changes nothing about the function of the project or its participation in the ecosystem benefits, but they move to a pay-as-you-go model from the lease structure.
What is a Parathread?
A parachain no longer leasing a parachain slot moves to the pay-as-you-go model and is referred to as a parathread. Parathreads allow projects to temporarily participate (on a block-by-block basis) in Polkadot security without leasing a dedicated parachain slot.
Unlike parachains, parathreads do not operate on a lease commitment. In this sense, the structure is similar to a condo building, having a few designated condos that are rented on an as-needed basis while the majority of residents commit to a long-term condominium. Their functionality is identical to that of a parachain, and it is the payment structure alone that differentiates the two.
Getting a Parachain Slot on the Secondary Market
Projects can acquire a parachain slot through a secondary market where an actor who has already won a slot can resell the slot and the associated deposit of locked tokens to a buyer. This frees liquid tokens for the seller in exchange for the parachain slot and allows the new project to build.
Another way projects can connect to Kusama or Polkadot is by receiving a granted slot. Some parachains may be granted slots by governing bodies of the relay chain through the governance process. System or common-good parachains meeting certain specifications can get slots and remain connected without bidding or renewal if they are considered essential to the ecosystem’s future. Common good parachains include Statement/Statement parachains on Kusama and Polkadot, respectively, allowing the hosting of arbitrary assets and keeping transfer costs low. Encounter, a framework for forming voluntary, local, and digital community tokens, is a common-good parachain on Kusama.
The Polkadot and Kusama Parachain Future
Parachains are a relatively new concept that Polkadot created to solve security, interoperability, and scalability challenges. The relay chain and parachain design make Polkadot and Kusama significantly more scalable than other single-chain approaches.
Parachains are the backbone of these ecosystems due to the specific functionalities they have available that Polkadot and Kusama cannot offer, such as smart contracts, privacy, bridges, and data storage, among other things. Polkadot needs the parachains, and they need Polkadot.
The use of parachains creates an ecosystem of uniquely functioning blockchains that can communicate and operate seamlessly with each other. Parachains help foster a multi-chain future and allow the crypto space to develop in new and exciting ways.