What is Polygon (MATIC)?

Formerly known as the Matic Network, Polygon (MATIC) is now considered one of the most popular layer 2 solutions in the blockchain world. Also known as “Ethereum’s Internet of Blockchains,” it aims to solve scaling problems in the Ethereum blockchain with fast transaction processing. Let’s see what’s under the hood and whether MATIC is a good investment.

To understand the importance of Polygon, we first need to understand the problem it aims to solve: the scalability of the blockchain. When Ethereum became popular for decentralized applications (dApps) and smart contracts, it soon faced scalability problems. These limitations became apparent when network congestion led to slower transactions and higher fees, posing a major challenge for developers and users alike.

What is Polygon?

Polygon (MATIC) is a protocol and framework designed for constructing and linking compatible blockchain networks. It stands out as a revolutionary solution. It converts Ethereum into a comprehensive multi-chain system, alternatively termed the “Ethereum Internet of Blockchains.” This novel methodology permits developers to leverage the advantages of Ethereum’s solid security and dynamic ecosystem. Also, with the enhanced scalability and adaptability provided by Polygon’s Layer 2 chains.

The Polygon network uses a modified proof-of-stake (PoS) consensus mechanism that allows validators to reach a consensus with each block. This is opposed to traditional PoS mechanisms that require validators to process many blocks to reach consensus. Ethereum switched from a proof-of-work (PoW) mechanism to a PoS mechanism in 2022. Users can bridge their cryptocurrency from other blockchains to the Polygon network and then interact with applications that were previously only available on the Ethereum blockchain.

History

The project aimed to provide a framework for building and connecting Ethereum-compatible blockchain networks, allowing for seamless interoperability and enhanced scalability. In 2019, they raised over $450,000 in two start-up funding rounds. Polygon’s development journey has been marked by continuous innovation and strategic partnerships. In 2019, the project successfully conducted its Initial Exchange Offering (IEO) on Binance Launchpad, raising $5.6 million. That was the beginning of its journey in the crypto market.

The project has received around $450 million in funding from various investors. Balaji Srinivasa (Angel investor) and Mark Cuban (American billionaire and owner of the NBA club Dallas Mavericks) are among Polygon’s growing list of backers.

In February 2021, Matic Network rebranded to Polygon, expanding its mission and scope. The rebranding was more than just a name change. It transformed Polygon from a Plasma-based scaling solution to a multi-chain scaling solution, incorporating various scaling technologies like zk-Rollups, Optimistic Rollups, and sidechains.

Historical Milestones:

• 2017: Jaynti Kanani, Sandeep Nailwal, and Anurag Arjun co-founded Matic Network. The goal was to resolve the scalability and usability issues of the Ethereum network.

• 2019: Matic Network (MATIC) successfully conducted its Initial Exchange Offering (IEO) on Binance Launchpad, raising $5.6 million.

• 2019: The network launched its mainnet, enabling the deployment of scalable and efficient decentralized applications.

• 2020: Matic Network established strategic partnerships with leading DeFi projects like Aave and Decentraland.

• February 2021: Matic Network underwent a strategic rebranding to Polygon. They expanded the mission to become a multi-chain scaling solution for Ethereum.

• June 2021: Polygon reached a record 7 million transactions per day, surpassing Ethereum’s daily transaction volume. This milestone underlined Polygon’s scalability and its potential to support high-performance applications.

• 2022: Polygon raises $450 million in venture capital funding. MATIC cryptocurrency market cap breaks $10 billion

• 2023: In July 2023, they launched Polygon 2.0. This project aims to “unify the liquidity” of the different networks in their ecosystem as part of a new architecture and to release a new POL token.

How Does It Work?

Polygon acts as a side chain for Ethereum, running parallel to the main Ethereum chain architecture and compatible with EVM. The core of the Polygon system is a two-layer structure: a block producer layer, which quickly generates blocks, and a validator layer, where validators verify these blocks. The block producers are randomly selected and generate blocks, ensuring fast transactions. The blocks are then verified by the validators based on a proof-of-stake (PoS) consensus model, which provides security. This dual structure guarantees speed without compromising security.

Polygon Architecture

Polygon uses the Heimdall architecture to select block producers, increasing network scalability and security. Block producers are randomly chosen from the PoS validators in the network, which provides increased security and scalability as the pool of validators is quite large. Polygon validators, which run parallel to the Ethereum main chain, validate ecosystem transactions at regular checkpoints. This helps to maintain consistency and eliminate potential “conflicts.” In addition, Polygon has its own Polygon Network layer, which is essential for block production and local consensus in its ecosystem. The Ethereum Virtual Machine (EVM) helps Polygon to implement smart contracts.

Polygon uses ZK rollups, which combine many off-chain transfers into a single transaction. This mechanism helps to add anonymity to the transactions, thus ensuring privacy for users. Although validation and consent are available, no private information is leaked, which is called zero-knowledge proof. Together, these strategies provide Polygon with a distributed and secure architecture. As a result, it easily outperforms the current throughput of the Ethereum network, which at the time of writing is 29 transactions per second (TPS). The increased scalability makes transactions a much cheaper commodity than they currently are in the congested Ethereum network.

Different levels of Polygon:

• Ethereum Layer 2 Chains: These chains take advantage of the Ethereum network’s security and decentralization to provide faster and cheaper transactions.

• Standalone chains: These are independent blockchains that use Polygon’s technology set. They offer the highest level of flexibility and sovereignty but require their security measures.

• Shared Security Chains: These chains share the Polygon network security model, balancing flexibility and security.

• Enterprise Chains: These are permissive (private) blockchains tailored to the needs of enterprises, providing control and privacy.

Transaction Speed and Cost

One of Polygon’s standout features is its ability to process transactions at a high speed with minimal fees. The platform can handle up to 7,000 transactions per second (TPS) on a single sidechain, a stark contrast to Ethereum’s 30 TPS, making it an attractive option for developers looking to build scalable DApps.

Polygon vs Ethereum: What’s the Difference?

It is important to note that Polygon does not compete with Ethereum. If anything, it is dependent on Ethereum and vice versa. Polygon’s mission is to leverage the Polygon network to create an infrastructure that can cope with the mass adoption of Ethereum. As a result, Polygon is more dependent on Ethereum than Ethereum is on Polygon. This is to be expected as Polygon is built on top of its blockchain.

The collapse of the cryptocurrency exchange FTX highlighted the benefits of DEX. There users retain custody of their assets and execute trades directly from their wallets. DEXs, initially launched on Ethereum, have seen a surge in transactions, with Uniswap v3 also launching on Polygon, leading to potential competition between Ethereum and Polygon. Polygon offers quicker transaction validations and lower gas fees than Ethereum, making it attractive for smaller trades. However, concerns about Polygon’s security and lower liquidity for larger trades make Ethereum preferable for trades above $10,000.

The main disadvantage is that switching to Polygon may dilute the value Ethereum gains due to its speed. In fact, the dilution of value may hinder the direct growth of Ethereum users in some locations. In joking terms – Polygon improves Ethereum, so more people will use the Ethereum blockchain. As more users freely lock their capital in the Ethereum blockchain, its value will increase despite the possibility of “stealing” the total locked value (TVL) of Ethereum.

Didn’t Ethereum 2.0 Eliminate The Need For Polygon and Other Layer 2 Solutions?

Not really. Ethereum 2.0 is a significant upgrade to the Ethereum blockchain, but it only addresses the scalability challenge in a limited way. As more and more decentralized DApp platforms and applications use on-chain solutions such as Eth2, demand may start to approach the limits of scalability. As mentioned earlier, this results in increased network traffic. Gas charges start rising, and the network becomes busier. This is where Polygon comes in, providing an extra layer of scalability to the Ethereum blockchain. Another of the more popular Layer 2 solutions is Arbitrum (ARB).

What is MATIC?

At the heart of Polygon’s ecosystem is MATIC – the project’s original multi-purpose cryptocurrency:

• Paying transaction fees: Using MATIC instead of ETH for transactions, users can benefit from faster and cheaper transactions.

• PoS mechanism: MATIC is used in a proof-of-stake (PoS) consensus mechanism. Validators, who are responsible for verifying and validating new transactions, pledge their MATIC tokens as a form of collateral.

• Governance token: MATIC holders can vote on Polygon Improvement Proposals (PIPs) to influence the development and direction of the network. This fosters a sense of community and allows users to participate in the future of the network.

• MATIC can also be used to purchase NFTs within Polygon’s NFT Marketplace.

Where Can I Buy MATIC?

Example: buying MATIC on the Binance crypto exchange works like this:

1. Create a Binance account: Navigate to the Binance website or app and sign up for an account by providing your email address and creating a secure password. Verify your email by clicking on the link sent to your inbox. Then complete the KYC (Know Your Customer) process by submitting the required identification documents.

2. Deposit funds: Once your account is verified, log in and deposit funds into your Binance account. Click on “Wallet” and then “Deposit,” and choose whether you want to deposit fiat currency like USD, EUR, or GBP or deposit cryptocurrency.

3. Go to the trading section: After depositing funds, navigate to the “Trade” section and select “Convert.” Use the search bar to find MATIC and select the trading pair that corresponds to the currency you deposited, such as MATIC/USD or MATIC/BTC.

4. Buy MATIC: Once you are in the trading section for MATIC, decide whether you want to place a market order (buying at the current market price) or a limit order (setting a specific price at which you want to buy). Enter the amount of MATIC you wish to purchase and click on “Buy MATIC.”

5. Congratz, you own MATIC! Your tokens are automatically deposited on your Binance account.

Where can I store my MATIC tokens?

There are a number of crypto wallets available, and each crypto exchange automatically creates a wallet for you when you register.

Is MATIC a good investment?

Several aspects are worth considering in this context. Ethereum (ETH) stands as the world’s preeminent blockchain network, endowed with smart contract capabilities. At the moment, the market capitalization of its native cryptocurrency, ether (ETH), is valued at $230 billion, positioning it as the second-largest cryptocurrency globally, trailing only Bitcoin (BTC) in terms of market capitalization. Any initiative that can efficaciously enhance Ethereum’s capabilities is poised to secure widespread support and adoption, and Polygon is unequivocally a contender in this regard. This project has the potential to emerge as the preferred Layer 2 solution for Ethereum. It is steered by a robust and visionary team that is actively seeking remarkable partnership prospects. Polygon addresses challenges that have been long-standing pain points for Ethereum users. Throughout its journey, Polygon has established itself as a highly dependable project, garnering a substantial user base and a cohort of advocates.

With a market capitalization of around $7 billion (at the time of writing), MATIC is among the 20 largest cryptocurrencies. In addition, the maximum supply is limited to 10 billion MATIC. Of these 10 billion, approximately 7.6 billion tokens are in circulation. Due to this limited supply, it is possible that the demand for MATIC tokens will exceed the supply, leading to a positive price movement.

And, of course, always do your own research before investing, and never invest more than you are prepared to lose.

Polygon: Pros

• Scalability: one of the most important advantages of Polygon is its scalability. As a Layer 2 scaling solution for Ethereum, Polygon offers faster and cheaper transactions than Ethereum. This is a game changer for developers and users alike as decentralised applications (DApps) become more accessible and efficient.

• Interoperability: Polygon allows different blockchain networks to communicate and collaborate seamlessly with each other. This interaction between chains breaks down boundaries and fosters a more connected ecosystem. Polygon, a decentralized application built on Ethereum, can seamlessly access the user base of another chain, such as the Binance Smart Chain.

• Security: Polygon uses a proof-of-stake consensus mechanism, which is more energy efficient than proof-of-work consensus. Confirmers in the Polygon network invest MATIC tokens as a form of collateral, which encourages fair treatment and contributes to the security of the network.

• Flexibility: Polygon’s architecture allows for a high degree of flexibility as it is composed of different chains. This hybrid model allows Polygon to meet a variety of needs and use cases, ranging from public networks exploiting the security of Ethereum to private networks tailored to the needs of enterprises.

• Community governance: Polygon empowers its community through a governance model that allows MATIC licensees to vote on Polygon Improvement Proposals (PIPs), allowing users to participate in the development and direction of the network, fostering a sense of community and ownership.

Polygon: Cons

• Polygon relies on Ethereum: One of Polygon’s main challenges is its dependence on the Ethereum network. Polygon is a Layer 2 solution for Ethereum, which also means that any issues affecting the Ethereum network, such as network congestion or high gas fees, can potentially affect Polygon.

• Limited security for standalone chains: Polygon’s architecture allows for a high degree of flexibility but also presents some challenges. For example, stand-alone chains allow the highest level of flexibility and sovereignty but require their own security measures. This means that these chains are more vulnerable to attacks as they do not benefit from the overall security of the Polygon or Ethereum network.

• Centralization risk: Polygon’s PoS consensus mechanism is associated with centralization risk. In a PoS system, certifiers with more tokens have more power in the network. This can potentially lead to a concentration of power among a small number of validators, undermining the decentralization that is the cornerstone of blockchain technology.

What is a Polygon 2.0?

On 14 July 2023, Polygon announced the development of Polygon 2.0, a major upgrade of the Polygon protocol. The main concept is to transform the network into a value layer. Polygon 2.0 aims to be a platform for creating, programming, and moving value. Two important visions of Polygon 2.0 are infinite scalability and interconnectivity. Polygon 2.0 uses Zero-Knowledge (ZK) L2 rollup technology. In addition, the team explains that ZK technology allows Polygon 2.0 to support an unlimited number of blockchains with a specialized inter-chain communication protocol.

What are the main components of the Polygon 2.0 upgrade?

• ZK-based ecosystem: in June 2023, Polygon announced the upgrade of Polygon PoS to zkEVM Validium. This is the first stage of Polygon’s implementation of ZK technology in its ecosystem.

• New MATIC tokenomics: The revised MATIC tokenomics positions MATIC as the token boasting the 11th largest market capitalization globally. The roadmap for Polygon 2.0 is designed to elevate Polygon to the status of Ethereum’s value layer, assigning a pivotal role to MATIC. Concurrently, the project is strategizing to introduce a novel token, POL, representing a technological advancement of the original Polygon network asset. Anticipated to be a protocol token of the ensuing generation, POL is projected to evolve as the principal instrument for orchestrating and expanding the Polygon ecosystem and is foreseen to be the central propellant of the value layer vision for the Internet.

• A new governance system: Hudson Jameson, VP of Community and Governance at Polygon Labs, explains that the Polygon 2.0 plan aims to transform the Polygon model into an ecosystem with community input and greater decentralization. Jameson compared Polygon 2.0 to Vitalik’s plan to turn Ethereum into a proof-of-stake network. In the end, The Merge was a combination of Vitalik’s plans for Ethereum and suggestions gathered from the Ethereum community.

Polygon Partnerships

Polygon’s reputation is also reflected in a number of high-profile partnerships:

• Google Cloud: to help speed up and increase the adoption of key Polygon protocols, Consensus 2023 has announced a strategic alliance with Google Cloud. Through the partnership, Google Cloud will strategically provide its blockchain-based cloud services to Polygon developers, saving them the cost of acquiring and maintaining blockchain nodes from other providers.

• Adobe: Adobe has partnered with Polygon to upgrade its Behance artist platform to an NFT marketplace. This partnership allows artists to publish their NFTs on Polygon, helping Adobe increase its reach in the NFT space.

• Starbucks: Starbucks announced the “Starbucks Odyssey” loyalty program based on NFTs in partnership with Polygon.

• Meta: The parent organization of Facebook, Instagram, and WhatsApp has announced that it will offer NFT trading on Instagram. Polygon is working exclusively with Meta on this project, establishing Polygon as the blockchain brand for traditional businesses.
• Hamilton Lane: this renowned investment firm with over €790 billion in assets under management – has announced that it will be taking individual investors under its wing through Polygon’s Securitize platform. Hamilton Lane selected Securitize as its entry point into Web 3 because of Polygon’s accessibility and scalability.

Conclusion

By providing a scalable and proficient Layer 2 solution, Polygon addresses some of the critical challenges inherent in the Ethereum network, including elevated fees and sluggish transaction velocities. Its capability to integrate effortlessly with the Ethereum network, coupled with the advantages of an independent blockchain, has rendered it a favored option for developers and users. The myriad collaborations with international brands and the ongoing development of its ecosystem underscore Polygon’s promising potential and dedication to advancing the frontiers of blockchain technology. Polygon is positioned to be a pivotal force in the widespread embrace of blockchain technology and the manifestation of Web 3.0.

No one can predict the future price of MATIC crypto, yet the vision of the Polygon team is evidently progressive, indicating a long-term presence for both its network and coin in the market. The extensive array of alliances with renowned firms is also likely to contribute to users’ broader acceptance and adoption of their network.

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