Over the years, Ethereum has brought all kinds of advancements into the cryptocurrency space, including smart contracts and high interest, paying decentralized applications. However, it faces three big challenges.
1) Slow Transactions
The first is the low throughput issue, which is a fancy way of saying it. Ethereum can only handle 30 transactions per second for the number of people that are using Ethereum. This processing speed is considerably low since many alternatives can process many more transactions in the same time frame. For example, the Cardano blockchain does around 257 transactions per second, while Polkadot can do up to a thousand and Solana up to 65 000.
The second big problem is that the Ethereum network isn’t user-friendly, since you are effectively bidding in an auction against everyone else who wants to be one of those 30 transactions. In short, this means it is expensive and I mean like twenty dollars, just to send your friend one dollar expensive. Lastly, the Ethereum blockchain presents developers with limited options.
3) Ethereum runs on the same Network
All Ethereum projects run on the same network and have a similar throughput. This implies that they all share in Ethereum problems with no exceptions, but what? If there was another blockchain that leveraged Ethereum technology, while also offering higher throughput extremely low transaction fees, and better options?
In this article, we are going to explain what Polygon is, how it works, as well as the specific tokenomics of the Matic coin.
So in 2017, three Indian developers sought to find a solution to Ethereum's problems which resulted in the creation of Matic, which is now rebranded as the polygon network. Now one thing to note here is that, even though they rebranded to the polygon network, the coin is still called the Matic coin. Polygon is a layer, two scaling platforms that allow Ethereum-based applications to tackle the problems that I mentioned earlier, while also leveraging Ethereum's security.
Its primary focus is to increase the usage of d5 tools and applications by basically connecting blockchains. The network currently hosts over 3000 decentralized applications, of which over 80 big names migrated from the Ethereum main chain since polygon is so similar to Ethereum. Many developers that create useful tools will move them from Ethereum to other EVM blockchains like a polygon.
5) Ethereum Virtual Machine
That way, they can increase their reach and usage. Now, if you’re wondering what EVM is, it stands for Ethereum virtual machine and it’s the actual code that is run by computers around the world to carry out the blockchain’s smart contracts. Now I must say at this point in the article: if you have no idea what hardly any of these words I’ve mentioned, are you can watch some of our other dedicated articles that explain some of these terms? Anyways polygon has an evm, but so does the balance smart chain phantom and a few other big networks.
6) Faster Transactions
They all utilize the main Ethereum code and since they run all the same code, it makes sense how developers can simply move their project over to a new network and it’ll work. In the same way without making many changes moving on when we think about polygon. Most people think about the polygon proof of stake chain, which is simply a side chain to Ethereum utilizing a proof-of-stake consensus mechanism, there are a few other changes to this side chain, but what’s important is that it’s way faster and can handle way more transactions per second. Also, meaning it’s much more affordable to the end-user, but technically the polygon network is a lot more than just the sidechain. One of the core ideas behind polygon is to equip developers with user-friendly and flexible tools that way they can fast track Ethereum transformation into a multi-chain platform.
To put this in simpler words, a polygon isn’t just this single proof of stake chain that we usually think of. They are a series of blockchains that can help scale Ethereum when they achieve. These developers can easily create all kinds of different scaling solutions that they can use with Ethereum like completely separate chains like zk, roll-up chains, optimistic roll-up chains, or any other side chain that they desire.
By the way, you can check out our articles on side chains and roll-ups. If you want to learn more about how those specifically work, they’re, really unique and creative ways to bundle up data and save space on the main Ethereum chain, the polygon proof of stake chain is just one way to scale Ethereum. In reality, polygon plans to create many different solutions for users to scale it.
8) Fewer Fees
So at first glance, I thought polygon was pretty simple, but when you look at its internals there’s a lot more than regular users see for users, like you and me, we can sum up. Polygon in one sentence, it’s Ethereum, but with super-cheap gas fees right now to transfer your Ethereum from one count to another. The fee is like twenty dollars, however, on the polygon network, it is less than a penny.
This means users are free to try out new, apps and test things out without the fear of losing 150. Over a token, swap personally, the polygon and binance smart chains are the two d5 blockchains that I recommend to new users. So take that for what it’s worth moving on, let’s get into a little bit more about how polygon works.
9) How do Polygon works?
So polygon is driven by the layer, 2 scaling solution, and the proof of stake protocol serving as what is called a committed chain to the main Ethereum chain. Now, if you don’t know what a committed chain is, it functions as a transaction network that operates close to the real chain. Therefore, in the case of the polygon, it works alongside Ethereum.
Now, before we continue a lot of the future stuff, I’m going to be talking about is pretty technical, but if you’re interested, let’s dig into the polygon, commit chain groups up clusters of the transaction, and process them all together before sending the data back to the main Ethereum Chain, think of it like this, instead of sending an entire article of all the transactions, polygon simply takes a single snapshot now and then so that the Ethereum chain can still understand what is happening, but without processing a ton of data. This is why the polygon network can process up to 65 000 transactions per second, some experts predict that a time will come when developers will host thousands of chains that work hand-in-hand with Ethereum to increase throughput up to millions of transactions per second.
Now, let’s get a little more technical, polygons architecture runs on a four-layer system comprising the Ethereum layer, the security layer, the polygon networks, layer, and, finally, the execution layer. Now I’m going, to be honest with you, you don’t need to know this stuff so skip ahead. If you want to get into tokenomics, the Ethereum layer is made up of different Ethereum-based smart contracts.
These contracts are in charge of staking transaction approval and interaction between the Ethereum blockchain and the numerous polygon chains. This layer is how polygon checks in with Ethereum from time to time. Next up we have the security layer and it works alongside Ethereum to provide validator services, giving chains an additional layer of security.
11) Different Layers
That said, it’s important to note that both the security layer and the Ethereum layer are optional. They are not required for the polygon to work. Layer 3 is the polygon network, layer and it’s the ecosystem of projects or blockchain networks developed on a polygon. Every project or blockchain that exists within this ecosystem has its community, where local consensus is reached and then blocks are produced. Finally, we have the execution layer. This is popularly known as a polygons Ethereum virtual machine and its main function is to execute smart contracts on the actual polygon blockchain.
12) Compatibility with EVM
The compatibility with the evm, as I mentioned earlier, smoothens the user experience for developers and programmers using the Ethereum chain. Finally, let’s get into polygons tokenomics, the polygon network has a native token. It’S called Matic, which has been trading for around two dollars with a market capitalization value of around 13 billion dollars.
Matic tokens are dispersed monthly and have a total supply of 10 billion tokens, of which nearly 6.8 billion is already in circulation. The difference between these two numbers is tokens that are held for staking rewards and tokens with a time-locked release, a schedule that we’ll talk about later.
13) Initial Exchange Offering
Initially, the developers sold around 3.8 of Maddox's total supply in their initial private launch back in 2017. Then later they had an initial exchange offering where they sold another 19 of the max supply. If you’re wondering where the other tokens are, the development team owns, sixteen percent of the supply, and the advisors have four percent staking rewards come to around twelve percent. The ecosystem already has twenty-three percent, while around twenty-two percent went to the polygon foundation and since Matic tokens are technically being printed to reward stakers right now it is technically inflationary.
14) Deflationary Token
However, Matic does have a limited supply and soon they will be implementing their version of eip1559. If you have no idea what that is, what it means is that base transaction fees will effectively be burned, which means Matic will eventually be a deflationary token. Now, if you’re anything like me, you might be wondering how are they going to reward the stakers when the funds run out? Well, the polygon team hopes by then the extra transaction fees that the users add to prioritize their transactions above the base fee will be enough to incentivize staking validators to keep doing their thing.
Thank you guys so much for reading. We hope you enjoyed this article.