Like most cryptocurrencies, Polkadot (DOT -2.49%) has been a volatile name over the last year. The multichain blockchain development protocol's core token has largely followed the ups and downs of cryptocurrency grandpa Bitcoin (BTC -0.27%), but each swing was just a bit wilder than Bitcoin's. Over the last 52 weeks, that action added up to a 43% price drop versus Bitcoin's 20% swoon. For your reference, the S&P 500 (^GSPC -0.22%) market index traded almost exactly sideways over the same period:
Polkadot Price data by YCharts
In early November, Polkadot soared as high as $55 per token. Curious investors want to know whether the cryptocurrency can eclipse that temporary high and reach the $100 benchmark in the near future.
I think that's a possible outcome. Some might even call it likely, and just a stepping stone on the road to much greater gains. Here's why.
The Web3 connection
You may have heard of Web3 before. If not, you'll soon get used to it because you'll see it everywhere. This term was minted by the crypto veteran, Web3 Foundation president, and Ethereum (ETH -1.68%) co-founder Gavin Wood to describe a future where decentralized applications built on blockchain platforms take the baton from the current online experience.
In the current Web2 era, social media powers the publishing and consumption of many different media types. In Web3, creators will have more control and better monetization tools at hand, while creating more interactive experiences for their consumers. All of this next-generation functionality will be built on blockchain platforms, while fees and payments are managed by cryptocurrencies.
Gavin Wood is also a co-founder of Polkadot, and he envisions this cross-chain protocol as the beating heart of the whole Web3 vision. In fact, Polkadot was built from the ground up to serve the Web3 system.
If and when Web3 gets started for real, Polkadot will be an important cog in that machinery and the token will skyrocket in value as people start to use it in Web3 applications and services. Multiplying Polkadot's value sixfold should be the beginning of a much larger final value.
What does Polkadot do?
This cryptocurrency and its blockchain network were not designed to get much of anything done by their own power. Instead, they supply a development platform with connections to other blockchains and cryptocurrencies, allowing developers and users to take full advantage of each cryptocurrency's strongest points. For example, a decentralized finance app built with Polkadot could rely on Bitcoin for long-term value storage, Ethereum for the execution of smart contracts and management of non-fungible tokens, and Chainlink (LINK 0.58%) for collecting real-world data such as stock prices or the value of other cryptocurrencies. Polkadot ties all of these pieces together into a well-oiled system.
There's more to it than that, of course. Polkadot also contains a sophisticated process for adding new functionality through so-called parachains, and Polkadot projects can get funding assistance through auctions and crowdloans. You wouldn't expect anything less from a system designed by the brain behind Ethereum, who left that project to start over with a better system, learning from Ethereum's mistakes.
Image source: Getty Images.
Patience is a virtue, for real
Polkadot has only been around since the summer of 2020, and the ecosystem is still under construction as parachains are added on a weekly basis. Come back when Polkadot is fully mature and the Web3 revolution is in full swing, which could take a year or two from today. I'm pretty sure that $100 for a Polkadot token will look really cheap at that point. Patience will be rewarded in this explosive sector, especially when you're investing in one of the core components of the next-generation internet.
