If you're like most crypto investors, you've probably started thinking about crash-proofing your crypto portfolio, the same way that people try to crash-proof their stock portfolio during tough times. The good news is that there are some smaller, affordable cryptos that will likely hold their value during a bear market. One crypto to keep an eye on right now is Polkadot (DOT -1.53%), which has skyrocketed to a $10 billion market capitalization since its launch in May 2020 and is now one of the top cryptos in the world according to CoinMarketCap.
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Polkadot use case scenario
Most importantly, Polkadot passes the "use case" test. It's relatively straightforward to describe what Polkadot does and understand how it is valuable. Simply stated, DOT is a lightning-fast blockchain that helps to connect other blockchains so that they can talk to each other and exchange data. You can visualize this as a hub-and-spoke system, with DOT as the hub and other blockchains as the spokes attached to this hub. DOT can process over 1,000 transactions per second right now, with a goal of eventually reaching 1 million transactions per second, making it one of the fastest blockchains in the world. By way of comparison, Visa says it handles 65,000 transaction messages per second.
Best of all, Polkadot is highly scalable, meaning that it can keep adding more and more blockchains to its overall blockchain architecture. As a proof of concept, Polkadot held a public auction at the end of 2021, with bidders vying to become customizable, project-specific blockchains (or "parachains") connected to the main Polkadot blockchain. Every time a new blockchain gets a parachain slot on the Polkadot blockchain, the overall value of DOT should increase. One of the high-profile auction winners included Moonbeam (CRYPTO: GLMR), which provides an interoperability solution for Ethereum (CRYPTO: ETH). In other words, thanks to Moonbeam, Ethereum and Polkadot can now talk to each other.
Does Polkadot have long-term staying potential?
The big caveat here is that Polkadot is very new. The first public release was May 2020, so we don't have a long track record of how Polkadot has performed in the past. Many crypto investors, in fact, might have never heard of Polkadot. They might also be skeptical that Polkadot can do everything it claims to be able to do. At least in the case of Bitcoin (CRYPTO: BTC), they say, the crypto has been around for more than a decade. Long-term investors have seen Bitcoin rebound continually, market crash after market crash, constantly heading to new, uncharted levels. So even if some investors are rethinking their Bitcoin holdings right now, many others are still clinging to their original buy and hold investment thesis, waiting patiently for Bitcoin finally to go to the moon.
At the end of the day, though, Polkadot is more than just a cryptocurrency, it is a blockchain platform for building the next generation of the web. Imagine a world where every blockchain can talk to every other blockchain seamlessly and instantaneously, and in which every blockchain can specialize in what it does best. That is a very strong value proposition. The founder of Polkadot is Gavin Wood, one of the co-founders of Ethereum, so there is impeccable academic firepower behind this project. In fact, back in 2020, Bloomberg even called Polkadot a potential "Ethereum blockchain killer" because, conceptually, it could do so much more than Ethereum.
Polkadot, black-and-white and used all over
Polkadot certainly has tremendous utility – and certainly much more utility than a meme coin like Dogecoin (CRYPTO: DOGE), which is actually fairly close to DOT in terms of overall market capitalization. If your goal is building wealth for retirement, would you really want a meme coin that could go to zero in your portfolio? The internet is a fickle beast, with memes coming and going every hour. What happens when Elon Musk decides that he likes another meme coin better than DOGE? In contrast, Polkadot looks like it has long-term staying power. Just as polka dots never go out of fashion, the patient buy-and-hold investor should hope that Polkadot will never go out of fashion, either.
