What is Polygon ($MATIC)? How Does It Work?

What is Polygon ($MATIC)? How Does It Work?

Cryptocurrency | 15 minutes to read | 09.25.2022
TL;DR Polygon is a layer 2 platform that allows developers to build decentralized apps and blockchains that are Ethereum-compatible, fast, cheap, and secure. Polygon's token is $MATIC and it is used for staking and governance. Ethereum is only able to process 15 transaction per second leading to extremely high gas fees for any transaction. Polygon helps users bypass Ethereum's problems and build blockchains and dApps that can scale. Polygon works by being a sidechain to Ethereum. It works independently and processes its own transactions with proof of stake, but often reports many packaged transactions back to the Ethereum blockchain as a simple transaction. Polygon's future seems bright with many major players like Meta, Starbucks, and Disney using the platform for new technologies.
Polygon is a platform that allows developers to build Ethereum-compatible decentralized apps or their own blockchains that can scale cheaply while still being able to take advantage of the Ethereum ecosystem. Polygon, known previously as the MATIC Network, was created in 2017 by Indian developers Jaynti Kanani, Sandeep Nailwal, Anurag Arjun, and Mihailo Bjelic to solve a few of Ethereum's problems. Since then Polygon has experienced a lot of growth making it one of the most popular cryptocurrencies to date. It plays a very important role in the Ethereum ecosystem, as well as building an ecosystem of its own. Today, we will learn more about what Polygon is, how it works, why it is important, and we look into the future of Polygon.

What is Polygon?

Polygon is a layer 2 cryptocurrency built on top of Ethereum that allows developers to build and connect Ethereum-based projects and blockchains. Polygon allows decentralized apps built on Ethereum to scale. Polygon is needed because Ethereum is slow. Ethereum can only process about 15 transactions per second, and since it's the second most popular cryptocurrency there are a lot of applications built on top of it. When these applications are used, they send a transaction to Ethereum's blockchain. Therefore, with a lot of applications and a lot of use, Ethereum processes a lot of transactions. Each time a transaction is sent on the Ethereum blockchain, the sender must pay a transaction fee called gas. Gas goes to the validator as payment for validating a transaction. Since Ethereum can only process 15 transactions per second, in order to be one of those 15, you have to outbid the other people who are also trying to process transactions. That's because the higher the fee you pay, the bigger the reward for the validator, the faster your transaction will get validated and added to the blockchain, thus being completed. High gas fees and slow processing times are a big complaint about Ethereum. If your gas fee is too low, it can take minutes, or hours, or your transaction can even not be processed at all. Gas fees can cost anywhere from $1.60 to $40 with the highest daily average of $196.63. Even once during one of the biggest trading volumes, it was $4,661.88 just to process a transaction! As more and more people use the applications built on Ethereum, the higher the fee, and the longer the transaction processing time. This is where Polygon comes into play. Polygon is built on top of the Ethereum network in order to scale, speed up, and reduce the gas fees for dApps and users who want to transact on Ethereum. Polygon claims it can handle up to 7,000 transactions per second, and cost a fraction of a penny at $0.002 per transaction. Polygon claims it can handle up to 7,000 transactions per second, and cost a fraction of a penny at $0.002 per transaction. - Applications built on Polygon would communicate with the Polygon sidechain instead of the Ethereum blockchain. Polygon then takes the transactions on the sidechain, packages them up, and reports that total to the Ethereum blockchain. Now projects built on Polygon can take advantage of Polygon’s speed, scalability, and reduced cost, while also still benefiting from the security of Ethereum. Polygon’s token is called MATIC. Before it was known as Polygon, the project was known as Matic, and that’s where the token gets its name. MATIC is used for governance, staking, and paying transaction fees. Governance is when holders of a token can cast a vote on the future of the project. Staking is when validators, who are holders that lock up their tokens on the network, are randomly chosen to validate transactions and receive a reward for doing so. Polygon currently has a circulating supply of 8.7 billion MATIC. It has a fixed max supply of 10 billion MATIC. The current market cap of Polygon is $6.1 billion, making the price $0.70 per MATIC. Polygon is available on all major crypto exchanges.

How Does Polygon Work?

Polygon works by being a sidechain to the Ethereum blockchain. A sidechain is a separate blockchain running independently and is connected to the main blockchain. In this case, Polygon is the sidechain and it is connected to the Ethereum blockchain. Polygon’s sidechain has its own security and uses proof of stake as a consensus method. That means users stake their MATIC tokens to validate transactions, produce blocks, and keep the sidechain running. Users who stake their tokens will receive some MATIC as a reward for validating the transactions. For Polygon to help scale Ethereum, it needs to be able to tell the Ethereum blockchain that transactions have happened. The Polygon sidechain communicates with and regularly reports transaction data back to the Ethereum blockchain using a bridge, a smart contract on both the main blockchain and the sidechain that controls how tokens can be transferred between the chains. Polygon uses a few different types of technologies when it comes to sending transactions back to Ethereum depending on how the dApp or blockchain needs to work. These are: Plasma Chains - With Plasma chains, blocks of transactions are bundled up together, and then reported to the main Ethereum blockchain. This is similar to the Bitcoin Lightning Network, where smaller transactions don’t need to take up space on Ethereum’s blockchain, but instead can be verified by the Plasma chain, and sent to Ethereum as one big transaction. For example, if a block can hold 10 transactions, the Plasma chain will take 3 blocks of 10 transactions each, 30 transactions total, and report these as one large one. ZK-Rollups - ZK-Rollups, otherwise known as Zero-Knowledge rollups, are another way of taking many smaller transactions from the sidechain and packaging them up to send to the main blockchain. The difference here is how the security of the transactions is handled. ZK-Rollups use something called validity proofs to prove whether or not a transaction is valid or not. Optimistic Rollups - Optimistic Rollups, like the others, are a way of sending a large number of transactions from the sidechain to the main blockchain by packaging transactions up and sending them to the main chain as a simpler transaction. Again, the difference lies within the security. For Optimistic Rollups, transactions are considered valid unless they are proven to be false. This is super technical stuff, and not required to know more than the basics of these technologies when learning about Polygon and its sidechain. But Polygon isn’t just one sidechain. There is the main Polygon sidechain, but also many other blockchains all connected together to help scale Ethereum. It’s an entire software platform where developers can create their own blockchains and has an ecosystem of dApps on its own. Polygon is built using the same code as Ethereum. This is why it’s easy for developers to create apps that can communicate with other Ethereum-based projects, including the other projects built on Polygon. It also allows developers to move their projects from Ethereum to Polygon with minimal changes so that they can take advantage of Polygon’s scalability, and even vice-versa. Getting into the architecture of Polygon, when developing there are four main layers that an application can be built on.
Polygon Architecture

Ethereum Layer

The Ethereum layer is a set of Ethereum-based smart contracts that is in charge of interacting between Ethereum and another blockchain. These smart contracts control functions such as transaction approval, staking, resolving disputes, and communicating between Ethereum and Polygon blockchains. The Ethereum layer is optional for developers.

Security Layer

The Security layer is responsible for providing validators that can check transactions and help add security to a Polygon blockchain in exchange for a fee. This layer controls functions like managing validators (registration, rewards, and shuffling), and validating Polygon chains. The Security layer is optional for developers.

Polygon Networks Layer

The Polygon Networks layer is the main layer where the ecosystem of projects and blockchains are built on Polygon. This network of blockchains each has their own communities and are responsible for collecting transactions within the network, local consensus, and producing blocks. The Polygon Networks layer is mandatory for developers who want to build on Polygon.

Execution Layer

The Execution layer is responsible for interpreting and executing the transactions that are produced and collected by the blockchains built on the Polygon Network layer. The Execution layer uses the Ethereum Virtual Machine (EVM) to properly execute smart contracts on the Polygon blockchain. The EVM is the code that runs Ethereum and the main reason why Polygon is so compatible with Ethereum. The Execution Layer is mandatory for developers. This is all pretty complicated stuff, but just knowing the basics of these layers is more than enough to know about Polygon. As you can see Polygon is more than just a Layer 2 scaling solution for Ethereum, but a platform for developers to create fast, cheap, decentralized applications and blockchains.

Why Is Polygon Important?

Polygon is important because it speeds up Ethereum-based applications, as well as reduces their cost greatly. Without it, applications and smart contracts used on Ethereum would be extremely slow. With all the different real world uses of blockchain, Ethereum’s lagging transaction speed could affect anything from games to decentralized finance to data storage. On top of that, as the demand for applications built on Ethereum gets higher, so will the gas fees. People aren’t going to want to enter into any smart contracts if it costs a thousand dollars to do so. Nor are they going to want to buy NFTs, store their data, or play games that cost a hundred dollars in transaction fees to buy an outfit. Polygon is what will make it possible for Ethereum to handle mass adoption. - With Polygon potentially being able to handle up to 7,000 transactions per second, transactions can be processed in the blink of an eye. You won’t have to wait minutes or hours for your smart contract to execute. Transactions also won’t cost an arm and a leg. With Polygon, you can complete hundreds, possibly thousands, of transactions for the price of one Ethereum transaction. That means more people using apps built on Ethereum and Polygon, and a bigger potential to become more mainstream.

Is Polygon Worth Investing In?

Polygon seems like a very hot cryptocurrency at the moment because so much is happening on it. Let’s take a look at some of the cool things happening with Polygon. Firstly, Polygon relies on Ethereum. This could be a con depending on what happens with Ethereum in the future, but right now it is a huge plus for Polygon because of how popular Ethereum is within the crypto community. If you want to build a blockchain project, Ethereum seems like it is the way to go. Building a project on Polygon means building a project on Ethereum. Right now, there are over 37,000 decentralized apps built using the Polygon network with many developers creating or moving apps each day. A couple of the popular dApps on Polygon you may have heard of are SushiSwap, a decentralized exchange, Curve Finance, which allows easy stablecoin trading, and Aave, a decentralized finance platform that lets users take out loans using their crypto as collateral. There are a lot of other awesome things going on with Polygon, too. Major businesses are getting involved with Polygon. Meta is one of the biggest players in the world of the metaverse. They own many companies, including Instagram, who recently added the functionality to include NFTs on their platform. These NFTs are hosted using the Polygon blockchain. Meta is testing out NFTs on Instagram first, but is looking to expand into Facebook if all goes well. Starbucks is another major business that has taken a liking to the Polygon ecosystem. They have begun to offer an NFT-based loyalty program that is built upon Polygon called Starbucks Odyssey. Customers will be able to earn or purchase NFT collectibles that will have real life benefits at Starbucks. Disney chose Polygon as one of the six companies to participate in an Accelerator program aimed to help innovative companies grow. Polygon will begin helping Disney develop new technologies for the company like NFTs. A huge win happened for Polygon when the payment processing company, Stripe, revealed that it had chosen Polygon to process its cryptocurrency payments. According to the company, they chose Polygon for its low fees, high speed, and compatibility with the many wallets on Ethereum. Stripe will make it easy for small internet businesses to accept cryptocurrency like Polygon as a form of payment. Lastly, a personal story. I went to a Monday Night Football game where the Buffalo Bills faced off against the New England Patriots. After the game, everyone who had a ticket was given an NFT to remember the game by. Looking into this, it turns out the NFT was hosted on Polygon. Too bad it will only remind me of the Bills’ loss. With everything that is going on around Polygon, the fact that it gets to ride the wave of the second biggest cryptocurrency, and all the major companies developing on Polygon, it looks to be a solid contender when thinking about which cryptocurrencies to invest in. Disclaimer: Remember, this is not financial advice. Cryptocurrency is a speculative asset no matter how good the project may seem. Invest at your own risk.

The Future of Polygon

When doing research about a cryptocurrency, it’s not only important to know what is going on now, but also important to look ahead into the future. Polygon has many technologies that it is looking to develop to improve it for the future. Their roadmap includes more development into ZK Rollup technology, privacy technology, a blockchain based identity system that allows users to privately use the web while also confirming their identity, and enterprise chains. As its technology gets better, Polygon will attract more developers to build on top of it. If more major businesses and developers start to use Polygon to develop dApps or use it to create NFTs for their companies, then the future of Polygon is looking bright! However, there is one major question that a lot of people have asked about Polygon.

Will Ethereum 2.0 Kill Polygon?

Ethereum is in the middle of a series of upgrades that will ultimately lead to Ethereum 2.0, a proof-of-stake blockchain with shard chains. Shard chains are like a form of sidechain meant to speed up transactions and lower fees. Recently completed, The Merge, was phase 1 of the upgrade. Shard chains are phase 2, which is currently being worked on. So many people are wondering if there is any place for layer 2 cryptocurrencies like Polygon in a world with Ethereum 2.0. According to the Ethereum co-founder, Vitalik Buterin, layer 2 cryptocurrencies like Polygon will still be important to Ethereum even after the full upgrade. Polygon isn’t in competition with Ethereum, and instead, is a compliment. The technologies that Polygon brings like ZK Rollups, Optimistic Rollups, and Plasma Chains will still be important for helping scale and keep costs down on Ethereum. Remember, Polygon is not just a scaling solution, but an entire ecosystem with projects being built on it. These projects can be simple dApps, or full blown blockchains with their own communities. Even with Ethereum 2.0, users will not be able to use a shard chain as their own blockchain the same way that Polygon lets you build a blockchain. Even though Ethereum will be getting faster with these, there will still be a place for Polygon.

Possible Future Prices of Polygon

I like to do this at the end of every coin post because it’s fun to see the possible prices of cryptocurrencies based on if they had a certain market cap. I made a whole post about prices of top cryptos if they had a trillion dollar market cap. Currently, Polygon has a $6.1 billion market cap with a price of $0.70 per MATIC. At its all time high, Polygon’s market cap was about $20.4 billion, which meant the price was $2.87 at the time. If the max supply was circulating at this market cap, each MATIC token would have been worth $2.04. If Polygon reached a 25 billion dollar market cap each MATIC would be worth about $2.50. At a 50 billion dollar market cap, MATIC would be worth $5.00 each. If Polygon could hit a $100 billion market cap, each token would be worth $10.00. A $250 billion market cap for Polygon means that MATIC would be worth $25.00 each. At 500 billion, MATIC would be worth $50.00 a piece. And finally, If Polygon could make it to a 1 trillion dollar market cap then each MATIC token would be worth $100.00. Summary Polygon is a layer 2 platform that allows developers to build decentralized apps and blockchains that are fast, cheap, secure, and compatible with the Ethereum network. Its token is called $MATIC, which is used for staking and governance. Polygon is important because it helps dApps and blockchains scale Ethereum. Since Ethereum can only produce 15 transactions per second, in order to have your transaction be added to the blockchain you need to outbid everyone else with a higher gas fee. This can lead to absurdly high fees for even the smallest transactions. Polygon is a sidechain to Ethereum, meaning that it runs independently, but is connected to the main blockchain. Polygon validates its own transactions with proof of stake, packages these transactions up, and reports the total to Ethereum as one transaction. Doing this, developers are able to bypass the slow transaction time and high gas fees, but still take advantage of Ethereum's ecosystem. Polygon is developing better scaling technologies that will help Ethereum become more easily adapted by the masses. Since it is an ecosystem itself, odds are that the Ethereum 2.0 upgrade won't kill Polygon. Polygon is a good project with a lot going for it. Many major businesses like Meta, Starbucks, and Disney are playing an important role by developing on Polygon. Now that you have learned all about Polygon, you can learn about another cryptocurrency, Polkadot!
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