Polygon: A Deep Dive

Isn’t this crypto space chaotically complex and confoundingly confusing? It’s one thing to try and wrap your head around a virtual money called Bitcoin, but push a little further and you’ll enter the world of sidechains, layer 2s, zero knowledge, etc. You may as well get a pan and brush ready because your mind will soon be blown to smithereens.

One such complex cryptocurrency that has repeatedly appeared in the news recently is Polygon (ticker $MATIC), as it flirted with the $1 mark after having been as low as $0.30 little less than a month ago.

So what’s behind this bullish momentum? Shall we take a look?

I first learnt about Polygon when it was still called Matic Network. Seeing as the project was co-founded by 3 Indians, I had a naïve investment thesis that should India eventually change its stance on crypto, then taking the country’s population into account, this project was set for monumental growth. It was only afterwards that I began to uncover the true utility that it served to Ethereum and the even bigger picture Matic was painting for itself.

Hmm… I see this is going to be a tricky one. So let’s start with the basics, and in this case that means starting with Ethereum.

Whether you’re a long time participant in crypto, or a new arrival (welcome!), you eventually come across Vitalik Buterin’s concept of the “blockchain trilemma”.

The issue is that by focusing on two points of the triangle, you sacrifice dedication to the third. Over the years, Ethereum has become successful due its level of security and decentralisation. In its current form however, this equates to high transaction fees and comparatively slow speed. Despite these hurdles, Ethereum remains the most used blockchain with the highest amount of activity. People place a lot of trust in the chain’s security. A quick glance at a comparison of TVL (Total Value Locked) demonstrates Ethereum’s lion’s share of the decentralised finance (DeFi) pie:

Now I hear you. You tried Ethereum once and it cost you 50 bucks just to send 10 bucks. I get it.

Well yes, you’re right, to a certain extent. The truth of the matter is that there are people and protocols out there that just so happen to have extremely large amounts of money and security is their number one issue when making large transactions. A double (or even triple) digit transaction fee is meaningless when they’re dealing with millions of dollars.

The transaction fee issue was certainly one of the biggest accelerators in 2021’s layer 1 competition, a battle for market share that looked to lure away less affluent market participants from Ethereum’s clutches. Layer 1 blockchains that benefited from this activity included Binance Smart Chain (BNB), Solana (SOL), Avalanche (AVAX) and Terra (Luna) to name but a few. These alternatives offered a considerably better user experience when it came to speed and transaction fees. However, with considerably less validators and younger, less-proven track records, network security is not as trusted on these alternatives.

In anticipation of a magical technology that solves this holy trinity of user experience, Ethereum does indeed need to offload some of that traffic. Think of it as adding extra lanes to a motorway.

Let’s take a quick moment to think about a blockchain’s core functions. Having a grasp of these principles is key to understanding the roles that Polygon’s various scaling solutions have to offer.

The nodes supporting the network need to come to agreement about the latest group of transactions that will enter a block and be added to the chain.

The computation of all transactions, resulting in a change of the state of accounts. This is the application of smart contract codes, allowing users to participate in a variety of activities.

This is the process of storing the relevant data linked to accounts and their transactions.

So from a simplistic high level point of view, that’s what a blockchain network does. Here are some brief examples of how scaling a blockchain can be done:

Using channels is a useful method for scaling payments, allowing participants to open up off-chain peer-to-peer payment streams. Lightning Network is arguably the best known channel payment system and is used as a method to reduce traffic on the Bitcoin network.

Typically a sidechain runs alongside a mainchain yet can operate with its own consensus and security models. In the case of an Ethereum sidechain, a desirable goal would be to achieve interoperability with the EVM (Ethereum Virtual Machine). Skale and Gnosis are examples of Ethereum sidechains.

This technique involves the creation of so-called child chains. It’s a complex topic but to keep it short, think of it like having a copy of the main chain running in parallel. This connection is made possible through the application of purpose built smart contracts. The advantage of such a system is that the child chain constantly relays its state updates to the parent chain; meaning that should the child chain fail, its last known state can be recovered from the parent chain. Polygon PoS is a well-known example.

ZK (zero-knowledge) and Optimistic are two different types of rollup mechanisms. Without going into too much detail, the trick is to periodically batch large amounts of transactions by compressing the information into 1 block of data and send this back to the base layer.

Optimistic rollups place transactions in a sort of time capsule (usually 7 days) during which time anyone who finds fault can submit proof (called “fraud proofs”). If no faults are found, they are accepted and transported to the base chain. The mechanism works on an honour system where the main chain needs to be optimistic about the work carried out on the other chain. Examples of Optimistic rollups include Arbitrum and Optimism.

ZK-rollups however rely on a much more complex method that uses advanced mathematics to prove that all transactions are valid. The resulting “validity proof” is sent to the base chain and is accepted as is. zkSync and Loopring are examples of ZK-rollups.

Matic network was co-founded in 2017 by these 3 chaps:

Their approach was different to that of many other Ethereum alternatives. The so-called ETH killers (BNB, AVAX, SOL, etc.) were working hard at luring users away from Ethereum. Polygon on the other hand aimed at keeping users within the ecosystem, by offering a fluid user experience that remained underpinned by the security of the Ethereum main chain. Over time the team has expanded and multiple Ethereum scaling solutions have been tested and are now beginning to roll out.

Ok, let’s recap:

We want to scale Ethereum by taking traffic off-chain.

We are aware of the various blockchain functions (consensus, execution and data).

Finally, we’ve learnt about some of the scaling solutions that exist today (channels, sidechains, plasma, rollups).

How does Polygon approach this? By offering various user-specific solutions. Pay attention now as this is the big brain part. We’re going to go through the various scaling solutions in order of their current status: Live/Beta testing/In development.

Polygon PoS is a proof-of-stake sidechain that is compatible with Ethereum’s Virtual Machine. The connection is made using a plasma bridging framework.

Interesting to note is that the staking mechanism of the native token MATIC actually occurs on the Ethereum main chain.

According to Polygon’s website, some key metrics include: ~2.7 million monthly active users, transaction speeds of up to 7,000 tx/s, approximately ~10,000x lower costs per transaction than Ethereum.

The ecosystem has seen immense growth since May 2021 and has now amassed over 150 million unique addresses on Polygon.

For more info visit: https://polygon.technology/solutions/polygon-pos/

Whereas Polygon PoS is a sidechain to Ethereum, Polygon Hermez is a layer 2 ZK-rollup. Given its structure, it aims to be a fast and efficient way to transfer tokens, ideal for a payments system.

This particular solution is the result of a recent merger where Polygon acquired another blockchain protocol called, you guessed it, Hermez Network.

According to Polygon’s website, some key metrics include: a throughput of 2,000 tx/s, over 90% reduction in token transfer costs, withdrawal to Ethereum within a few minutes.

For more info visit: https://polygon.technology/solutions/polygon-hermez/

This is Polygon’s SDK (Software Developer Kit). It’s basically a suite of tools that enables developers to quickly and easily set up and run their own modular blockchains. A similar concept as used in the wider Cosmos ($ATOM) ecosystem, using an SDK permits cross chain communication between the blockchains built on the same underlying toolkit.

For more info visit: https://polygon.technology/solutions/polygon-edge/

Nightfall is an interesting solution built in collaboration with Ernst & Young which aims to combine the benefits of both optimistic and ZK-rollups into one protocol. This results in a privacy focused environment. Now your first thought of online privacy might be to think about buying lingerie or questionable white powders but the utility actually goes much further than that. As larger companies and institutions begin to enter the space they will undoubtedly require legitimate privacy for their own business activities to avoid industrial espionage. Use cases proposed by Polygon include supply chain orchestration, private NFT marketplaces and blockchain mixers.

Considering that this is a privacy focused hybrid solution it is not as cheap or as fast as other solutions on offer, but that is the trade-off to achieve these results.

For more info visit: https://polygon.technology/solutions/polygon-nightfall/

This is the data availability solution that the team envisages for their ecosystem.

Although it’s a separate blockchain, it’s purpose is to offload data bloat for other chains, such as Polygon Hermez which is more execution oriented.

Important to note is that, according to Polygon, the system is capable of scaling up as the number of users increases, which in turn increases the availability of data.

For more info visit: https://polygon.technology/solutions/polygon-avail/

This is also a ZK-rollup, similar to what we saw in Hermez. Whereas Hermez was built with EVM compatibility in mind, Miden focuses on a new VM, the Miden VM, which looks set to offer more advanced features than what is currently on offer with the Ethereum Virtual Machine.

According to Polygon’s website, this solution offers speeds of over 1000 tx/s and a withdrawal time (to Ethereum) of 15 mins. These metrics do seem inferior to those of Hermez however the trade-off is that Miden has the potential to offer superior solutions by leveraging its advanced virtual machine.

For more info visit: https://polygon.technology/solutions/polygon-miden/

You guessed it, yet another ZK solution. Speed is the name of the game with Polygon Zero as the technology utilises a ground-breaking prover mechanism called Plonky2 for generating the ZK proofs. The protocol scales horizontally by limiting throughput not by the weakest node, but by the network’s combined compute power.

According to Polygon’s website, this solution generates 45kb ZK proofs within 170 milliseconds.

For more info visit: https://polygon.technology/solutions/polygon-zero/

This one is not on the chart above, but is an incredibly important technology solution nonetheless. Polygon ID leverages ZK technology to prove something about yourself. What does that mean? Well, the short version is as follows: no more sending unencrypted emails with photocopies of your ID card, no more security guards staring at the address on your ID card, no more insights into your date of birth when justifying you’re above a certain age; the list goes on…

Instead of exposing more data then absolutely necessary, ZK technology allows you to compartmentalise the data and have these individual data sets accessible for specific queries. Answers could simply be affirmative or negative, such as in the case of “are you over 18?” (current day interactions usually require you to provide your entire date of birth).

It’s a simple yet powerful example of what can be achieved through zero knowledge proofs. You provide proof of what’s required while giving zero knowledge away. As digital identities are becoming more important in our daily lives, the emergence of this privacy focused technology could not come at a better time.

For more info visit: https://polygon.technology/polygon-id

That’s quite a lot of tech that the Polygon team is working on at the moment. Being at the forefront of scaling Ethereum is an enviable place to be so the team is capitalising on this by branching out into other business opportunities. Outside of their technology solutions, Polygon has various initiatives ongoing, such as Polygon Funds and Polygon Studios, which looks to be a promising Web3/NFT/Metaverse initiative seeing its involvement with projects such as Decentraland and Sandbox. It’s clear to see that the team is aiming to be the gel between web3 crypto developers and “traditional” gaming developers.

The work being done on their business development side has been impressive to say the least. The following headline partnerships have all been announced in 2022:

Adidas, January 20, 2022, Adidas Originals and Prada announce a first-of-its-kind open-metaverse & user-generated NFT project

Stripe, April 22, 2022, Expanding global payouts with crypto

Instagram, May 10, 2022, Introducing Digital Collectibles to Showcase NFTs on Instagram

Reddit, July 7, 2022, Blockchain-Backed Collectible Avatars Coming to Reddit via New Storefront Reddit

Disney, July 13, 2022, 2022 Disney Accelerator Participants Announced

We’ve seen all the encouraging developments underway in the Polygon ecosystem. It’s straightforward right? Mortgage your house, take out a massive loan, pawn your wedding rings and shotgun a 100x leveraged catapult to the moon, right?!

Look guys and gals, you know the deal, none of this is financial advice. You, and only you, must decide what to do with your hard earned money.

However, after having painted such a lovely picture I want to inform you of a few more things before you make your well-researched decision. You guys do research before you invest, don’t you?

We need to understand that at its core Polygon is a business, albeit cloaked in the appearance of a decentralised protocol. By offering all this scalable technology and utility, they are bringing value to their ecosystem. This value is represented by the appreciation in price of the MATIC token, which is used as a gas token for transacting within the ecosystem. It’s not attempting to be the next reserve currency or a store of value. The success of the token depends not only on the adoption of the ecosystem but also on a variety of other elements, such as:

Matic has a capped supply of 10 billion tokens. Currently the supply is around 8 billion, meaning 20% of the max supply has yet to be released in the market.

19% of the total supply was sold to the public in April 2019 for a price of $0.0026 per token. That’s quite the rise for those early buyers; how many have diamond hands?

Here is a more detailed breakdown of the token distribution and the release schedule:

Whatever your concerns (or lack thereof) may be about the token distribution, it is interesting to note that Polygon implemented their own version of Ethereum’s EIP-1559 proposal. This is a token burn mechanism that many deemed to have been a success. In short, the more the network grows, the more tokens get burned. Should the burn outpace the issuance, the currency enters into a deflationary trajectory.

One thing that we all need to take into consideration is that mass scale regulation is looming above the crypto space like a dark thundercloud. The wonderkids of today could end up being the whipping boys tomorrow. Eventual regulatory shakeups could see some calamities occur, but until we get some clarity, it’s hard to predict who those scapegoats will be. Please note that this word of caution is not directed squarely at Polygon or its founders. It is merely my personal opinion that one should tread with caution and calculate their risk accordingly when participating in unregulated territory.

So how does one climb aboard the Polygon bandwagon? Well you’ll need a wallet first of all and a good a place as any to get started is Metamask. As Metamask is an Ethereum wallet, you’ll first need to set up Polygon as a custom network. This is relatively simple. Make sure you go to the correct Metamask site (https://metamask.io) and double check the site’s address!

Before we run off and play with some dApps (decentralised applications), let’s quickly get ourselves acquainted with the native Polygon explorer: Polygonscan. This is a useful site where you can review contracts and addresses on the Polygon PoS chain.

OK, now it’s time to discover some dApps. There are a lot of them, over 19,000 at the time of writing! Notable projects that have chosen to operate on Polygon include OpenSea, Aave, Curve, Quickswap, Uniswap and Lens Protocol to name but a few. Head over here for a more comprehensive view of the Polygon ecosystem.

Thanks for joining me on this journey through the Polygon ecosystem. Whether or not you align with their vision for scaling Ethereum, I believe we’ve deciphered some useful concepts and terminologies that we can also use to research and better understand other projects in the crypto space.

If you found any value in this article, then let me know what you think, I’d love to read your feedback.