Updated: Jun 21
Hello, friends! This is James Agenda here.
Many people asked for reasons to invest in the Polkadot and Kusama Ecosystem.
Today I'm detailing the 5 main reasons why I invest 80% of my crypto portfolio in it:
If you want to save some time, you may navigate through the underlined topics.
First of all, let's talk a little about Portfolio Diversification.
What you really need to understand is that:
If you diversify your investments only in crypto assets, then you are not diversifying at all.
That's because there is (still) a significant correlation within crypto assets.
And this correlation is very strong.
So strong that:
There are even evidences that diversifying the crypto portfolio may be useless!
Diversification outside crypto is way more important than diversification inside crypto.
All that being said,
I'm comfortable having 80% of my crypto portfolio invested in the Polkadot & Kusama ecosystem.
And I don't concentrate my investments believing that DOT will perform better than other assets in this bull run.
Actually, I have zero experience in technical analysis,
And I do not care for the short term.
What I'm really aiming for is the long-term for Polkadot and Kusama Ecosystem.
Despite Warren Buffet not being a crypto fan, I like to follow his advice while I'm dealing with my crypto investments:
As I said, I have no idea, and I don't care about which coin will best perform this year.
I like the "buy and hold" for long-term strategy.
I'm focusing on the fundamentals that make me comfortable holding DOT & KSM for the next years.
And it's not about trying to maximize gains by taking more risks.
Instead, I feel safer holding DOT even than holding BTC or ETH for the long run, and I'll detail why now.
Through life, I learned that the gap between a good idea and success is mostly great execution.
When a new interesting crypto project pops up, the first thing I check is the team behind it.
"Who is going to make this project achieve its aimed goals?"
That's exactly what I thought when I first heard about Polkadot.
And, to my surprise, the main person behind Polkadot is Gavin Wood.
Dr. Gavin James Wood
If you want to go deeper into his vision, I recommend checking this video where Gavin Wood talks about Polkadot.
And if you want to go even deeper, I suggest checking this amazing "old" video where Gavin Wood talks about allegality. (or "alegality")
But let me summarize who Gavin Wood is:
Co-Founder of Ethereum and the mastermind behind Solidity (Ethereum's programming language).
Here is a video of Gavin and Vitalik pitching Ethereum for investors at the Silicon Valley:
I found this particular comment on the video:
Of course, alongside Gavin, there is the extremely brilliant Jutta Steiner and many other genial people.
Indeed, Polkadot is one of the fastest growing developer communities.
Polkadot is NOT an Ethereum Killer
Both Gavin and Jutta are cofounders of Parity Technologies.
Parity wasn't created to kill Ethereum, but instead to expand it!
And this is a crucial strategy!
Ethereum is the second biggest blockchain by market cap.
Trying to "kill it" is almost a suicidal strategy for any project.
Take a look at what happened to the top "bitcoin killers" by market cap in 2013:
Instead of trying to become a "Bitcoin Killer", Ethereum was developed to become something else.
Ethereum did not try to directly compete with the blockchain leader.
Instead, it focused on creating a broader and more abstract solution than Bitcoin while embracing it.
And that's precisely what Polkadot is doing to BTC and Ethereum: embracing both!
And Polkadot is not only embracing both Bitcoin and Ethereum.
Ethereum created a solution that Bitcoin could not achieve.
In the same way, Polkadot Ecosystem brings something that Ethereum can't achieve.
And that's not because of Ethereum itself.
Polkadot Ecosystem has goals that aren't achievable by any single blockchain.
It's about things that we can only achieve by an ecosystem of blockchains.
Single blockchains have the technological limitations of their own structures.
Ethereum is an excellent Layer 1. But Polkadot Ecosystem is a Layer 0.
Bet against Blockchain Maximalism
Some Bitcoin maximalists once defended that we wouldn't need Ethereum for smart contracts.
They thought that we would create anything on Bitcoin one day, so Ethereum was useless.
But the time passed, and innovation does not wait.
And now we have Ethereum full of DApps, NFTs and DeFi solutions.
Now, some Ethereum maximalists defend that anything can be developed in Ethereum.
But the question is not if we could, but instead, if it is an efficient approach.
By being specialized in Smart Contracts, Ethereum works better than Bitcoin in this subject.
In the same way, a Defi specialized blockchain works better for Defi solutions than a not-specialized blockchain.
And the same happens for DApps, NFTs and any feature.
What is better: An Ecosystem of specialized blockchain or a single blockchain?
My only doubt about this was the network effect on the Ethereum blockchain:
"Is Ethereum already so big that a more efficient solution couldn't take his space?"
But after I saw the rise of BSC, caused by people looking for alternatives to Ethereum problems, I was not in doubt anymore.
People were willing to abandon decentralization for a better user experience.
This clearly showed me that Ethereum's network effect is still fragile.
The network effect will not be enough to hold Ethereum above better innovations.
Proof of Work vs Proof of Stake
Bitcoin Proof-of-Work was a revolutionary mechanism to validate transactions in a decentralized arrangement ("Bitcoin mining").
But it consumes a tremendous amount of energy.
Bitcoin already took a lot of criticism in the past and survived that.
But the ESG movement is increasing, and I forecast a more intense criticism on Bitcoin mining.
Proof of Stake, in another way, achieves the goals aimed by Proof-of-Work solutions, but using much less energy:
Ethereum is on its way to switch from Proof of Work to Proof of Stake, but it's been delayed by 5 years.
On the other hand, Polkadot is already built using Nominated Proof of Stake, a variation of Proof of Stake.
Polkadot Decentralized On-Chain Governance
The 5 years delay on ETH upgrade to Proof of Stake is an example of how Governance (not the government!) is vital to innovation.
Vitalik himself said that governance was the main reason for the upgrade delays.
Governance and centralization are usually mistaken as synonyms.
But Governance and Decentralization may indeed coexist.
Some may think that there is no governance on Bitcoin and Ethereum.
However, there were always some individuals and corporations pushing decisions.
The main example of this happening in Ethereum is the Ethereum Classic fork.
And about Bitcoin, I recommend this article.
There are implicit governance systems in both blockchains, coordinating the improvements.
But, different from Bitcoin and Ethereum, Polkadot has a governance system inside the Blockchain.
Therefore, any change is voted on the blockchain instead of outside it.
The main benefit of Decentralized On-Chain Governance is faster innovation without the need of hard forks.
Vitalik published last week a whole article recognizing that Decentralized Governance is necessary.
One of his suggestions is "Skin in the Game solutions" which has already been implemented in Polkadot and Kusama blockchains.
It means that the more vote power you have, the more you suffer from bad results.
This incentivizes the voters to really choose the best decisions for the ecosystems.
In 2009, when Satoshi created Bitcoin, humanity could manage a financial system in a decentralized way.
We'll soon be able to do the same with something much bigger than just finance.
I intend to expand each of these reasons in specific articles.
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