What is Polygon and how does it work? Everything you need to know

Polygon (MATIC) presents itself as an enhancement to certain cumbersome features of Ethereum (ETH), positioning itself as "Ethereum's internet of blockchains." Established in 2017, Polygon, formerly Matic Network, is a widely recognized cryptocurrency frequently found within the top 15 cryptocurrencies based on market capitalization. MATIC facilitates over 7,000 decentralized applications (dApps), which operate without intermediaries.

Polygon & Ethereum

To grasp Polygon's role, one must understand Ethereum and essential blockchain developer concepts. Developers often grapple with the "blockchain trilemma," balancing decentralization, security, and scalability.

Ethereum, the second-largest cryptocurrency, suffers from scalability issues, resulting in slow transaction speeds and high costs due to its focus on decentralization and security over scalability. Polygon steps in to address these challenges by prioritizing faster transactions and lower costs.

While Ethereum operates as a Layer 1 blockchain for dApps and NFTs, Polygon serves as a Layer 2 solution, complementing Ethereum's capabilities. It enhances transaction speeds and reduces costs without replicating Ethereum's functionalities, akin to an express train running alongside a local one.

Currently, Ethereum processes 14 transactions per second (TPS), while Polygon achieves speeds of up to 7,000 TPS, offering a cheaper and quicker alternative. Despite Ethereum's anticipated TPS increase post-network upgrade in September 2022, Polygon's cost-effective solutions are expected to continue attracting developers, maintaining its relevance.

What is MATIC?

MATIC serves as the native cryptocurrency of Polygon and operates as an ERC-20 token on the Ethereum blockchain. It plays a crucial role in governing and securing the Polygon network, as well as covering transaction fees.

Unlike certain cryptocurrencies with unlimited supplies, MATIC has a capped supply, with approximately $7.4 billion currently in circulation, ensuring that the total supply never exceeds 10 billion coins.

Polygon utilizes a proof-of-stake consensus mechanism, incentivizing token holders to maintain the network and validate transactions. Participants stake their tokens, locking them up to qualify for staking rewards. However, there are associated risks, including potential loss or full liquidation of the stake. Staking can commence with as little as 1 MATIC, although many individuals delegate their staking to a validator rather than running their own validator node. Validators typically receive a commission of 1% to 10% from staking rewards as compensation.

How to buy Polygon (MATIC)?

MATIC can be purchased on various cryptocurrency exchanges like Coinbase or Gemini, much like many other popular cryptocurrencies. To begin, you'll need to create an account and complete the identity verification process if you haven't already done so.

Once your account is set up, you can buy MATIC using methods such as bank transfers, wires, debit cards, or credit cards. Several exchanges, including Coinbase and Kraken, allow you to purchase MATIC using U.S. dollars or other fiat currencies.

Certain exchanges offer staking services, enabling you to earn interest on your MATIC holdings while they're stored on the platform.

Decentralized exchanges like Uniswap also facilitate MATIC trading.

Depending on the crypto wallet you use, you might have the option to utilize a payment processor, known as a fiat on-ramp, to directly purchase MATIC. Alternatively, you may need to acquire a different token first and then exchange it for MATIC, possibly incurring a fee for the swap.

For those interested in acquiring MATIC on the Polygon Mainnet, the official Polygon Bridge allows for depositing and withdrawing MATIC once you connect a compatible wallet.

What is the projected peak of Polygon cryptocurrency?

Polygon garnered attention with its inclusion in the 2022 Disney Accelerator, which emphasizes emerging technologies like augmented reality, non-fungible tokens (NFTs), and artificial intelligence to enhance storytelling.

Disney joins other major firms collaborating with Polygon, such as Meta, which intends to explore digital collectibles and feature NFTs on its Instagram platform.

While it's challenging to forecast the MATIC token's price accurately, many individuals remain optimistic about the project's prospects.

Investing in Polygon

Cryptocurrency markets are known for their volatility, and prices can fluctuate rapidly, posing challenges for short-term investors. If you're considering Polygon as a long-term investment, it's essential to assess competition and risks. Other Layer 2 scaling solutions like Solana (SOL) and Cosmos (ATOM) are among its competitors.

Internal risks, such as management issues or project-related concerns, could also affect Polygon's trajectory. In December 2021, Polygon faced a security breach resulting in the theft of over 800,000 MATIC tokens. Despite this, the project paid significant bug bounties to white hat hackers who identified vulnerabilities.

Ron Levy, CEO of The Crypto Company, emphasized the importance of how such incidents are managed, stating, "If people lose faith in the blockchain itself, in Polygon and what it built, then things can go to zero real quick."