So, today the promised post about Polygon. Unfortunately, I'm not 100% satisfied with the post, because 1. you have to throw a lot of unexplained terms into the room (otherwise the frame is completely blown up) and 2. because the sources for cryptocurrencies really do not give much (most information is just on the main page of the cryptocurrency itself and many other websites seem so semiserious). Nevertheless, I'm going to publish this post anyway, because there's a lot of time and information in it.

What is Polygon?

Polygon is a cryptocurrency (currently ranked 15th in terms of market capitalization) that primarily aims to scale Ethereum with the motto: "Bringing the world to Ethereum".

For this purpose, Polygon offers different scaling options for Ethereum, all of which are not to be found on Layer-1 (where the Ethereum mainchain is located in this case), but run on Layer-2 sidechains. The associated coin is also called MATIC or MATIC token, as the network still had this name before the rebranding to Polygon.

How is Polygon different from Ethereum?

The main difference between Ethereum and Polygon (in terms of usability) is the number of transactions that are possible (in a period of time, e.g. per second) and the amount of gas fees, i.e. the cost a user pays for the transaction.

Comparison of these metrics:

Number of transactions -> Ethereum: 15 transactions per second vs. Polygon: 65,000 transactions per second [1].

Gas fees -> Ethereum: ~$5 (usually fluctuates quite a bit) [2] vs. Polygon: ~$0.002 [1].

From a purely technical perspective, the biggest difference is the consensus method used, which is based on PoW (Proof of Work) for Ethereum (as well as BTC) and PoS (Proof of Stake) for Polygon.

PoW involves solving time-consuming and computationally intensive puzzles (also known as mining) to create new blocks on the blockchain, and PoS achieves consensus by users providing their holdings of MATIC tokens to the network, thus becoming validators and being rewarded for their provided stake in the form of tokens through the so-called staking process. [3]

In a simple analogy, Ethereum can be thought of as a poorly developed highway network in which there is always congestion and additional high fees are incurred through a toll. In this analogy, Polygon is a well-developed network of rural roads that run parallel to the highway and get many more cars from A to B in the same amount of time, forgoing the high tolls.

Why does Polygon have potential (in my opinion)?

- 7000+ dApps (Decentralized Apps), numerous partnerships and meanwhile already many projects with well-known brands (NFL, Prada, Adidas, BurgerKing + more).

- Polygon has a maximum total supply of 10 billion MATIC tokens. In the top 15 cryptocurrencies by market cap, only 4 coins have such a maximum number of coins. Besides MATIC, these are: Bitcoin, XRP, and Cardano. In the case of Bitcoin, this limited number of coins is one of the reasons why Bitcoin is considered a kind of digital gold. Moreover, after the latest upgrade to EIP-1559, MATIC tokens will also be vebranded in the future, which is why the number of 10 billion tokens will reduce further [4].

- Lower energy consumption due to PoS mechanism: especially compared to a Bitcoin or Ethereum transaction, Polygon consumes only a fraction of CO2 emissions [5].

- High user growth in recent months: Polygon was able to increase the number of average DAU (Daily Active Users) from KW17 2021 to KW41 2021 from just under 20k-30k to over 400k. They also managed to increase the number of unique Daily Active Addresses from almost 0 to over 400k in 2021, and by the end of September 2021, they even overtook Ethereum in terms of Daily Active Addresses (Unfortunately, there have been no updates on the numbers since then, so I can't say what the further development looks like in the last six months). [6]

- Web3 and Metaverse ambitions: Polygon wants to become in so-called Web3 what Amazon Web Services is in Web2. It also wants to play an important role in the Metaverse. [7]

- Venture capital from well known institutions (Sequoia Capital) -> invested $450m in Polygon a few days ago. [7]

- The co-founders of Polygon see Polygon as a top 10 project in the medium term and a top 3 project in the long term (after BTC and ETH). They justify this primarily with the different scaling possibilities of Polygon, which will continue to exist even after the introduction of ETH 2.0.

- With Polygon Studios, a company was founded that wants to tackle Web3 topics around gaming, entertainment, sports, etc.. CEO is Ryan Wyatt, former Head of Gaming at YouTube. [8]

What risks does Polygon bring to the table?

- As with all cryptocurrencies, the market is unregulated and unlike stocks, for example, there are no real criteria that can be used as a basis for valuation (such as revenue, profit, etc.). There are now also around 17,538 cryptocurrencies [9]. When people talk about a bubble here, I'm really not averse to agreeing in parts.

- If ETH 2.0 really solves Ethereum's scaling problems reliably, this poses a threat to Polygon's utility. However, since it is not certain when and if ETH 2.0 will come, or if it will be there, whether all scaling problems will be solved at all, this point remains very vague. Especially because Polygon is already working on further scaling options [10].

- Besides Ethereum, there are of course many other cryptocurrencies that promise high scalability and low gas fees. The competition does not sleep and should other projects establish themselves here that have advantages over Polygon, the pressure on Polygon will grow all the more.

- It is often criticized that some whales (partly also the Polygon founders themselves) hold large parts of the tokens and that the network has thus become too centralized (which is of course in contrast to the decentralized approach of cryptocurrencies).

- Since the newly created MATIC tokens largely go to the founders and the Foundation itself and then end up on sale, this has contributed to additional selling pressure over the last few months.

Conclusion

In my eyes, Polygon definitely has potential. Web3 or the Metaverse in particular are interesting future technologies that Polygon would like to get involved in. The current build-up of partnerships and the number of dApps and users strengthens these future prospects. Whether Polygon or any of the current or future cryptocurrencies will prevail in the future, however, I am not in a position to judge. Therefore, these are all just my thoughts and in no way any kind of investment advice. Thanks for reading and a good start to the week to all!

References:

[1] https://polygon.technology/solutions/polygon-pos

[2] https://etherscan.io/gastracker

[3] https://docs.polygon.technology/docs/home/blockchain-basics/consensus-mechanism

[4] https://blog.polygon.technology/burn-matic-burn/

[5] https://blog.polygon.technology/why-eco-friendly-projects-choose-polygon/

[6] https://blog.polygon.technology/polygon-pos-in-numbers-october/

[7] https://www.cnbc.com/2022/02/07/sequoia-leads-450-million-investment-in-polygon-blockchain.html

[8] https://variety.com/2022/digital/news/youtube-ryan-wyatt-gaming-polygon-crypto-1235162986/

[9] https://coinmarketcap.com/de/

[10] https://polygon.technology