6 Things to Consider Before Purchasing Polkadot

If you are thinking about purchasing Polkadot, it is important to make sure you do not simply dive right in with little thought or consideration.

A lot of people see the stories about people making money from cryptocurrency so they decide to pour all of their savings into crypto coins, without any strategy or research. This is never a good approach to take.

So, whether you decide to buy Polkadot on Moonpay, Coinbase, or any other platform, make sure you continue reading first so that you have all of the information you need.

After all, it is still very early days for this technology and you need to make sure you understand Polkadot before you go ahead and put your money into it.

1. How Polkadot works

The first thing you need to consider is how Polkadot works. If you do not understand the mechanics of a cryptocurrency, you won’t be able to understand what makes it different or how to invest in it properly.

One thing to know about Polkadot is that it can talk to other networks. The biggest programmable blockchain in the crypto sector at the moment is Ethereum (ETH). It is believed that more than 80 percent of Dapps are built on this network, according to the State of the Dapps.

However, Ethereum has struggled to keep up with this dramatic growth. This is why Ethereum 2.0 is on the cards. At present, the network is expensive, congested, and slow. It also does not work well with other networks.

Enter Polkadot. This is more scalable, quicker, and it has been designed so that it can work with other networks in an effective manner. So, for instance, you could build applications that are used on both the Bitcoin and Ethereum blockchain if you wanted to.

Furthermore, the parachains help to lower congestion. Instead of all of the applications being pushed through one network, on Polkadot, every application will have its own parachain, which is essentially like a mini blockchain, and this will connect back to the main chain.

What this means in practice is that should there be an increase in demand for one specific application, it is not going to impact the performance of all applications on the blockchain.

So, as you can see, there are some key differences between Polkadot and the other cryptocurrencies available today. Make sure you conduct thorough research before you decide where to invest your money.

2. How much can you afford to lose?

The next consideration is your own finances. You need to determine how much you can afford to lose before you go ahead and invest in Polkadot.

It does not matter how much you believe in this cryptocurrency, you can never guarantee anything in the world of investing. Plus, cryptocurrencies are highly volatile because they have not been around for long.

Because of this, you should never invest anything that you cannot afford to lose. As soon as you put that money into cryptocurrency, you should consider it gone.

If you have savings that you have put aside to invest in a property, do not put these savings into cryptocurrency. Polkadot is certainly not the place for your emergency fund. Instead, it should make up a portion of your investment portfolio.

Notice how we used the word portion? That’s right! A sensible approach would be for cryptocurrencies to only make up between five and 10 percent of your investment portfolio. This will help to protect you from any risk should there be any volatile price swings in the future.

3. Determine whether you think Polkadot has long-term potential

We cannot tell you that you should invest your money in Polkadot. We cannot tell you that it is going to bring you huge returns in the future. This is something you need to consider yourself. It is your money, and you need to make an educated decision on where to invest it.

Polkadot has not been around for very long. It was launched back in the summer of 2020. At the time, it traded at $2.76 per coin.

According to Coinbase, the current price of Polkadot is $8.1305 per DOT. However, if you think that the price has steadily increased over the past two years, think again! As is the case with cryptocurrency, it has been incredibly volatile.

The crypto coin reached an all-time high of $55, meaning it is now currently 85.22 percent below this, despite being higher than the launch trading price.

We have the recent crypto price slump to thank for the drop in value. So, does this mean that you should avoid crypto like the plague right now? Or, is now the perfect time to purchase while the prices are lower?

We cannot answer these questions for you. The price could dip further. Or, you could see huge gains in the coming year. It is important to have patience, though, so you can ride out any short-term losses.

When you are considering your Polkadot purchase, you need to think about the timeframe. How do you view this investment? Are you in it for the long haul? What is your risk profile? Do you have the nerve to ride out the slumps? Understanding yourself as an investor is just as important as understanding Polkadot as an investment.

4. Choose a crypto exchange with care

Next, you need to consider which crypto exchange you are going to use. There are a number of different exchanges on the market today that enable you to trade Polkadot, yet not all of them offer this cryptocurrency. In fact, there are quite a lot of exchanges that are yet to add this coin to the mix.

Two of the most well-known and popular options include Kraken and Coinbase. In the United States, Coinbase is undoubtedly the most popular option, and it is more beginner-friendly. However, Kraken has more features, so if you can handle a bit of a steeper learning curve, this may be a better option.

Remember, you do not necessarily need to use an exchange to buy crypto. There are solutions like Moonpay where you can easily purchase and sell Polkadot using Apple Pay, bank transfers, or your credit card.

5. The brains behind the platform

You may be interested and even reassured to learn that one of the founders of Polkadot also co-founded Ethereum, i.e. Dr. Gavin Wood. Dr. Wood was the Chief Technology Officer at Ethereum before moving on to co-found Polkadot.

The other two co-founders, Peter Czaban and Robert Habermeier, have great credentials in crypto and solid backgrounds in distributed technology and cryptography.

It is important to do your research into the people behind the platform as well. After all, just as much as you are investing in crypto coins, you are actually investing in the people that are created in them. You are trusting in their judgment and that they will do the right thing for the platform.

You should also take a look at the developers that are using Polkadot. Research shows that Polkadot had 840 developers in 2020, and this increased to 1,400 developers in 2021, which is a good sign.

6. Understand the competition

The final consideration you have before investing in Polkadot is the competition the platform faces. After all, there are a number of competing cryptocurrencies in this space, and it is vital to understand this so you can determine whether or not you feel their threat is too big.

Of course, very few cryptocurrencies have been able to touch Ethereum so far. In the long run, there is definitely room for a number of players, yet not all of them are going to be a success.

And remember, it only takes one thing to reduce the confidence of Polkadot, such as a data breach. At the same time, this could happen to one of the competitors, which would strengthen Polkadot’s position.

Some of the other movers that are worth paying attention to in the programmable blockchain market include NEO, EOS, and Cardano (ADA).

Cardano and Polkadot are often referred to as possible Ethereum killers. Like Polkadot, Cardano has a well-thought-out concept and a strong team.

Final words on purchasing Polkadot

As you can see, there is no denying that Polkadot occupies a very exciting and progressive part of the market. It possesses features and characteristics that other crypto coins simply do not.

While it is not difficult to see why people are attracted to this cryptocurrency, you still need to make sure that it is right for you. Plus, you should never invest more than you can afford to lose. As is the case with any investment, nothing is guaranteed and the market could move against you.