Come across Polygon (MATIC) while digging deeper into crypto recently? That’s for good reason.
Founded in India as Matic Network back in 2017, Polygon has boomed over the last two years. On 31st January 2020, one MATIC (the coin Polygon uses) was a mere £0.02. By December 2021, it had hit a current all time high of £2.18. At the time of writing, it’s worth £1.01 and, while that may seem way less than its peak, it still makes for a gain of over 4000 per cent across the last twelve months. That means if you’d bought £100 worth at £0.02 and decided to HODL, you’d now have £4200. Nice.
Big numbers. So what even is Polygon?
Polygon is a layer 2 scaling solution (more on that later), which has been built on Ethereum, and is designed to help the blockchain’s scalability and infrastructure. This is pretty handy, because these are some of Ethereum’s current limitations that are hindering it from possibly overtaking Bitcoin as the most valuable cryptocurrency (it already has way more capabilities than Bitcoin, but that’s another kettle of fish).
People can use Polygon when developing applications on Ethereum to create decentralised applications, smart contracts and more, while combining all the good security features of Ethereum with the low gas fees and scalability Polygon allows (it’s kind of like modifying your car to improve its performance). MATIC is the native crypto coin for Polygon (it’s a token, technically), which kept its name from when the platform was called Matic Network.
How does it work?
It’s quite technical, but a good way to think about it is to see Ethereum as someone who has a load of really large files to process. Polygon then goes, “give us some of them to sort out and we’ll send you back a compressed version to take a look at.” This means Ethereum doesn’t have to process all the files, making it quicker.
Right, but what does Layer 2 mean?
Layer 2 means that the blockchain is built using the foundations of another blockchain. In this case, Polygon blockchain has been built on top of the Ethereum blockchain. This means it borrows some features from Ethereum, such as being hyper-secure, but also adds a few features that improve speed and cost, relative to Ethereum. Loopring is another, lesser-known example of a Layer 2 scaling solution.
Is that good for Ethereum’s value too?
Ultimately, yes. Polygon refers to itself as “Ethereum’s Internet of Blockchains”, so it isn’t in competition with Ethereum. If anything, they’re codependent. The only downside is that if people were going to use Ethereum and are now switching to Polygon, it’ll dilute some of the value Ethereum would have gained. But that aside, Polygon improves Ethereum, which means more people will use the Ethereum blockchain, which increases the value. Same with Loopring. However, really Polygon is more dependent on Ethereum than the other way around, given it’s built on its blockchain.
What else makes Polygon a coin worth looking at?
Well, the main reasons to keep an eye on any crypto are that you like the technology or (if you’re just investing in crypto and not really using it) you at least think it sounds like good technology that other people will use. But Polygon does have uses beyond taking the load off Ethereum. You can stake MATIC using the blockchain which will earn you interest, for example.
The crypto market crashed loads recently, didn’t it? Is this really a good time to invest in MATIC?
Yeah, the crypto market crashed hard on Friday and is yet to show real signs of recovery. This means prices are cheap, but that’s a consequence of the fact that there’s been a big old drop in value, which might never recover. You can’t predict it. As for whether MATIC is a good investment, that’s entirely up to you. Some people do think it’s destined for big things, but it’s also still emerging as far as the main cryptocurrencies go. Do some research and don’t put in any more money than you can truly afford to potentially lose.
What about Loopring? Is that better?
They’re similar in some areas, such as that they both offer something called zk rollups (aka “zero-knowledge rollups”, which are used to validate data on a blockchain in a way that’s quicker than the more standard proof of stake mechanism). But Loopring has more of a focus on helping decentralised exchanges (along with a rumoured partnership with an NFT marketplace), whereas Polygon allows people to make smart contracts, give loans, while also having capability for decentralised exchanges. But even though Polygon has more use cases, that doesn’t mean the technology is going to prove to be better in the long term.
At the time of writing, Polygon is the 16th most popular coin by market cap, while Loopring is 75th. This makes the latter way more volatile, which can create bigger rewards but is riskier. Plus, given their competitors, it’s fair to say Polygon is way, way more popular right now. It’s like Everton versus Mansfield Town.