What Is MATIC? Introduction to the Polygon Blockchain

Polygon ($MATIC) is a protocol to build and connect Ethereum ($ETH) with other blockchain networks. This makes it a foundational part of what’s known as Web 3 and helps to explain its popularity in both network effects and price.

Founded in India in 2017 by a group of now-billionaire developers, the platform acts as a layer-2 solution to help Ethereum’s scalability issues.

Originally called the Matic blockchain, it went live in 2020 and attracted a lot of interest in the worlds of decentralized finance (DeFi) and non-fungible tokens (NFTs). Major projects like Decentraland ($MANA) and MakerDAO ($MKR/$DAI) migrated to the platform to avoid high ether gas fees.

Ethereum’s Scalability Problem

Although Bitcoin ($BTC) sought to disrupt and decentralize the central banking system, Ethereum brought a whole new promise to cryptocurrency. Its smart-contracts use a proprietary programming language called Solidity.

By executing smart contracts, Ethereum boosts the power of the blockchain, enabling development of decentralized applications (dApps). This ushered in the Web 3 era, where everybody pitched whitepapers showing roadmaps of a world where we maintain ownership of our own data and identity.

The theory is solid but weaknesses in Ethereum’s architecture became clear as it attempted to scale.

Ethereum transactions require a gas fee, which became prohibitively expensive as the price of ether rose from $100 to over $4,000. The result was high price tag attached to projects like the ConstitutionDAO and Ethereum Name Service ($ENS).

And the project’s proof-of-work (PoW) system bottlenecked processing speeds at the same time. Thus, it provides slower speed for more money, thereby stifling widespread enterprise adoption.

Polygon helps relieve these issues by leveraging Ethereum’s side chains. Here’s how it works.

How Polygon Works

Polygon is a multi-level platform. Its software development kit (SDK) uses sidechains through Avail to connect to Ethereum with the ability to connect to any other blockchain with sidechain capability.

This Proof-of-Stake (PoS) network is a layer-2 solution like Polkadot ($DOT) and Cosmos ($ATOM). It uses its proprietary MATIC token for staking, fees, and to settle on-chain transactions while relieving users of the expensive gas fees on the Ethereum network.

Using this framework, Polygon hopes to create an “internet of blockchains” that lets developers create and maintain independent blockchains that connect to chains like Ethereum. It’s even compatible with the Ethereum Virtual Machine (EVM), which helps port projects between the two.

Of course, it doesn’t stop at Ethereum; the Polygon network has plans to interconnect all blockchains. As new blockchains are adopted, this platform can easily adapt and pivot by integrating them. That’s a lot easier said than done though, and it will need to attract high-quality talent to keep up.

Cheaper gas fees and comparatively faster transaction speeds (it can process up to 65,000 tps) made Polygon attractive to a variety of business partners.

Polygon and MATIC Partners

Polygon attracted some big-name partners creating NFTs and DeFi solutions on its platform. Perhaps its biggest is the DraftKings NFT marketplace.

On DraftKings (NASDAQ:DKNG) marketplace, you can buy a variety of limited-edition sports-themed digital collectibles. 

The NFL is also considering Polygon as an NFT ticketing solution that would add digital collectibles to professional sporting events. Polygon’s integration into major NFT marketplace OpenSea makes it free for anybody to list and sell an NFT in an eBay-like auction.

There are over 600 dApps hosted on Polygon’s network, according to DappRadar. Only four have a market capitalization of over $100 million, including QuickSwap, Arc8, and QiDAO. None have reached 100k users yet, and that highlights a problem in the industry.

It is difficult to liquidate once you invest. Unlike many fly-by-night crypto tokens, MATIC is listed on some major crypto exchanges. This includes Binance, Gemini, eToro, and Coinbase Global (NASDAQ:COIN), where you can easily liquidate your holdings.

But not everything is rosy in Polygon’s world.

Headwinds Facing Polygon and Web 3

A lot of media outlets are reporting on “Ethereum killers;” it’s reminiscent of the 2017 crypto boom. Projects like Cardano ($ADA), Neo/Gas ($NEO), and Solana ($SOL) are competing. These are just the high-profile projects – there are many other blockchains attempting to dethrone Ethereum.

The truth is nothing will likely “kill” Ethereum. It is more likely that all these blockchains will coexist. This could prove beneficial for Polygon, but it’s not the only “internet of blockchains” project hoping to glue everything together.

It’s also important to remember Ethereum 2.0’s full rollout in 2022 will relieve much of the congestion and lower expensive fees by migrating to PoS. At that point, alternatives like Polygon may be viewed as less valuable.

There’s no telling which project will ultimately come out on top, but Polygon is priced very high compared to the average tech startup.

What Is Matic: The Bottom Line

Matic is the proprietary cryptocurrency token used by the Polygon network. This internet of blockchains aims to resolve scalability issues and lower fees using sidechains. It helped the project skyrocket through the pandemic’s crypto price rally.

The token is widely available, and the platform is being used by a lot of projects. Most of them are startups though, and NFT art is currently the most prominent use case. But blockchain is continuing to grow, and everything from web domains to video games can be minted on the Polygon blockchain.

Long-term sustainability is still the big question hanging over the project’s head though. The sage advice is probably most apt here: Invest only what you can afford to lose.

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