What is Polygon (MATIC)?

What is Polygon (MATIC)?

Polygon is a layer-two sidechain solution to Ethereum’s gas fee crisis.

By taking data off-chain and processing it separately, it reduces the burden and stress on the Ethereum mainnet, and as a result, reduces transaction fees for everyone using ETH-based currencies.

Armed with this knowledge, you can see why Polygon (also known by its ticker MATIC) has been doing so well over the last 12 months.

Having started the year 2021 being worth $0.01 and now valued at over $1.5, you could indeed say MATIC has been a hit with investors during the current bull run.

Formerly known as Matic Network, Polygon is a collection of secure layer-two solutions and autonomous sidechains, with the original aim to increase Ethereum scalability and reduce transaction costs.

To achieve this aim, moving forward, Polygon will now also support ZK-Rollups, Optimistic Rollups, and Validium.

In addition, Polygon is aware of the elephant in the room.

That elephant is Ethereum 2.0, which currently aims to build in many of Polygon’s benefits natively into their next upgrade.

As a result, we have seen Polygon begin transitioning early to remain competitively viable as the years progress.

Accordingly, in the last six months, we have seen Polygon acquire the Hermez Network in August for $250 million and the scaling start-up Mir for $400 million just recently during December 2021.

We’ll come back to these in a bit more depth later, but suffice to say for now that it is clear Polygon is not willing to sit back and become irrelevant as Ethereum 2.0 launches.

But before we get too far ahead, let’s start at the beginning to give you a full rundown of what this project is, who it’s for, and why it has been so successful recently.

The Matic Network

Under the name Matic Network, the original platform’s test network went live in October 2017.

Initially, MATIC was co-founded by the software engineers Anurag Arjun, Sandeep Nailwal, and Jaynti Kanani. Later, they would be joined by Mihailo Bjeli in 2019, who would become a future co-founder of the project once it became Polygon in 2021.

Initially, the Polygon team created the Ethereum-Matic PoS sidechain based on Proof-of-Stake, and the Plasma Chains scaling model.

Over time, this sidechain has become a favored scaling solution for various applications running on the blockchain.

Furthermore, in April 2019, the company began an IEO, or Initial Exchange Offering, similar to an ICO in traditional finance, where the MATIC token raised a sizeable $5.6 million.

Then in February 2021, the creators behind the Matic Network rebranded the project’s name to Polygon.

Previous Matic Network Logo

This rebranding was timed to arrive with the transition from a layer-two Ethereum blockchain scaling solution to a multichain protocol, more akin to Polkadot (DOT).

Fundamentally, Polygon seeks to address some of Ethereum’s most significant shortcomings, such as low throughput, a negative user experience resulting from costly gas fees, and the lack of community-led governance.

However, philosophically, Polygon is designed to promote a future where different blockchains no longer operate independently as sealed-off protocols.

Polygon visualises a future where systems talk together as connected networks that fit into a larger, more interoperable landscape.

Meaning, its long-term objective is to establish an open background where users can interact with decentralised products or services without steering through isolated protocols or third parties first.

New Polygon Logo

So, you might be asking, what’s behind this technology?

To put it briefly, the Matic Proof Of Stake Chain, otherwise known as Polygon’s main chain.

Essentially this layer adds a Proof of Stake security layer to blockchains launched on Polygon.

Additionally, Matic initially pioneered Plasma Chains, a scaling technology to move assets between the main chain and side chains via Plasma bridges.

Lastly, there are ZK and Optimistic rollups.

ZK rollups are an alternative scaling solution that bundles many transfers off-chain into a single transaction, using zero-knowledge proofs for the final immutable record on the Ethereum main chain.

Alternatively, Optimistic rollups are a solution that operates on top of the Ethereum network to enable near-instant transactions via the use of what they call “fraud proofs.”

The Ethereum Layer

Underneath the hood, the Polygon architecture consists of four abstract and component layers. First, we have the Ethereum Layer.

Here, Polygon-based networks can use Ethereum as a foundation layer, executed as a set of smart contracts and mainly utilised for tasks like stacking, finalisation, data exchange, checkpoint creation, and dispute resolution between the Ethereum and Polygon main-nets.

Though this layer is an auxiliary layer, meaning Polygon-based networks are not required to use it to function.

The Security Layer

Next is the Security Layer.

Another optional layer that can be enabled to access the validators-as-a-service model, thus allowing Polygon-based systems to use a set of validators that can periodically check the validity of any system’s networks in exchange for a reward.

The security layer is implemented as a “meta-blockchain” and runs parallel to Ethereum, making it responsible for tasks such as managing the validators.

The security layer is abstract, meaning it can have many adaptations with varying characteristics. Alternatively, this layer can also be imported directly onto the Ethereum network and use its miners as validators.

Polygon Networks Layer

Moving on, we have the Polygon Networks Layer.

The Polygon Networks Layer consists of independent blockchains supporting transaction matching, local consensus, and block creation. It is the first of two mandatory layers in the Polygon architecture.

Execution Layer

Finally, we come to the Execution Layer.

The Execution Layer is responsible for deciphering data and executing the transactions included in Polygon blockchains.

Who benefits from Polygon (MATIC)?

But ok, now you get how Polygon works, you might be asking, who does it benefit most? The short answer is everyone.

Although, if we want to get specific, it benefits those who use the Ethereum network regularly and during peak traffic.

Having Ethereum data processed securely off-chain reduces competition on the next processed block. Meaning the cost to be on that block remains lower.

As only so much data can fit onto each block before its placed onto the blockchain, most protocols have a system where if you “tip” the miners who host the network more money, the quicker your transaction will be processed.

As a result, when the markets start to wobble, we can see people with a lot to lose willing to pay a lot more to ensure losses don’t become more prominent.

Accordingly, this can push a then-relatively low Ethereum gas price into the stratosphere.

So, while this does benefit those who use the network more often – reducing fees overall benefits everyone by creating a model that reduces the stress on the network, allowing the costs to be cheaper for everyone regardless of whether they use Polygon directly or not.

If more transactions can be processed overall, no one needs to pay over the odds to be on the next block, which can only be a good thing for the network as a whole.

Arguably, this is why Polygon has been so successful, by providing a much-needed service at the time when it was needed most.

Though, as we mentioned initially, recent acquisitions suggest Polygon isn’t planning to disappear anytime soon.

If anything, Polygon is looking more likely to take over than go-under with its future-proofing purchases of the Hermez Network and the scaling start-up Mir.

Acquisition of Hermez Network

Hermez Network Logo

The acquisition of Hermez Network came back in August and saw a first for crypto.

A full-token merger, wherein all those who had previously owned HEZ tokens could exchange those for MATIC tokens through a smart contract on the blockchain.

This merger cost Polygon $250 million and saw all of Hermez Network’s 26 employees taken on board at Polygon, which now goes by the name Polygon Hermez Network.

If you’re wondering why Polygon would be looking to spend that kind of cash, it is because Hermez’s layer-two solution is based on zero-knowledge rollups, or ZK-Rollups for short.

This technology allows it to process transactions faster and for almost no fees while still leveraging the Ethereum mainchain’s security.

Polygon Purchases Mir

Feeling they could still accomplish more, they recently purchased the scalability start-up Mir.

According to a press release, Mir’s system renders recursive zero-knowledge proofs that “allow many Ethereum transactions to be verified with a single tiny proof.” This will supposedly make Mir one of the quickest and most efficient layer-two solutions available.

Clearly, Polygon is aware that Ethereum 2.0 plans to incorporate many of their redeeming features natively, but rather than be discouraged, they have instead adapted their vision.

No longer are they just the Ethereum scaling solution. Instead, they are slowly becoming the scaling solution of choice for the entire crypto revolution.

Of course, just because someone has the luck of first-mover advantage doesn’t mean they are immune from management mishaps.

So, assuming management expertly navigates any turbulence they encounter along the way, we believe it is likely we will only continue to see Polygon adapt, absorb, and grow moving forward.

But there you go, a comprehensive guide into what Polygon is. How it works, who can benefit from its creation, and what it’s hoping to achieve moving forward.

We hope you have found this article informative and you are leaving with a better understanding of what Polygon is and how it functions.

Elbaite is the cryptocurrency exchange designed for Australian traders seeking safety, security and simplicity. Make an account today to start your Polygon (MATIC) investment journey!

Disclaimer: The information on this website is purely for information. Elbaite is not a financial adviser, and nothing stated here is to be taken as financial advice. You should seek independent legal, financial, taxation or other advice relevant to your financial situation before making any investment decisions.

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