The difference between a coin and a token is that coins can be compared to regular money more directly, because they’re typically used as a payment method.

Tokens, on the other hand, is a type of “chip”, like a token for a slot machine or poker, which is needed to access the features of a blockchain - and the features could for example be smart contracts.

Read more about smart contracts in our blog post “top 5 best cryptocurrencies in 2022 ”.

Why was polygon created?

Polygon was created to make transactions quicker and cheaper than they are on ethereum’s blockchain . Behind polygon are also four of the developers who helped create ethereum in its day. And here, they experienced a number of issues that they set out to solve with polygon.

Problem 1: Transactions became too slow and expensive

First and foremost, ethereum's blockchain can only handle 15-30 transactions per second. In a world with thousands of crypto transactions each day, it’s far from enough to meet demands.

Just imagine that you want to transfer money to a friend, but your transaction was queued behind thousands of others, who also want to make a transfer, because your bank only validates 15-30 transactions per second. However, in the case of ethereum, it's not a bank, but a participant in the blockchain network who validates and executes the transaction. The participant uses their computer and electricity to validate and execute the transaction, which is why they collect a fee for their work - that’s called a ‘gas fee’.

But when only 15-30 transactions can be validated and executed  per second, because the underlying technology simply can’t handle more than that, the participants in the blockchain network will naturally focus on transactions with high gas fees.

When users want their transaction to be prioritised by the blockchain network, they raise the gas fee, so the network will select them.

In that way supply and demand will kick in, and because the technology cannot handle more than 15-30 transactions per second, the prices will only continue to rise, as long as the demand is present.

That problem is one polygon aims to solve with its blockchain, which can handle about 65,000 transactions per second.

Problem 2: Impossible for different cryptocurrencies to ‘talk’ with one another

Another problem with ethereum is the lack of option to integrate ethereum’s blockchain with other cryptocurrencies’ blockchains. And that’s something that polygon wants to better with their blockchain, making it possible for different cryptocurrencies to “communicate”.

If you wish to complete a transaction on ethereum’s blockchain, you would need ethereum’s coin, ether, to pay the gas fee. 

With polygon’s solution, you would be able to pay the gas fee with bitcoin instead. That makes cryptocurrencies more usable and accessible.

The answer to ethereum’s problems: Polygon

Polygon uses ethereum’s technology, but can support far more transactions per second, has significantly lower gas fees, and gives developers way more freedom to integrate the network with other blockchains.

Polygon is a so-called “layer-2-network”, which means that the polygon blockchain is built on top of an existing blockchain - here, ethereum’s. The solution, that the team behind polygon want to create, is not new by any means - but instead it’s an optimisation of the existing blockchain that ethereum uses today.

So it’s a system that makes it faster, cheaper, and easier to utilise the ethereum blockchain’s many opportunities.

Polygon’s smart solution: Proof-of-stake

Polygon’s solution to the issues is through the so-called proof-of-stake method for transaction validation - as opposed to ethereum’s proof-of-work method.

Explanation of proof-of-work

Before transactions can be added to a blockchain, they need to be validated with a hash-code. The code is unknown, and the only way to figure it out is by guessing.

The reward for a correct guess is a payout of the blockchain’s coin - such as bitcoin . And naturally, people are very interested in getting this reward.

Only one person can guess correctly and get rewarded. That’s why there’s also a race to be the first one to guess correctly. 

In turn, this also means that several supercomputers around the world run around the clock to crack the correct code. And that requires a lot of energy.  

In the end, only one of the computers will be rewarded for cracking the code - even though there may have been thousands of computers who used energy in the race for the code. 

That’s how proof-of-work validation works.

Explanation of proof-of-stake

With proof-of-stake validation, it’s different. Everyone who participates in the network also participates in a type of lottery draw to be responsible for finding the next code.

In that way, there won’t be thousands of different computers trying to crack the same code. Here, there will only be one person/computer per block, making proof-of-stake less energy-intensive than proof-of-work. 

“Stake” refers to a ticket to enter the draw. The more stakes you have, the more chances you have to win the draw. Stakes are based on how many coins or tokens you have. When a person is selected to validate a transaction, they’ll charge a fee - called a gas fee - for their trouble. 

That makes the collection of gas fees the motivation for entering the draw. 

Reward for proof-of-work:

Here, participants are rewarded with new crypto coins, which also enlarges the number of existing coins. In other words, the number of coins depends on participants continuing to validate new transactions.

Reward for proof-of-stake:

Here, participants are rewarded by getting to collect a fee - a so-called gas fee. The accumulated amount of coins or tokens are decided internally by the developers of the blockchain, and is independent from the validation process.

Today, polygon is among the most popular cryptocurrencies in the world

Today, those changes got polygon on the top 20 list of the largest cryptocurrencies measured on market value.

As opposed to bitcoin and other cryptocurrencies, that were created to be payment methods, polygon was created to solve the problems that especially developers are stuck with, when they want to use ethereum’s blockchain for smart contracts, decentralised apps, and NFTs .

If they chose to use ethereum’s blockchain, it could quickly become far too expensive. It can squander the innovative creativity that developers have, when they need to develop the next smart contract or NFT - and in that way, polygon was put into this world to support innovation. 

As mentioned, polygon can handle about 65,000 transactions every second, whereas ethereum can only handle 15-30 transactions per second. The price for creating a transaction via polygon is a few Danish cents, where it can cost several hundred DKK via ethereum. 

How to buy polygon

Do you want to get started with polygon? Then Lunar Block is a great place to begin. The platform is Danish and is built to make crypto trading simple and manageable for beginners and seasoned traders alike.

Cryptocurrencies can rise and fall

When you trade cryptocurrencies, you need to be aware that it carries a large risk. The value of your cryptocurrency can both rise and fall, and you can risk losing the entire amount you’ve invested in cryptocurrencies.

Cryptocurrency trading is done through Lunar Block. Lunar Block is not regulated by the Danish Financial Supervisory Authority (Finanstilsynet). That means you won’t have the same protection as when trading e.g. stocks or other regulated assets.

We do not counsel

We do not advise on currencies and do not make recommendations for either buying or selling. We can provide factual information about the different currencies, but past price developments are not an indication of future developments.

No information from Lunar Block should therefore be considered as recommendations and all decisions are up to you alone.