Although it hasn’t gotten as much attention as the most popular altcoins yet, the cryptocurrency Polygon (MATIC) has shot up in value.
Six months ago, one Polygon token was worth about $0.03. The price is now around $0.88, for an increase of over 2,800%. To put that into perspective, if you had bought $10,000 of Polygon when the price was $0.03, it would now be worth nearly $300,000.
While Polygon isn’t a household name yet, it does have some big backers. Dallas Mavericks owner Mark Cuban likes Polygon and has invested in it. Before you put any of your money in it, keep reading to learn about what it does.
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What is Polygon?
Polygon is a protocol for building and connecting Ethereum-compatible blockchain networks. It started in India in 2017 and was originally known as Matic Network. In February 2021, it rebranded to the name Polygon. The Polygon cryptocurrency, called MATIC, is in the top 20 in market cap, and is on several top cryptocurrency exchanges.
The main benefit of Polygon is that it solves issues with Ethereum. Ethereum is the most popular blockchain for decentralized finance (DeFi) applications. It offers a handy software platform, Ethereum Virtual Machine (EVM), for developers to quickly build DeFi apps.
However, Ethereum is dealing with significant congestion. Transactions include costly fees and can sometimes take hours. That’s where Polygon comes in. It offers sidechains, which connect to blockchains and improve performance. Decentralized apps that use Polygon process transactions more quickly at a lower cost.
According to Polygon, a single sidechain can process up to 65,000 transactions per second. And since Polygon is EVM-compatible, developers can easily deploy their existing Ethereum applications on Polygon.
How MATIC tokens work
MATIC is used to pay for services and transactions on Polygon and its sidechains, so the success of the Polygon protocol is tied to the success of MATIC. If more people use the protocol, they’ll need MATIC to pay for fees, driving up demand.
In addition, MATIC is a “governance” token — owning a token gives a holder the right to shape the future of the project. Token holders can vote on proposals and put forward their own.
Token holders can also stake (lend) MATIC. Staking tokens helps secure the Polygon network. As an incentive, token holders receive rewards on the amount they stake (exact reward amounts change according to several variables).
The biggest competition on the horizon for Polygon is Ethereum 2.0, also known as Eth2. This is a set of interconnected upgrades the Ethereum team is rolling out to make it more scalable, secure, and sustainable.
One of these upgrades is shard chains, which are estimated to go live in 2022. Shard chains expand Ethereum’s transaction processing capabilities. Depending on how well they work, they could make Polygon redundant. But it’s possible that Ethereum won’t solve its scalability issues as effectively as Polygon.
Polygon also has stiff competition from other projects offering multi-chain systems. These include:
There’s no way to be sure which projects might succeed. For that reason, some crypto investors spread their funds around to different tokens.
Should you buy Polygon?
Polygon is an intriguing cryptocurrency investment. It’s useful, as it solves some major problems with Ethereum, and activity on Polygon has increased quickly. It has far more daily transactions than Ethereum, and towards the end of May, it also surpassed the Binance Smart Chain in daily transactions.
Just because Polygon is doing well right now doesn’t mean that will remain true in the future. There is the chance that it falters because of Eth2 or a competitor.
Cryptocurrencies are also notoriously volatile, which makes them risky investments. Polygon is no different. Its price has gone up overall quite a bit, but after hitting an all-time high in May, its value dropped by over 65%.
If you’re open to high-risk investments and you think Polygon has a bright future, then buying some could be a good idea. Keep in mind that you always risk losing your money with crypto, so limit Polygon to a small portion of your portfolio (5% to 10% at most) and don’t put in more money than you’re comfortable losing.