What is a parachain?

Parachains are a core proposition of the Polkadot network. Put simply parachains are self-sovereign native blockchains that rely on Polkadot’s relay chain for security and communication with other relay chains. Multiple resources explain this in depth.

A parachain is a native blockchain with:

Customizable governance

Customizable block production

Customizable tokenomics

Shared security from Polkadot relay chain

Ability to exchange messages/ assets between parachains

Typically built with Substrate

Read more on the basics of parachains: 1, 2

Why should you consider becoming a parachain?

Before we trigger another ICO rush where every other project bids for a parachain slot, let’s first examine why you would consider becoming one. Given the costs of preparing for a parachain, it must be justified with projected future volume and revenue. That being said, the benefits are much greater compared to smart contracts only:

Flexibility to customize the blockchain to your needs, such as:

• Flexibility for on-chain governance, as opposed to typical default of centralized off-chain governance, or free-for-all decentralized governance.

• Room to innovate by involving stakeholders in more ways, not only with tokens, but also in consensus and governance.

• Freedom to specify technical details of the entire stack, e.g. sharding Upgradeability of protocol including smart contracts, governance, and consensus Interoperability between parachains to exchange assets and information Shared security provided by the Polkadot relay chain Cost savings for high volume/ value applications:

Preliminary modeling by the Web3 Foundation estimates the annual cost of securing major chains (e.g. Cosmos, Tezos and EOS) is in the tens of millions of USD per year, with Ethereum and Bitcoin in the billions, while the estimated opportunity cost to lease a parachain is $100–200k for 12 months.

Visualizing International Trade. Source: Blueshift

To use an analogy:

A dApp as smart contracts is like a company in somebody’s country, you can have some processes and practices, but have to follow the laws of the country.

in somebody’s country, you can have some processes and practices, but have to follow the laws of the country. A native blockchain (e.g. using Substrate only) is like your own country on an island , with the flexibility to write your own laws, but comes with responsibility of governing your population, including providing security.

, with the flexibility to write your own laws, but comes with responsibility of governing your population, including providing security. A parachain is like a state in the United States, where you still have the flexibility and control over your jurisdiction, while sharing security/ military, and being able to move and trade freely between states. Over time, each state/ parachain can specialize in different functions for efficient trading, forming a robust economy and ecosystem.

where you still have the flexibility and control over your jurisdiction, while sharing security/ military, and being able to move and trade freely between states. Over time, each state/ parachain can specialize in different functions for efficient trading, forming a robust economy and ecosystem. Read more on the concepts of Polkadot/ parachains

But what about Parathreads? For those who are not/ do not expect to become a scalable use case, consider being a parathread instead, which is a “pay as you go” model by block.

Read more on parathreads: 1, 2

What is the process for becoming a parachain?

So you have evaluated your project, and have come to realize that the best way to enable or jumpstart your growth is by becoming a parachain. Now actually, parachain slots are limited, and are distributed by candle auctions or governance. Here’s how it works:

Candle auctions from 17th century England, still done today. Source: BBC

It is estimated that 50–100 parachain slots will be up for bidding in the first auction. The full or maximum duration of a parachain slot is 2 years, broken into four “lease periods” of 6 months, bidders may bid for selected lease periods. Exact date for the first auction is still unknown, to be decided by governance.

The winners will be determined by candle auction mechanism. In brief, in a candle auction, bidders can submit increasingly higher bids during the open phase; The close moment of the auction will be randomly generated and retroactively applied; The bidder with the highest amount at the closing wins. This mechanism prevents “sniping” whereby bidders only put in a winning bid slightly higher than the highest bid right before the closing moment.