Will Inscriptions On Polkadot Push DOT Prices Back Above $10?

There has been a notable spike in the number of Polkadot transactions in recent days. The surge also coincides with DOT prices racing to new 2023 highs when writing on December 22.

Taking to X, asynchronous rob noted that Polkadot is currently processing around 250,000 transactions per hour or 400-450 per block. Polkadot is a modern blockchain that aims to drive blockchain interoperability.

Based on its design, relying on a Relay Chain and numerous Parachains, the network can process transactions cheaply, considering its high capacity.

Polkadot Transactions Swelling: Blame Dota and Inscriptions

The rapid expansion of transactions on Polkadot can be attributed to the recent launch of inscriptions, a new type of cross-chain asset developed by the Dota platform. Uniquely, Dota’s inscriptions aim to simplify the process of deploying and minting assets on Polkadot’s parachains. 

Though parachains operate independently as “chains” that rely on the Relay Chain for security, this design will eliminate the need for Cross-Chain Message Forma (XCM), which is needed for Polkadot parachains to communicate. 

Usually, the XCM requires complex coding and can be time-consuming. Therefore, the simplicity of DOT-20 inscriptions by Dota directly explains why there is a surge in the number of transactions.

According to Dota on X, inscriptions on Polkadot account for 98% of the recent transaction volume.

Though there has been a change in the number of transactions processed, transaction fees on Polkadot remain low. At the same time, the network hasn’t “skipped a bit,” with capacity being around 10%. 

By how Polkadot is designed, network fees will increase only once 25% of the total network capacity is changed. To reach this level, each block being confirmed on Polkadot must pack at least 1,250 transactions. 

This will require even more inscriptions to be created via Dota, meaning despite the observed spike, Polkadot is technically underutilized from a bandwidth perspective.

Will DOT Continue Rising In 2024?

While the deluge of transactions also coincides with rising DOT prices, currently at 2023 highs, there have been concerns about inscriptions causing network congestion in a network like Bitcoin facing scaling challenges.

Critics maintain that inscriptions, though defended by some, serve nothing more than spamming the network and discouraging use due to accompanying increases in transaction fees. 

For now, it remains to be seen if inscriptions will be sustainable, helping onboard more users. So far, Polkadot, as mentioned, can handle the uptick in transactions.

Even so, if there is a 3X rise in transactions exceeding the 1,250 transactions per block threshold, the demand for DOT will rise. Subsequently, DOT will likely trend higher towards $10 and other critical resistance levels.

Feature image from Canva, chart from TradingView

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