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Terra Luna Vs Polkadot (Guide)

This article was written before the Luna Crash.

Terra Luna and Polkadot are probably two of the leading contenders for the so-called ‘Ethereum killer’ spot.

The two are considered direct competitors and this guide will decipher which is the better one. We’ll discuss the relationship between them, their similarities, differences, and, for a potential investor, the best ways to buy them.

What is Terra Luna?

Terra is a full-fledged independent blockchain platform mainly used to issue algorithmic-based stablecoins.

Algorithmic stablecoins are blockchain tokens that track the value of an underlying asset with their supply and value regulated by coded algorithms.

The best example of such an asset is Terra USD (UST), the most popular stablecoin in the Terra ecosystem. UST tracks the value of the US Dollar and is currently among the most valuable crypto assets.

LUNA is a native digital asset on the Terra blockchain used to stabilize the value of the stablecoins issued on the platform. Additionally, it’s the governance token and a staking asset.

What is Polkadot (DOT)?

Polkadot is an interoperability network informally referred to as a ‘blockchain of blockchains.’

Its infrastructure hosts other decentralized networks by offering a shared security architecture. It offers ease of communication within the Polkadot ecosystem and even externally with third-party networks such as Ethereum, or Bitcoin.

Unlike most of its rival networks such as Ethereum, or Solana, Polkadot can host a fully-fledged blockchain—not just dApps. However, host networks share a security infrastructure based on the Proof of Stake consensus mechanism.

Specifically, Polkadot uses the Nominated PoS (NPoS), a slight variant of the increasingly popular delegated PoS (DPoS) used in Terra, Cardano, Tron, and EOS.

Polkadot is the flagship project of the Web3 Foundation, a creation of Gavin Wood and Jutta Steiner. Wood is the co-creator and former CTO of Ethereum while Steiner served as a head of security within the Ethereum Foundation. The two individuals also co-founded Parity Technologies, the leading code developer for Polkadot.

DOT is Polkadot’s native cryptocurrency used for governance, value transfer, staking, and nomination.

Terra (LUNA) vs Polkadot (DOT): Key Takeaways

Terra Luna offers several unique features including:

  • A twin set of tokens that comprises the LUNA native coin and the Terra stablecoins. The latter depends on the former for price stabilization;
  • Terra is a decentralized app platform able to support other smart contracts best suited within the decentralized finance (Defi) ecosystem;
  • Its use of the Delegated Proof of Stake (DPoS) consensus mechanism ensures that the network is not only fast, and cost-effective, but also attractive to the casual investors who are often attracted by passive returns from staking activities.

Polkadot, on the other hand, offers a full-blown smart contract experience and cross-network interoperability. LUNA’s support for smart contracts is also well known.

The biggest drawback of Polkadot is its ability to connect multiple diverse blockchains in a single ecosystem. Its design architecture comprises four key features which are:

  • The Relay Chain – is the main chain built upon the Substrate framework by Parity Technologies. Loosely referred to as the layer-0, the Relay Chain controls the shared security infrastructure, the consensus, and the network validators of Polkadot and all its hosted blockchains;
  • Parachains – the term is derived from the words ‘parallel chains’ or ‘parallel blockchains.’ These are the independent layer-1 blockchains built on top of the Relay Chain with independent operation mechanisms but shared security with Polkadot;
  • Parathreads – these are temporary connections from the parachains to the Polkadot network using a pay-as-you-go model. The design is necessary for blockchains that do not need to be permanently connected to the Relay Chain;
  • Bridge – this one is a unique feature that allows Polkadot and its parachains to communicate with external blockchains such as Ethereum.

Learn more: Is Luna layer-1?

Polkadot’s native DOT tokens are currently among the most valuable digital assets with a market capitalization of over $21 Billion.

Here’s a brief side-by-side comparison between Terra Luna and Polkadot.

Frequently Asked Questions

What Is The Relation Between Luna And Polkadot?

Terra Luna and Polkadot are not related in any way, however, they do exhibit several similarities, including:

  • They are third-generation blockchains;
  • Both are smart contract capable even though Terra is designed to host dApps while Polkadot hosts independent networks;
  • Polkadot and Terra Luna use some version of staking to ensure consensus amongst network validators;
  • Their native tokens, i.e., LUNA and DOT, are used in, more or less, similarly.

Additionally, Polkadot can connect to the Terra ecosystem with the help of the Bridge enabling cross-blockchain communication.

Which Token Has Better Applications?

Both LUNA and DOT can be categorized as utility and governance tokens. This is because they can be used to pay for transaction fees on their ecosystems. Holders can use them to participate in the governance of their respective networks and communities.

However, LUNA is different from DOT in that it can regulate the value of Terra-based stablecoins. DOT, on the other hand, can be bonded by parachains looking for a slot within the Relay Chain.

Best Way To Buy Luna

  • Step 1 – Create an account with a crypto exchange that supports LUNA;
  • Step 2 – Verify your identity;
  • Step 3 – Fund your account with either fiat or crypto;
  • Step 4 – Search for the LUNA trading pair against the asset you already hold, say LUNA/USD or LUNA/BTC;
  • Step 5 – Transfer your LUNA coins off the exchange onto a self-custody wallet such as TerraStation.

Best Way to Buy Polkadot

  • Step 1 – Sign up or log in to your crypto exchange account;
  • Step 2 – Assuming that the exchange supports DOT, search for the DOT asset with the appropriate trading pair against an asset you have in your account. If you do not have funds in your wallet, transfer an appropriate amount or connect a payment method such as a debit card or bank account;
  • Step 3 – Buy DOT or exchange the asset you have in your account for some DOT tokens;
  • Step 4 – Send the DOT tokens to an external self-custody wallet such as a hardware wallet for increased safety.

Final thoughts

Terra Luna and Polkadot may both be blockchain platforms but they offer distinct features. For someone looking to invest in DeFi, Terra Luna would probably be the better choice. Polkadot is not a direct competitor to Terra but could be used to complement it in more ways than one including cross-chain communication with other blockchains.