This Cryptocurrency is ready for an incredible run

Cryptocurrencies are waking up after another long slumber. Ethereum (CRYPTO: ETH) gained 92% over the past year, while Bitcoin (CRYPTO: BTC) climbed 128% higher. From the launch of new crypto-based investment vehicles to the upcoming halving of Bitcoin mining rewards, many forces have combined to thaw the latest crypto winter.

But not every cryptocurrency has been invited to the party yet, even if their growth prospects look at least as promising as Bitcoin’s or Ethereum’s. In particular, Polkadot (CRYPTO: DOT) looks undervalued and poised to break out in a market rally. The official blockchain network of the Web3 Foundation is not getting the market respect it deserves.

Polkadot’s low price sticks out like a freshly stopped toe if you agree that a decentralized and personal internet is the future.

I’m not saying you should sell all your Bitcoin and Ethereum to reinvest it in Polkadot today. A diverse portfolio always makes more sense, even in the uncharted waters of the crypto industry.

But if you haven’t considered adding a little Polkadot yet, let me explain why this token is in a great position to beat both the stock and crypto markets over the next few years.

What is Polkadot anyway?

Polkadot is a blockchain network designed to solve a fundamental problem of the crypto world: different blockchains cannot easily talk to each other. Imagine a world where your Apple iPhone couldn’t connect directly to a Samsung Galaxy device – that’s the old blockchain reality. Polkadot acts as a translator and bridge, allowing blockchains with different purposes and designs to seamlessly communicate and share data.

The Web3 vision for the Internet is all about decentralization and user control. Polkadot makes this possible by enabling custom blockchains (so-called “parachains”) to plug into its network. These parachains can be customized for specific uses such as gaming, finance or social media, creating an interconnected ecosystem where value and information flow freely.

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This programming ecosystem supports fast and easy development of applications and programs that take advantage of the best features in many different blockchains. Polkadot makes it easy to store monetary value in Bitcoin, execute Ethereum’s smart contracts, collect real data from Chainlink (CRYPTO: LINK)and more.

And the DOT token (commonly referred to as Polkadot) is the lifeblood of this decentralized system, passing data between different blockchain networks with ease while ensuring the security of data transfers. Additionally, its multichain design enables many transactions to be processed quickly, avoiding the bottlenecks of less scalable blockchains.

How the DOT blockchain makes money

Executing transactions through Polkadot’s proof-of-stake ecosystem generates a small fee for the validation nodes that process each request. This toll for travel on the next generation information highway serves as an incentive to help the system work.

In this way, the increased use of the Polkadot network translates directly to a greater demand for DOT tokens, as they are needed to pay transaction fees. As the ecosystem grows and more value flows through Polkadot, the underlying DOT token becomes more valuable.

The current reward rate for staking your Polkadot tokens stands at 17.3%. This is quite high to motivate more DOT owners to stake their tokens and take a more active role in the system. Less than 53% of all DOT tokens are placed into play today, below the target rate of 60%. The reward rate can therefore change over time as the portion placed in the game grows or shrinks. Strike also allows DOT holders to participate in network management, further affecting the value of their holdings.

Additionally, this is the raw reward rate for people running their own nodes on the DOT network under ideal conditions. The rate will be lower if your chosen crypto trading service keeps a part of the input income for itself. For example, my Coinbase (NASDAQ:COIN) account currently shows a 6.9% earning rate for the strike of DOT tokens.

These mechanisms ensure that DOT’s value is tied to the growth and success of the Polkadot network.

Polkadot has room to grow, but many market makers haven’t noticed it yet

DOT’s 14% gain over the past year pales in comparison to Bitcoin and Ethereum’s returns. Yet those bigger crypto names operate in different, often less dynamic market segments.

With its interoperability focus, Polkadot sits at the forefront of Web3 innovation. Market capitalizations are often imperfect measures in rapidly evolving industries, and DOT’s $10.5 billion market value should grow much larger in 2024 and beyond.

This seems like a gross understatement given Polkadot’s pivotal role in the emerging decentralized internet. Smart investors may see this mispricing as a chance to buy into a leading Web3 infrastructure play at a significant discount.

Should you invest $1,000 in Polkadot now?

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Anders Bylund has positions in Bitcoin, Coinbase Global, Ethereum and Polkadot. The Motley Fool has positions in and recommends Apple, Bitcoin, Chainlink, Coinbase Global and Ethereum. The Motley Fool has a disclosure policy.

Forget Bitcoin and Ethereum: This Cryptocurrency is Poised for an Incredible Run was originally published by The Motley Fool