A look at 3 generations of blockchains and what’s next
Blockchain technology has only been around for a fraction of the time compared to the internet. Despite this, it has gone just as quickly. Today, as the web has been divided into three generations, the blockchain evolution has also seen three different eras. But unlike the latest iteration of the internet (Web 3.0), which is still in a formative stage, we already have a clear idea of what each generation of blockchain technology stands for.
The division backbones are as transparent as the technology itself, and today we aim to learn the critical distinctions between the three versions of the blockchain. But first, some background on what defines a generation.
The term generation can mean different things depending on what it is used to describe. When it comes to technology, it usually refers to new features/unlocked uses that bring wider adoption by the masses.
For example, a computer in isolation (like what IBM had in the 60s) and a connected array of computers forming a network (LAN in the earliest stages) can be seen as two distinct generations. There is a development of technology and a manifold increase in the various areas of use. Now that we’re clear on the distinctions, let’s dive into the three generations of blockchain technology.
The first generation – Cryptocurrency (Bitcoin)
When Satoshi Nakamoto published the Bitcoin Whitepaper, he essentially introduced blockchain technology to the world. Back then, cryptocurrency was the only area of use for the blockchain. It was a decentralized ledger that could keep a transparent, permanent record of crypto transactions. This was revolutionary given the time, but it was only part of the powerful (still) undiscovered potential of blockchains.
The problem will be solved
Bitcoin was introduced as a blockchain-based currency that could solve the centralized control problems of fiat currencies. The financial crash of 2008 somewhat triggered the mass adoption of Bitcoin we see today because trust in traditional financial systems was at an all-time low.
The idea of central banks printing more currency at the first sign of trouble was impractical at best and dubious at worst. Bitcoin eliminated central control with blockchain technology and informed the world of an alternative that was inflation-proof and above human error and greed.
The circle of use
In the early days, Bitcoin was not as polished as it is today. The circle of use was limited to the few who fully understood what blockchain meant and how it should be used. But thanks to the many developers working to bring Bitcoin to the masses, we sailed through the first generation of blockchains and looked towards expanding their use.
The second generation – smart contracts (Ethereum)
The second generation of blockchains was defined by the introduction of Ethereum. This “smart” network introduced two revolutionary concepts that changed the way we looked at blockchain technology. The first and most significant was the concept of smart contracts.
Smart contracts are blockchain-based contracts that are automatically triggered when all requirements are met – the bedrock of what Ethereum offers.
These smart contracts led to the second revolution – blockchain as a digital ecosystem. Several developers could now launch their own cryptocurrency projects and applications based on Ethereum’s smart contract technology.
Therefore, more than a cryptocurrency, Ethereum served as a platform that developers can use to build upon. It’s like the blockchain version of iOS or Android, where decentralized apps can be developed and launched.
The problem will be solved
Ethereum created a reliable way to trade. Through smart contracts, users could enter into agreements with other users without any governing bodies. Users can also have 100 percent certainty that the transaction will be fulfilled if the terms of this contract are met.
In the real world, it is almost impossible to have such insurance. Even trusted parties can trick you and run away with your money. But with a smart contract, if the aforementioned criteria are met, the transaction is automatically executed.
The circle of use
The circle of use expanded rapidly with Ethereum and its many layer-2 applications (dApps). This opened the gates for more use cases, such as decentralized finance (DeFi), gaming, supply chain management and so on. NFTs also increased in popularity, bringing even more users to the blockchain. However, this rapid expansion of the user base meant work on the scalability of blockchains.
The third generation – Smart Everything (Ethereum 2.0, Cardano, Polkadot)
While the mainstream adoption of crypto increased astronomically, second-generation blockchains were faced with the question of scalability. Networks like Bitcoin and Ethereum became slow, and transaction fees increased significantly with the influx of user traffic.
Projects emerging today can be referred to as third generation blockchain technology. They are defined by scalability, lightning-fast processing and nominal transaction fees. This new generation of blockchains is also marked with interoperability and far lower energy consumption.
The problem will be solved
Previous blockchains such as Bitcoin and Ethereum suffered from the “blockchain trilemma”. In order for them to increase transaction speeds, they had to compromise on 1 of 3 features: decentralization, security, or scalability.
Newer generation blockchains are finding ways to scale without affecting decentralization and security. Some are even referred to as ‘Ethereum killers’ thanks to their incredibly fast yet highly secure network.
Previous generation blockchains also operated in silos; they could not interact with each other. However, the latest generation of blockchains is characterized by interoperability. Blockchains such as Cardano and Polkadot can communicate and collaborate with other blockchains. This is critical to the future of blockchain technology.
The circle of use
The latest generation of blockchain technology has further boosted its mainstream adoption. We now see that large companies across several different sectors are taking an interest in blockchain. Large institutions are also funding blockchain projects, accepting crypto as payments and increasing their crypto holdings.
That which lies beyond
Anyone who understands blockchain technology will agree that this is just the beginning. The fact that we have divided this limited time of existence into three generations is purely academic. There is no limit to how many generations there can be in the future.
What lies beyond generation three is up to the imagination of future creators. User-friendly applications can bring blockchain technology into every aspect of our lives. If it’s just banking now, it could soon be even laundry, education and much more. Only time will tell.
