Guest Post

The Three Generations of Blockchain Technology

Written by: Elena R

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Elena R

Elena is an expert in technical analysis and risk management in cryptocurrency market. She has 10+year experience in writing - accordingly she is avid journalists with a passion towards researching new insights coming into crypto erena.

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Aug 27, 2021

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Blockchain has progressed well beyond its beginnings in banking and cryptocurrency. Blockchain is the record-keeping technology behind the world’s largest cryptocurrency and highly in-demand on several crypto exchange platforms, Bitcoin. With Bitcoin’s popularity, it helped demonstrate blockchain’s application across different industries and even in the next generations of cryptocurrencies.

Speaking of the word “generation,” you may have encountered the term “third-generation cryptocurrency” or the likes while researching. In the development of technology, experts have been recording notable events that can be used for dividing the process into stages.

One perfect example is the Internet, and among its important events is the creation of the first workable prototype during the 1960s, the development of the Transmission Control Protocol and Internet Protocol (TCP/IP) during the 1970s, the launching of the worldwide web during the 1990s and the creation of the first browsers and search engines later in that decade.

Even though blockchain technology has only been around for a fraction of the time that the internet has, it is still possible to look back on its major developments and stages.

First Generation: The Beginning of Bitcoins

The discussion of blockchain technology’s history cannot be done without tackling the creation of Bitcoin. Satoshi Nakamoto, who remains anonymous today, initially described blockchain technology in the Bitcoin white paper in 2008. Despite its origins as a mechanism to fuel global, decentralized, and peer-to-peer money, blockchain technology has found a home in many businesses.

Blockchain established the basic notion of a shared public ledger that enables a cryptocurrency network in its early phases. On bitcoin transactions, Satoshi’s blockchain concept uses 1-megabyte (MB) chunks of data. Blocks are connected in an immutable chain using a complicated cryptographic verification procedure. The central features of blockchain technology during its early years remain today.

Additionally, blockchain technology has been dubbed the “biggest innovation of the internet” and the “internet of money” because its qualities enable peer-to-peer transmission without depending on the oversight or authority of an intermediary such as a government or financial regulator. 

Second Generation: The Rise of Ethereum (Smart Contracts)

Ethereum is the most well-known second-generation blockchain, and it is the second-largest cryptocurrency worldwide today. Bitcoin has been dubbed “digital gold,” while Ethereum has been dubbed “digital oil.” Its launch motivation was the developers’ perspective that a blockchain can do more than simple currency transactions.

The creation of Ethereum in 2015 advocates for the use of blockchain technology to simplify the management of digital assets without requiring platform control. For the first time, Ethereum offers a solution to the internet’s “centralisation” (which has benefited well-known corporations like Google and Facebook) by essentially transforming blockchain technology into a platform. 

The major development in blockchain technology was brought by Ethereum—the use of smart contracts. A smart contract is a digital contract made up of basic “If/When… then…” statements between a buyer and a seller recorded and encoded on a blockchain. This can also help to systematise a transaction by triggering the following steps when certain circumstances are satisfied. A transaction could store a patient’s profile, release funds, or issue a ticket, which is designed to be traceable, permanent, and transparent. 

Third Generation: The Future

The major issues that blockchain technology faced in the first two generations include scalability, sustainability, and interoperability. The Bitcoin blockchain has a slow network due to the large number of transactions attempting to be completed at a speed of just seven transactions per second. While Ethereum’s goal is to become the “world computer,” yet this objective is currently impossible to achieve because Ethereum can only execute 15 transactions per second.

Both cryptocurrencies also use Proof-of-Work (PoW) consensus mechanisms. There is nothing wrong with the way proof of work works; instead, there is a question about its long-term cost efficiency and environmental impact. These issues are what the third-generation cryptocurrencies are aiming to solve with their distinct enhanced functionalities. Fortunately, Bitcoin and Ethereum have worked on their possible solutions to the problem recently.

In this generation, we have Cardano (ADA) and Polkadot (DOT) as the two promising cryptocurrencies to consider in 2021. Up to this day, these digital coins remain on the top 10 list of CoinMarketCap.

Conclusion

Despite their scalability issues, Bitcoin and Ethereum are well-established projects with market capitalizations in the billions of dollars. Over the years, these two networks have proven to be relatively safe. Meanwhile, third-generation cryptocurrencies are not unlikely to turn into the next Bitcoin and Ethereum in the future.

All are promising in their advantages, but no matter how excited you are in investing in any of these, always be reminded that cryptocurrencies are volatile. That’s why you must do your research before finally deciding on entering the journey to cryptocurrency trading.

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Elena R

Elena is an expert in technical analysis and risk management in cryptocurrency market. She has 10+year experience in writing - accordingly she is avid journalists with a passion towards researching new insights coming into crypto erena.

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