Blockchain technology has only existed for a fraction of time when compared to the internet. Despite this, it has progressed just as quickly. Today, like the web has been divided into three generations, blockchain evolution has also seen three distinct eras. However, 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 divisional ridges 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, a little background on what defines a generation.
The term generation can mean different things depending on what it is being used to describe. When it comes to technology, it usually refers to new features/unlocked uses that bring wider adoption from the masses.
For instance, a computer in isolation (like what IBM had in the ‘60s) and a connected string of computers that form a network (LAN in its earliest stages) can be seen as two distinct generations. There is an evolution of technology and a multi-fold increase in the various uses. 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 use case of the blockchain. It was a decentralised ledger that could keep a transparent, permanent record of crypto transactions. This was revolutionary given the times, but it was only a part of the mighty (still) undiscovered potential of blockchains.
The problem being solved
Bitcoin was introduced as a blockchain-based currency that could solve the centralised control problems of fiat currencies. The financial crash of 2008 somewhat triggered the mass adoption of Bitcoin we see today because the 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 errors and greed.
The circle of use
In its initial days, Bitcoin was not as polished as it is today. The circle of use was restricted to the few that completely understood what blockchain meant and how to use it. But thanks to the many developers that worked on bringing 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 automatically trigger upon meeting all requirements — 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 acted as a platform which developers can use to build on. It’s like the blockchain version of iOS or Android, where decentralised apps can be developed and launched.
The problem being solved
Ethereum created a trustless way to transact. Through smart contracts, users could enter into agreements with other users without any governing bodies. Users could also have 100 percent assurance that, if the terms of this contract are met, the transaction would be fulfilled.
In the real world, having such an assurance is next to impossible. Even trusted parties can cheat you and run away with your money. However, with a smart contract, if the criteria mentioned are adhered to, the transaction is automatically carried out.
The circle of use
The circle of use expanded rapidly with Ethereum and its many layer-2 applications (dApps). This opened the gates to several use cases, such as decentralised finance (DeFi), gaming, supply chain management and so on. NFTs also rose to popularity, bringing even more users to the blockchain. However, this rapid expansion of the user base meant work was needed 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 met with the issue of scalability. Networks such as Bitcoin and Ethereum became sluggish, and transaction fees increased significantly with the influx of user traffic.
Projects emerging today can be referred to as the third generation of blockchain technology. They are defined by scalability, lightning-fast processing and nominal transaction fees. This new generation of blockchains is also denoted by interoperability and way lower energy consumption.
The problem being solved
Previous blockchains such as Bitcoin and Ethereum suffered from the ‘blockchain trilemma’. For them to increase transaction speeds, they needed to compromise on 1 of 3 features: decentralisation, security or scalability.
Newer generation blockchains are finding ways to scale without affecting decentralisation and security. Some are even being referred to as ‘Ethereum killers’ thanks to their blisteringly fast yet highly secure networks.
Also, previous generation blockchains operated in silos; they could not interact with each other. However, the latest generation of blockchains is characterised by interoperability. Blockchains such as Cardano and Polkadot can communicate and work with other blockchains. This is essential for the future of blockchain technology.
The circle of use
The latest generation of blockchain technology has further augmented mainstream adoption. We are now seeing large corporations across several different sectors taking an interest in blockchain. Major institutions are also funding blockchain projects, accepting crypto as payments and increasing their crypto holdings.
What lies beyond
Anyone who understands blockchain technology would agree that this is just the beginning. The fact that we have divided this limited time of the existence into three generations is purely academic. There isn’t a restriction on how many generations there could be in the future.
What lies beyond generation three is up to the imaginations of the creators of the future. User-friendly applications could bring blockchain tech into every aspect of our lives. If it is just banking now, it could soon be even our laundry, education and much more. Only time will tell.
