In web technology, we have the so-called web 1.0, web 2.0, and web 3.0. As expected, web 1.0 is the boring version of the internet. Web 2.0, which we’re on now, is much more advanced.
Many experts are quick to compare the different web evolutions within the blockchain, particularly 1.0 and 2.0. Like any technology, blockchains have become increasingly advanced, leading to first-generation, second-generation, and third-generation.
Moreover, this article will provide a few examples of the cryptocurrencies within each generation to understand them better.
Firstly, let’s define blockchain technology
Of course, before we understand all the different generations, let’s first define what the blockchain is. At its core, a blockchain is just a unique transaction-recording database that changes how we store information.
More technically, experts define the blockchain as a digitally distributed ledger, a never-ending log of transactions or records chained one after the other through blocks (hence the term ‘block chain’).
A group of nodes or computers develops each block in a network according to a predefined protocol, creating the cryptocurrency. After this creation, blocks become immutable, meaning they theoretically cannot be altered.
Most blockchains in crypto are decentralized, peer-to-peer, and publicly viewable. Bitcoin pioneered the blockchain in 2009 as a means to create ‘digital money’ which central banks and governments did not control.
This concept has morphed far beyond our expectations, creating an innumerable number of different applications and use cases.
As briefly mentioned, Bitcoin is the originator of the blockchain. Many cryptocurrencies since were direct clones of Bitcoin or used much of its source code. Plenty of first-gen cryptocurrencies still exist and have garnered massive followings for their decentralization in digital money.
Such blockchains are payment-based and serve no other purpose than acting as decentralized, fast, and secure mediums of exchange. Proof-of-work mechanisms or mining characterize most first-gen ledgers.
Although this system has enriched many investors, mining is expensive to partake in and environmentally unfriendly. Yet, specialists agree mining is technically more secure partly because you would need a substantial amount of computational power and money to ‘cheat the system.’
Still, since first-gen blockchains have limited functionality and use mining which takes a lot longer to confirm transactions, they are plagued with scalability issues.
Arguably, Ethereum is the project that pioneered a second-generation blockchain in 2015. All cryptocurrencies before this period could only do one thing, which is acting as a payment processor.
Ethereum is anything but one-dimensional and quickly proved people could do much more with cryptocurrencies. This project popularised two revolutionary concepts; smart contracts and dApps (decentralized application).
A smart contract is just a programmed contract where the pre-set conditions execute automatically without any third-party verification. Hence, instead of transferring money, this structure allows for the exchange of virtually anything of value without a middleman.
DApps, which heavily rely on smart contracts, are non-centralized applications using the blockchain.
Examples of other second-gen cryptos include Uniswap, Terra, Filecoin, Stellar, etc. Another distinct feature with the second generation is the increasing adoption of proof-of-stake or similar mechanisms not relying on the expensive and energy-consuming mining practice.
Numerous second-gen cryptocurrencies are created through staking, where the blockchain ‘mints’ tokens based on the stake of its users on the network. Other similar consensus mechanisms don’t involve any mining, making these ledgers far more scalable than their counterparts.
Despite proof-of-stake and other systems being less secure compared to first-gen, scalability matters more for these projects. While many of these cryptos are technically faster than first-gen, they are still slower than payment processing giants like VISA.
Furthermore, the over-saturation of the cryptocurrency market has made it challenging for different ledgers to communicate. Hence, over the last few years, blockchain technology has evolved yet again with the third generation.
So far, we have seen both generations suffer from scalability issues where networks are slow in handling the millions of users transacting on them. Aside from the heavy latency, it makes it incredibly expensive for the end-user, even for small transactions.
Third-gen is substantially more scalable and cheaper, but there’s more. Think of the third generation as the ‘blockchain for blockchains.’ This quality has to do with interoperability. In layman’s terms, this quality relates to how ledgers can collaborate instead of being siloed as they are at present.
This collaboration will allow for even broader cross-chain functionality and make it simpler for the average person to use non-related cryptocurrencies in more blockchains.
For instance, you cannot use the original Bitcoin on Ethereum, hence why the Wrapped Bitcoin token was created. The most prominent names in third-gen distributed ledgers are Polkadot, Cardano, Cosmos, IOTA, Holochain, and more.
If we look at cellular networks, it’s easy to mark them through their respective generations, starting from 1G to 5G. Each stage came with some unprecedented and innovative developments that advanced the life of everyone.
We can also see the blockchain in a similar vein, and, to some, it’s still in its infancy. Let’s briefly summarise the three blockchain generations.
- First-gen: blockchains primarily focused on acting as mediums of exchange but which aren’t very scalable
- Second-gen: blockchains with a heavy focus on smart contracts and decentralized applications, but still lacking substantial scalability
- Third-gen: scalability and interoperability-improving ledgers with more advanced second-gen capabilities
If history is anything to go by, there is a lot in the pipeline for blockchain technology. Who knows, we’ll probably have a fourth generation sooner rather than later.