Before writing about the three generations of Blockchain technology I would like to share a great definition and vision:
“Blockchain is an emergency technology whose existing implementation is like a large scale proof of concept running on a very inefficient system, which is improving and evolving in order to become a large globally distributed computer.”
First Generation [2008, Bitcoin]
It does not need an introduction as it was subject to mainstream attention for the past 4-5 months, we are talking about Bitcoin itself. On that note, I suggest you to read Satoshi Nakamoto Bitcoin Whitepaper.
This well established and reliable 1st gen Blockchain can be described as a peer-to-peer (p2p) decentralized accounting system.
By resolving for the first time in history the double spending problem without using a centralized server or authority, this solution made history and inspired all the following decentralized projects and gave birth to a disruptive technological revolution.
That being said Bitcoin did not come without flaws and challenges, the two key ones are scalability and mining resource consumption (proof of work requires a huge amount of electricity).
Second Generation [2013, Ethereum]
Ethereum provides a decentralized complete virtual machine, which can execute computer programs (Smart Contracts) using a global network of nodes. The key features introduced by Vitalik Buterin Ethereum was bringing a programming language (Solidity) to the Blockchain, therefore introducing two new terms:
- Smart Contract: a computer program that controls a digital asset, allowing exchange of money, property, shares, or anything of value in a transparent, conflict-free way while avoiding the services of a middleman.
- Decentralized Applications (DAPPS).
On this distributed computer anyone can run any application at scale and speed of today major websites with the assurance of the security and resilience of today Blockchain. However, as mentioned, today Blockchain infrastructure cannot do much apart from proof of concepts. To put it into perspective these are the TPS (transaction per second) capabilities for:
- Bitcoin: 7 tps
- Ethereum: 20 tps
- Visa Credit Card: 24,000 tps
- Facebook 195,000 tps
Scalability Problem: how can we build an infrastructure to support many decentralized applications running multiple smart contracts and transactions every second if each and every node in the network are expected to resolve each transaction concurrently? This approach can only lead to a congested network (see CryptoKitties).
Third Generation [2017*, IOTA, AION, CARDANO…]
This is actually ongoing and there are several projects trying to establish themself as market leader or best practice.
The key features to be delivered are
- Interoperability allowing different blockchains to interact with each other (e.g. decentralized crypto exchanges).
- High number of TPS, growing as the network traffic increases (IOTA has no transaction fees and as more users are on the network the faster it gets. Its mining system is not linear but based on the tangle, a web / network type structure).
- Improved mining by moving to a proof of stake solution and introducing side-chains.
What next?
After highlighting the first two generation issues, it’s important to underline that Bitcoin and Ethereum are also evolving.
Bitcoin is implementing segwit and lightning network, Ethereum is moving to POS (Proof of Stake) and introducing side-chains.
We are still far from efficient implementations of the Blockchain in the real world (apart from monetary exchanges perhaps), so the disruption might be delayed for another couple of years… but the direction taken is clear and the future ahead is very bright!
*some of these projects started before 2017