Evolution of Blockchain Technology

One reason that can be explained with such a large number of coins is the use of blockchain technology, which has a continuous development. The development allows them to solve any problem that exists in previous networks, leading to numerous blockchain generations. 

Hence, this article will get you to know more about each generation of blockchain, to understand what is the purpose of it being created and what is the problem of each generation following the solution itself.

1st Generation - Bitcoin

The first time blockchain used in finance was Bitcoin. In this use case, the purpose was to use Bitcoin to remove intermediaries from transaction, to avoid a problem occurring from this system such as a delay in international payment or a fee charged by the intermediaries. 

Bitcoin was also created to have a characteristic of “Good Money” in that it was created to have a limited number of coins, 21 million, and to have a mechanism that reduces the number of coins launched every four years. This gimmick is called “Bitcoin Halving” making Bitcoin similar to gold in the digital world.

After Bitcoin was being well-known, there were many networks emerged such as Litecoin which was solved to have a faster transactions than Bitcoin. However, overall, both of them have a relative fundamental. 

Apart from that, in October 2022, Guinness World Records just record Bitcoin for being the world's first decentralized digital currency and for having a total value higher than any other digital currency.

2nd Generation - Ethereum

The blockchain that has been accepted as a generation 2 is Ethereum. This is because Ethereum was the first network that introduce the use of smart contracts in the blockchain.

The idea of smart contract is an agreement that can be executed automatically if conditions are met.

Smart Contract is similar to programming on blockchain but more transparent as everyone can examine its work process. This is why blockchain can do more than just transferring money. 

When having a smart contract, developers can create applications on the blockchain, leading to new use cases such as the Decentralized Exchange used in Uniswap or the Decentralized Lending service used in AAVE.

Furthermore, for NFT, an asset having a unique feature that cannot be interchaged, when people hear this word, they probably think of digital art such as Bored Ape Yacht club or CryptoPucks. However, NFT can be used in various specific assets like real estate, collectibles, vehicles, or even game items. 

With smart contracts and NFT, the blockchain has been expanded apart from just transferring money like in the Bitcoin era. However, a problem still exists in this generation such as scalability, which is an expansion of network to be suitable for a large number of users. Therefore, such a problem leads to the development of new blockchain generation. 

3rd Generation

 

A major weakness of both Bitcoin and Ethereum is the issue of scalability, or expanding the network to handle higher transaction volumes, which causes a bottleneck leading to transaction delays and higher gas fees.

In order to fix this problem, third-generation blockchains like Cardano, Avalanche, TRON, etc. have been developed. Each network employs a unique set of technologies, such as sharding or sidechain. Some networks have been overhauled by switching from blockchain to a DAG (Directed Acyclic Graph) data structure. 

The Ethereum side did not just sit around, as Ethereum 2.0 is being developed to improve speed, smart contracts functions, along with other features, which were partly completed in the September 2022 update of The Merge. This is an update that changed the consensus algorithm from Proof-of-Work to Proof-of-Stake. However, the date for the next update has not been announced, and therefore, we will have to keep an eye out for it.

Nevertheless, the majority of third-generation blockchains are still very new and are not as widely known or used as Bitcoin and Ethereum. Thus, it remains to be seen whether these networks will prove themselves capable of handling massive transactions effectively in the future.

4th Generation

At present, it is still uncertain how the fourth-generation blockchains will develop since the third-generation blockchains are still relatively new, with most of them trying to fix the issues that arose in the second generation.

Some believe the fourth generation will integrate blockchain with AI (Artificial intelligence) technology, while others believe it will focus on mass adoption, making blockchain more accessible to the general public, educational institutions, or small businesses.

However, it is highly likely that the fourth-generation blockchain may arrive sooner than expected due to the leap forward in technological advancement nowadays. In particular, the advent of the metaverse has caused all industries to turn their attention to key infrastructure such as blockchain technology.

Conclusion

Blockchain is constantly evolving like any other technology. Currently, blockchain can be divided into 3 generations:

First generation: solves the problem of making transactions through an intermediary (Bitcoin)

Second generation: smart contracts were added to support new use cases (Ethereum)

Third generation: solves scalability issues and enables massive transactions in blockchain (Cardano, Avalanche, TRON)

Fourth generation: is expected to be about integrating AI technologies or perhaps focusing on mass adoption that will allow blockchain to infiltrate everyday life better.

 

Reference

What Will The Fourth Generation of Blockchain Look Like? - HackerNoon, 

The Blockchain Generations - Ledger, 

What are The Various Blockchain Scalability Solutions - LeewayHertz