Blockchain: Where it Started, Where it’s Going
— Like the internet, blockchain has also been evolving – each chapter has aimed to overcome an existing limitation.
— The Bitcoin blockchain revolutionized the monetary system, by enabling peer-to-peer transfers of value, negating the need for financial institutions in this process.
— The arrival of smart contracts enabled transfers of value with pre-defined conditions. This gave rise to the DeFi, dApp, and NFT ecosystems we see today.
— The blockchain ecosystem is currently facing questions of scalability, interoperability, and governance, all of which are driving innovation currently.
— By the end of this article, you will get a complete idea of how blockchain has developed, and where the future lies.
Good to see you.
We dedicated the last article to the origin of blockchain and why it’s so important. It was the beginning of the blockchain ecosystem and cryptocurrency world. However, blockchain has been evolving, bringing new possibilities, new forms of crypto, and new types of interaction with it.
In this article, we’ll look back at the key moments in blockchain’s development thus far, discussing what each one has brought to space – and where we might be headed next.
Bitcoin: Bringing Blockchain to the Masses
Let’s start accurately: Bitcoin was not the first cryptocurrency or even the first blockchain.
Blockchain technology had actually been discussed as early as 1983 by American cryptographer D avid Chaum – he later developed the world’s first cryptographically managed electronic money, called ECash. However, with the company behind ECash going bankrupt soon after, the currency itself ultimately folded. Nonetheless, the cryptography behind ECash spurred future innovations and ultimately played a role in the development of the Bitcoin blockchain.
Bitcoin was created to provide a radical alternative to the monetary system: sending, receiving and “storing” value was the Bitcoin blockchain’s main accomplishment.
As Bitcoin empowered people with the technology and allowed them to make peer-to-peer transactions, powerful banks lost their dominance and power over users.
This is where Bitcoin and blockchain go hand-in-hand. With Bitcoin, Bob can send Alice digital money, and the transaction is secure despite not having an intermediary. Both of them can maintain their privacy because the transaction is anonymous.
The Arrival of Smart Contracts
Bitcoin was (is) a revolutionary concept: its design allows you to send and receive value autonomously, upending a financial system that has dominated for centuries. But what if you want terms and conditions in your transactions? Kind of like “ I’ll only pay Bob his cryptocurrency when he delivers my milk”.
This is where smart contracts entered the blockchain world, bringing with them a wave of new options.
The Ethereum blockchain was launched in 2015 and ushered in a new era for crypto. Despite being launched seven years after Bitcoin, Ethereum quickly became the second-largest blockchain in terms of market capitalization. It shows how much the world needed what Ethereum was offering.
The Ethereum blockchain went far beyond simple transfers of value. It was designed as an application layer, on top of which, developers can build their own decentralized applications and platforms with specific use cases.
Smart contracts were born
A smart contract is a self-executing agreement made between two parties, containing conditions in the form of “if….then”. For example, “ If Alice lends Bob 10 ETH, then he will pay her back monthly with 10% interest”. Now the transactions take place only if the given conditions are met.
The two parties involved in a smart contract draw up the conditions they both agree on. And once they are met, the contract triggers automatically. This gave rise to a whole new generation of tokens and platforms, including DeFi, dApps, NFTs, and stablecoins. We’ll come back to these concepts in the coming articles.
For now, the key takeaway is this: beyond simply transacting, Ethereum enables users to have ongoing, nuanced relationships with one another. It does this by integrating ‘conditions’ within user interactions.
Blockchain: Current State of the Art
Today, the blockchain ecosystem is expanding with the rising number of users across the globe. The next big question is about how we can make things better. We need a reliable way to access all the available services, no matter which specific blockchain or crypto we are using. In other words, we need “scalability” and “interoperability”.
Mass Adoption Demands Scalability
As more and more people use blockchain solutions, networks have to accommodate increasing traffic and be able to scale accordingly. Remaining efficient and affordable is a challenge faced by all blockchains as the ecosystem (and adoption) expands.
On the Ethereum network, for example, significant gas fees and slow transaction times are both obstacles to widescale adoption. Meanwhile, other blockchains face similar challenges, as they attempt to balance scalability with the other key pillars of security and decentralization.
To this end, a number of the more recent blockchains are exploring the “Proof-of-Stake” (PoS) consensus mechanism.
Proof-of-Stake does not select miners via a process that consumes energy (like proof-of-work does). Instead, the participants (validators) in the PoS system stake a security deposit of crypto before participating in consensus. The network allocates the validation of each new block based on each validator’s stake in the system. We’ll come back to that in more detail in another article.
For now what you need to know is this: if blockchain is to be adopted en masse, the ability to scale is essential, and this is driving a raft of innovation in the space. But since much of it (proof-of-stake being a prime example) is still to be properly explored and tested for its limits, the security of these new systems in the face of changing threats will only become apparent over time.
Interoperability is Essential to Your Freedom
As the blockchain space expands, another issue is rising – interoperability. In other words, whether different blockchains can communicate with each other or not. But, why is this important?
As the blockchain and crypto ecosystem grows, it is giving birth to a wide range of new concepts such as DeFi, dApps, GameFi, and the Metaverse. There are hundreds of different platforms and applications, operating across a variety of blockchains. Each blockchain has its own rules, protocols, and native digital assets, which are not necessarily compatible with one another.
What if you, the user, own an avatar on one metaverse, and want to use it on another platform built on a different blockchain network?
If you can’t bring your value from one system into another because the two are incompatible, you’ll find yourself locked into one ecosystem. It’s not really the true freedom that we are looking for. So, interoperability isn’t just a casual technical term to be skimmed over. It is about finding a way for different blockchains to communicate with each other that directly relates to your digital sovereignty.
Decentralized Governance is Required
Finally, the way blockchains themselves are governed is a key consideration as we move forward. Currently, many blockchains (such as Bitcoin and Ethereum) are governed “off-chain.” In other words, a select few decide how the network will be managed, and then implement those changes to the blockchain via laborious processes.
But, some recent blockchain models employ a different management style. They use tokens that are programmed with voting rights. This way, all the token holders actively participate in the management and future of the network. Ethereum 2.0, Cardano, and Polkadot are good examples of this governance model in action. In all these networks, the native token is programmed with voting rights, distributing the power over the network to all the users.
This way, blockchain is not only a decentralizing force when it comes to how we transact. With the help of this new governance model, blockchain can become a completely decentralized organism in its operation. This is something most networks are striving to achieve.
Overall, blockchain is facing a raft of new challenges as it looks to the future. If blockchain has taught us anything, it’s that absolutely everything can be and will be improved over time. In fact, we’re already seeing a multitude of innovations in the space. Most of them aim to expand the utility of crypto assets so that you can use them across different ecosystems.
We hope you got a clear idea of the different blockchain generations and their capabilities by this time. You are no more a novice and it only took a few minutes.
Let’s move to the topic you’ve probably been waiting for – Cryptocurrency, its types, use cases, and how to own it, in the next article.