Blockchain generations, just like computer generations and internet generations, are evolving technological interventions in the space, with each subsequent generation trying to improve on certain limitations of the previous one. Up until now, the tech world has witnessed three generations of blockchain, with more and more use cases and applicabilities of the technology dawning upon the world.
The first generation introduced blockchain, the second generation expanded its utility, and now the third generation is making the chain able to handle the heavy traffic resulting from its increased utility. It increases scalability and enables the development of wider utility decentralized applications, able to handle the existing DeFi traffic as well as the massive traffic expected to come from users of the non-DeFi Web3 projects.
The blockchain network is the basis of the third generation of the internet itself. It can be said that the internet has also witnessed three generations- Web 1, Web 2 and Web 3. Web1 was the world wide web version of the internet. Ethernet preceded this version but it soon caught up with the World Wide Web. It was just the beginning of the internet, with much of it being in the invention phase and the information being uploaded.
But the problem with it was usability and accessibility. As the experts started to realize how much more capable this technology could be, they knew it could only be harnessed by onboarding more people- users as well as developers. They had to make it cost-effective, more permeable, convenient to use, and add more functionalities.
Web2 was the application phase, where the data went on to become socialized and accessible to more people through various applications developed using advanced programming languages that could be used over mobile phones. It enabled a better user interface, user experience, functionality and convenience of use for common people to understand. It was the key to onboarding more users on the internet, which was followed by the emergence of more and more everyday use applications.
But the problems with Web2 soon started to surface. With the internet boom, companies providing smart technology, smart apps, etc. became industrial giants with free access to user data. These tech giants, with their economic power and the control of modern technology, started being authoritative. This led to a centralization crisis, with huge amounts of power and resources in the hands of a very few.
As a direct result, centralized control of power in an abusive way was evident, with the uncovering of many scandals, with Cambridge Analytica being the poster boy of such incidents. Before anyone knew it, public data sales, privacy breaches, etc. gradually became the accepted norm. But now, with the advent of social media extravagance and mass reliance on a single source for all the information, there are serious problems out there.
There have been multiple incidents of information manipulation, influencing public minds, fake news and malicious public opinion. Major financial objects have also now shifted to the digital space, resulting in financial hacks, security scams, privacy breaches, and other third-party attacks.
Blockchain-based Web3 presents a solution to this all. This new era of the internet will be about secure ownership, privacy and decentralization. It also attempts to make data provenant and tamper-proof, making it almost impossible for malicious parties to manipulate data and spread false information.
Blockchain generations are, hence, going to naturally happen with the advent of the technology one and a half decades ago. At first, the focus was DeFi; but now many Web2 key players are building their own blockchains, such as IBM, Apple and Microsoft. This is expected to bring real use cases to decentralized applications and bring real Web2 users to Web3.
Three generations of blockchain are on the horizon. Each generation has its own flag bearer, with the techniques being adopted by others as well. The older blockchains are also constantly trying to upgrade to come up with ways to compete with the new generations.
First generation blockchain was the one introduced by Bitcoin. It showed the first real-life implications of blockchain technology, which was proposed in the 1990s. Satoshi Nakamoto developed a peer-to-peer payment system for the exchange of his cryptocurrency, BTC. The blocks were added by solving complex mathematical algorithms and using the hashing technique.
The decentralized technology disempowered centralized authorities like state governments and central banks with a currency that was not under anyone’s control but the users’ demand and supply. It also makes it difficult to trace the trail of transactions, ensuring their privacy.
But the problem was that it had only one utility- digital currency, which was not accepted by the vast majority of channels. So it had a very limited use case of being a digital asset that can only be traded in secondary markets by very few users who understand mining and blockchain technology; hence, it has low liquidity.
Another huge problem was energy consumption in mining, due to which the transactions are very slow and the blockchain is not scalable if huge volumes of transactions occur.
The first generation saw blockchains like Bitcoin, Litecoin and Dogecoin. But the vast potential of decentralized finance was unlocked by the second generation blockchain, Ethereum. It implied the technology of smart contracts in blockchain, which enabled a vast array of DeFi activities besides buying and selling, such as lending, staking, liquidity pooling, collateralizing, yield earning, decentralized exchange, escrow, marketplaces, etc.
Another prominent function featured on the Ethereum blockchain was the development of NFTs. The record of ownership, pricing, license disposal, etc. are all things that can only be securely executed by smart contracts. Hence, the network acted more like a software development platform where various DApps and Web3 projects could be built upon.
The Ethereum chain itself saw numerous protocols and tokens built on it, bringing more traffic due to its capabilities. It introduced the Proof-of-Stake consensus protocol to solve the problem of energy consumption in mining Proof-of-Work consensus. This was followed by more PoS blockchains and blockchains with different consensus mechanisms that increased the transaction speed. They were all smart contract-capable.
Smart contract capabilities host a range of on-chain functionalities that can be securely executed without the involvement of a third-party. The increased traffic and variable options to engage assets enabled liquidity and expanded the ecosystem multifold. More and more people started recognizing the underlying potential of the technology and the importance of decentralized currencies and transactions that are not recorded by a centralized authority.
As blockchain sees more traffic with the onboarding of more users due to the wider application of the technology, there are now problems with the processing speed and operations on the network. These problems prevent it from becoming scalable due to the lack of efficient infrastructure. Smart contracts help in developing DApps and protocols but there need to be solutions to handle simultaneous transactions.
Interestingly, it is said that any blockchain can only efficiently provide any two of the following three features- decentralization, security and speed. If one focuses on any two, the third one automatically comes down. This is called the blockchain trilemma. All the second generation blockchains suffered from it.
Overcoming the blockchain trilemma is the main objective behind the development of these advanced blockchains, which aim to provide all three very efficiently- decentralization, security and speed. This would make it scalable and actually capable of handling enormous traffic brought by a diverse range of DApps.
Another very important aspect is that as Web3 develops, there is going to be a growing need for it to function like an ecosystem as a whole, as opposed to multiple ecosystems of individual blockchains. This is what necessitates interoperability across blockchain networks so that users don’t face restrictions on the use of the technology. The entire system needs to work collaboratively to transfer the entire user-base of Web2 to Web3 and make Web3 as practical as Web2.
All of these demands are being addressed with modern, advanced blockchains like Cardano and Polkadot, with Cardano even being dubbed an ‘Ethereum killer.’ They are carefully implying techniques like sharding, cross-chain bridging, modern cryptography, advanced hash generation, side-chains, parachains, highly optimized consensus protocols to procure block generations at ultra high speed while also expending very little energy to reduce environmental impact, and Layer-2 solutions.
Blockchain technology is the future of the internet. As Web3 expands further, blockchain evolution is not going to stop at the third generation. Besides, many existing first and second generation chains are making conscious efforts to advance their networks to enhance functionality and increase scalability.
For example, Ethereum 2.0, the further roadmap of Ethereum and other established networks aim to achieve the same. Bitcoin Ordinals is another classic example that aims to bring NFT functionality to the smart contract disabled chain.
DApps obviously happen to be an area of great focus right now. They are going to imply advanced smart contracts, which are encoded in highly potent programming languages like Move and empower more flexible and diverse executions. A lot of projects are working on building Layer-2 solutions, which are one of the best scalability solutions right now.
With the development of AI and the metaverse, blockchain is poised to touch upon almost every aspect of our lives, just like Web 2. Right now it is only finance, but the use cases extend much beyond banking- healthcare, food industry, supply chain, tourism, hospitality, medicine, research, manufacturing, education, and much more.
Interestingly enough, there is also a proposed fourth generation web, Web4, which will involve a highly immersive, ultimate AI-driven internet with simultaneous read-write generative techniques. It will be built upon blockchain on quantum computers with the intensive implementation of Artificial Intelligence, Virtual Reality, Augmented Reality, Extended Reality (XR) and the metaverse. And that’s what probably lies in store for future fourth, fifth, sixth, etc. generations of blockchain as well.