Since the emergence of Bitcoin in 2009, an entire industry has developed around decentralized networks. Today, in August 2023, the decentralized technology landscape is vastly different from what it looked like ten or even a few years ago. Almost every month, innovative projects emerge that expand the horizons of the technology’s application, sometimes in unpredictable directions. For example, blockchain solutions for combating crime in real-time.

Origins

How did blockchain come about?

There are several points of view on when exactly the prototype of the blockchain appeared. It is worth noting that blockchain, in its essence, is a data structure, and what the general public calls blockchains today are decentralized networks in which cryptocurrencies are used to solve applied problems.

In our opinion, from a technical point of view, the most accurate time to start the countdown is with the registration of the hash tree patent by Ralph Merkle in 1979. The essence of Merkle's idea was to store data in a chain. However, in 1991, the original idea was further developed, where hashes were linked into a chain, and the last cell of the hash became part of the next block. Nowadays, the invention is well known to those who develop decentralized solutions and is associated with the name of its creator – the Merkle tree.

How did the Bitcoin blockchain come about?

Bitcoin is a first-generation blockchain, the white paper of which was published in 2008. The author of this technical paper is still unknown, but it is most often attributed to the anonymous figure Satoshi Nakamoto. Bitcoin was a real breakthrough because it was the first to implement the concept of a truly decentralized network of actors, within which it became possible to transfer value Without relying on centralized intermediaries like banks.

In addition, Bitcoin provided a number of significant advantages: Bitcoin addresses are not tied to your identity. All transactions are end-to-end encrypted and stored on all computers in the network, making potential hacking virtually impossible. Bitcoin has a capped supply of 21 million coins, set to be mined by 2140. All transactions have a timestamp of execution and the addresses of the sender and recipient.

Following Bitcoin, other cryptocurrencies emerged, each with its own coin, resulting in thousands of tokens traded on exchanges. Even today, only a small fraction of the projects have any real value.

Problems with first-generation blockchains

There is the possibility of a 51% Attack. Transaction fees became expensive as the blockchain networks grew in popularity. Transaction speeds were low, and each update attempted to increase network throughput. Most users could not imagine how to use virtual currencies in their daily lives, and these networks could primarily be used as a means of transferring digital currencies. All first-generation networks operated on the basis of the proof-of-work algorithm, which is energy-consuming and pollutes the environment.

Second-generation blockchains

The most iconic second-generation blockchain is Ethereum, which appeared in 2014 and started the generation of blockchains with smart contracts. Smart contracts radically changed the view of the potential blockchain technology could provide.

Despite its achievements, Ethereum still had issues. High energy consumption was solved in 2022 with the transition to the PoS (Proof-of-Stake) consensus protocol. Dynamic fees became a significant obstacle for users and developers, as the Ethereum network’s block size is limited by the protocol. This led to increased competition for transaction space within blocks, and users who didn’t want to pay more gas found their transactions processed last, which could result in financial losses.

Third-generation blockchains

Solana, the most popular third-generation blockchain, solved scalability issues using the PoS consensus algorithm and the PoH (Proof-of-History) consensus algorithm. This hybrid setup allows it to theoretically process up to 710,000 transactions per second, although it hasn’t yet reached this performance in practice.

Fourth-generation blockchains

The next generation introduced a sharding mechanism. Near, a prominent fourth-generation blockchain, uses a delegated PoS blockchain with smart contract support and a sharding mechanism called Nightshade. Near is capable of handling approximately 100,000 transactions per second.

Fifth Generation Blockchains - Current

Everscale, TON, Venom, Cosmos, Polkadot, etc., represent the fifth generation of blockchains. For instance, Everscale addresses the blockchain trilemma by balancing security, decentralization, and performance. It offers infinite scalability through dynamic sharding and can potentially process millions of transactions per second.

Read more : Blockchain Challenges

The Future of Blockchain

Blockchain is still in its early stages of development. In the next five years, it is expected that most countries will introduce their own digital currencies (CBDC), there will be massive adoption of Self-Sovereign Identity (SSI), much of international trade will use blockchain technology, and more countries will use electronic voting systems on the blockchain. Blockchain will be used for digital certificates for raw materials and digital medical records.