Bitcoin, Ethereum, Solana, these three currencies correspond to three different generations of cryptocurrencies. Each generation tries to correct the imperfections of the previous one: exponential electricity consumption, excessive transaction costs and times…
The three generations of cryptocurrencycryptocurrency are the following: the BitcoinBitcoinsmart contracts and blockchainsblockchains optimized.
1st generation: Bitcoin
For cryptocurrencies, it all started with the appearance of Bitcoin, as defined in a white paper written by a man named Satoshi Nakamoto and published on October 31, 2008 on the forum Cryptography Mailing List.
One of the principles Nakamoto proclaimed about Bitcoin was the absence of a central bank. This is being replaced by a trust mechanism called the blockchain, which is the equivalent of a time-stamped accounting register. Every bitcoin transaction ever made is recorded on the blockchain forever. And it’s shared among all Bitcoin users, which makes it tamper-proof, since everyone has a copy, whether it’s on their computercomputer personally or on thestock exchange (marketplace) where his Bitcoins are stored.
Nakamoto has also provided a blockchain validation (mining) mechanism by special users called “miners”, who are tasked with verifying that every transaction is valid, through cryptology-based calculations. Once a miner performs this operation, the blockchain is updated. It then gives a so-called ” proof of workproof of work “.
The blockchain as defined by Nakamoto had its first limitations in 2017. When the demand for this cryptocurrency exploded, it resulted in a very strong slowdown in transaction management and very high mining costs. A development called SegWit was carried out with a view to increasing the size of the Bitcoin blockchain.
Despite this development, the size of the Bitcoin blockchain has continued to grow. It measured almost 360 GB at the beginning of October 2021 and it takes an average of ten minutes for a transaction to be validated. This results in a huge electricity consumption – close to the total electricity consumption of a country like Belgium or Chile at the same time. One of the solutions found is the Lightning Network making it not possible to validate the transactions one by one, but a series of transactions between two users.
2nd generation: smart contracts
In late 2013, Vitalik Buterin published the White Paper for a new cryptocurrency called Ethereum. The most important factor he introduced at the time was that of smart contractor the ability to make a programmable change.
Ethereum was offered to the cryptocurrency enthusiast community in January 2014 and then officially put online on July 30, 2015. It thus materialized what could be a currency associated with a smart contract.
In the wake of EthereumEthereuma very large number of tokens (currencies) have appeared, each based on the Ethereum blockchain, whose specific characteristics are defined by a smart contract: Bancor (BNT), Augur (REP), Status (SNT) …
In fact, Ethereum has a whole host ofappsapps innovative and grouped under the term DeFi (decentralized finance), which again exploits the Ethereum blockchain. Applications such as Aave (borrowing and lending), Uniswap (decentralized exchange), Sushiswap (financial investments) have appeared.
In a sense, however, Ethereum has fallen victim to its own success. Transactions on its blockchain have become so numerous that the fees charged by miners have “exploded”. It is common to pay several tens of euros for processing a transaction, and sometimes this number can reach a hundred euros. In addition, the transaction processing time easily takes five minutes and could be counted in hours. As for the size of the Ethereum blockchain, it was already 991.56 GB at the end of September 2021.
Obviously, these concerns about the Ethereum blockchain have led many cryptocurrency enthusiasts to migrate to 3 solutions.e generation, with more agile blockchains. Ethereum has also started its transformation. A V2 has started to be deployed and aims to solve the above mentioned problems.
3rd Generation: Optimized Blockchains
So Bitcoin, Ethereum and the currencies that have sprung up in their wake have similarly encountered difficulties in terms of their growth. The third major step is represented by the emergence of new currencies based on a more flexible validation system. One of the solutions found was to replace “proof of work” with “proof of stake”.
Proof of stake entails that the management of a currency is delegated to a very limited number of delegates elected by the community established around that currency. For example currency EOSEOS is based on 21 participants who manage the blockchain. If the validation work is not done properly, these delegates will be rejected by the network and replaced with other delegates.
The second big novelty of this 3e generation is the appearance of more agile and therefore quick to manage blockchains.
One of these limited size blockchain currencies is Mina, which has the smallest blockchain in existence (22 KB).
Other recent currencies are opting to exploit the blockchain more easily with internal innovations. So Iota relies on a different validation system than the blockchain – each user validates two other users, each validates two others, etc. Polkadot, for its part, uses a blockchain partitioning system to speed up processing.
In a similar vein, some new blockchains like Solana and Polygon are designed to handle one-to-one transactions. speedspeed in milliseconds, with a load (fees) in the order of one euro cent. The result is a whole host of new DeFi applications with ultra-lower performance and cost.