3 generations of cryptocurrencies: how technology evolves right in front of us
The hype around blockchain technology and all the different crypto coins gets higher and higher. Now there are so many different altcoins that it’s hard to make out them from one another. However, what we can do in terms of market investigation is to look at digital currencies different stages, how they’ve been evolving in time and, perhaps, try to guess what’s waiting for us behind the corner.
In today’s article we’re going to look at 3 different generations of cryptocurrencies, point out their differences, what which of them gave the market in the sense of innovation, what problems each of them has and how these problems are to be solved.
First generation of cryptocurrencies: Bitcoin
Bitcoin is the perfect example of the cryptocurrencies’ first generation. It was the first cryptocurrency ever launched into the market in 2009. It represents a revolutionary technology for the financial world, but in fact it hasn’t changed so much over the years.
Bitcoin represents a peer-to-peer blockchain technology and lets individuals exchange value without any third-party governance system such as a bank or a financial company to confirm the transaction. Bitcoin allows to make instant transactions with lower fees in comparison to traditional financial institutions. Also, Bitcoin has become a great source of income for many of its users who just invest in Bitcoin and earn money y\by selling it in a few months.
The technology is really great, but it doesn’t work that good as a currency to pay for goods and services.
Second generation: Ethereum
If you want to pay a person with bitcoin to make some simple action for you like buying groceries, you can’t be sure that after you send this bitcoin you will get what you want. You may want to make some type of agreement, a digital contract that would let you make this transaction. This is what the 2nd generation of cryptocurrencies is all about.
The most famous representative of the 2nd generation of cryptocurrencies is Ethereum. It works in a much smarter way than Bitcoin does. It allows you to use some sort of code, a programming language to build smart contracts and decentralized applications on top of them.
These smart contracts set up rules and conditions that have to be met for an action to happen. So when you pay to a person to buy you groceries, these smart contracts will let you be sure that the groceries will be delivered to you.
The smart contracts can be used for a huge variety of things, from advanced financial transactions to legal disputes. However, the issue with the central authority remains.
Both Bitcoin and Ethereum have terrible governance systems. The scalability of these coins is quite low, you can only make 3 transactions per sec with Bitcoin and 12 with Ether. And you can’t increase the block size to make more transactions as this will overload the network.
Just to compare. Visa handles thousands of transactions every second all around the world.
Third generation
This generation is only to be developed and no certain cryptocurrency belongs to it. Many of those that are in the market right now struggle to become one of them and some of them even manage to get some success. There are such projects as Cardano and some more others that try to implement what neither Bitcoin, nor Ethereum has: the system of governance.
This is the system where decisions are made at the community level and usual people decide on how the cryptocurrency is going to evolve.
This should be a sustainable governance system, that is also scalable and lets us interact with other blockchains and make exchanges along with other cryptocurrencies.
Let’s wait and see what it all will turn out to be eventually.
