What are the three generations of cryptocurrencies?

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 costs and transaction times …

The three generations of cryptocurrencies are the following: the Bitcoinsmart contract e blockchain optimized.

1D. 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 posted on October 31, 2008 on the forum Encryption mailing list.

Among the principles enunciated by Nakamoto about Bitcoin was the absence of a central bank. This is replaced by a trust mechanism called a blockchain, the equivalent of a timestamped ledger. Every bitcoin transaction ever made is forever recorded on the blockchain. And it is shared among all Bitcoin users, which makes it tamper-proof, since everyone has a copy, both on their own. computer personal or onexchange (market) where your Bitcoins are stored.

Nakamoto has also provided a blockchain validation mechanism (mining) by specific users called “miners”, whose task is to verify that each transaction is valid, through calculations based on cryptography. Once a miner does this, they update the blockchain. It therefore provides what is called ” proof of work “.

The blockchain as defined by Nakamoto, it experienced its first limits in 2017. The explosion in demand for this cryptocurrency has led to a very strong slowdown in the management of transactions and very high mining fees. A development called SegWit was made with the aim of increasing the size of the Bitcoin blockchain.

Despite this development, the size of the Bitcoin blockchain has continued to grow. It measured nearly 360GB in early October 2021, and it takes an average of ten minutes to validate a transaction. This results in huge electricity consumption, close to the total electricity consumption of a country like Belgium or Chile at the same time. Among the solutions that have been found is the Lightning Network which allows not to validate transactions one by one but a series of transactions between two users.

2And generation: smart contracts

At the end of 2013, Vitalik Buterin published the White Paper of a new cryptocurrency called Ethereum. The main factor he then introduced was that of smart contracto the possibility of making a programmable change.

Ethereum was offered to the community of cryptocurrency enthusiasts in January 2014, then officially went online on July 30, 2015. It thus materialized what could be a currency associated with a smart contract.

In the wake of Ethereuma very large number of tokens (currencies) appeared, each based on the Ethereum blockchain, whose specificities were defined by a smart contract: Bancor (BNT), Augur (REP), Status (SNT) …

Even better, Ethereum has spawned a whole host ofapp innovative and grouped under the term DeFi (decentralized finance) which, once again, exploit the Ethereum blockchain. Applications such as Aave (loan and loan), Uniswap (decentralized exchange), Sushiswap (financial investment) appeared.

However, in a sense, Ethereum has become a victim of its own success. Her blockchain transactions 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 has risen to one hundred euros. Plus, the transaction processing time easily takes five minutes and can be counted in hours. As for the size of the Ethereum blockchain, at the end of September 2021 it was already 991.56 GB.

Clearly, these concerns related to the Ethereum blockchain have led many cryptocurrency enthusiasts to migrate to solutions of 3And generation, involving more agile blockchains. Ethereum has also started its transformation. A V2 has started to be distributed and aims to solve the problems mentioned above.

3And generation: optimized blockchains

Therefore, Bitcoin, Ethereum, and the currencies that emerged in their wake have had similar problems related to their growth. The third big step is the emergence of new currencies based on a more flexible validation system. One of the solutions found was the replacement of “proof of work” with “proof of stake”.

Proof of participation involves delegating the management of a currency to a very limited number of elected delegates from the community that has formed around this currency. For example, evaluate EOS is based on 21 participants who are responsible for the blockchain. If the validation work is not done as it should, these delegates are disowned from the network and replaced by other delegates.

The second big news of this 3And generation is the appearance of more agile blockchains and therefore faster to manage.

Among these small blockchain currencies is Mina, with the smallest existing blockchain (22 KB).

Other recent currencies are lining up to make the blockchain easier to leverage with in-house innovations. Therefore, Iota is based on a different validation system than the blockchain: each user validates two other users, each of them validates two others, etc. Polkadot, for its part, uses a blockchain partitioning system to speed up processing.

Likewise, some new blockchains like Solana and Polygon are designed to be able to handle one-to-one transactions. speed in milliseconds, with a charge (commissions) of the order of one euro cent. The result is a whole range of new DeFi applications with extremely low performance and cost.

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