A Decentralized Digital Ledger, Powering Web3.
Imagine a group of people who want to keep a shared record of their transactions, but they don't trust any single person to do it. So instead, they each keep a copy of the record in a notebook, and periodically compare them to make sure they're all the same. Whenever someone wants to add a new transaction, they announce it to the group, and everyone adds it to their own copy of the record. This way, everyone can see what's happened in the past and no one can change it without the group's agreement.
This is a simplified version of how a decentralized system can work without relying on a central authority, and in a way, the premise of blockchains.
A blockchain is a decentralized, digital ledger that records transactions in a way that is secure, transparent, and immutable.
Just like the internet, blockchain technology has evolved to become more robust and enable more applications over the years to solve different problems.
- First-generation blockchains like Bitcoin were designed to improve the financial systems in place by offering a decentralized monetary platform that puts the control back in the hands of the people; they introduced digital currencies, known as cryptocurrencies.
- Second-generation blockchains like Ethereum then added smart contracts which enabled complex logic to be executed on the blockchain.
- Third-generation blockchains like Cardano now focus on improving the scalability, interoperability and sustainability of second-gen blockchains - key factors for mass-adoption.
Bitcoin (BTC) is the first and most popular first-generation blockchain. It was created in 2009 following the financial crisis, by an anonymous person or group known as Satoshi Nakamoto, with the purpose of improving the financial systems in place by offering a decentralized monetary platform that puts the control back in the hands of the people. First-generation blockchains such as BTC introduced the concept of digital currencies and popularized the Proof-of-Work consensus mechanism to validate transactions and create new blocks.
BTC has since paved the way for many other cryptocurrencies, but it is still the most-popular cryptocurrency to date, and is considered more of a digital store of value similar to gold. Other examples of first-generation cryptocurrencies include Litecoin and Monero, which focus on speed and privacy, respectively.
Second-generation blockchains, such as Ethereum (ETH), brought innovation to the blockchain industry by introducing a programming language that allowed for the creation of customizable transactions known as "smart contracts." Smart contracts are self-executing contracts with the terms of the agreement between buyer and seller being directly written into lines of code.
These smart contracts enabled the development of decentralized applications, or dApps, on blockchain technology, allowing a variety of novel projects to be built to service a global audience. However, with growing adoption and increasing demands, issues of scalability and sustainability became a prominent issue; these blockchains could not possibly handle many millions of users.
The movement to second-gen blockchains is analogous to when the internet evolved from static pages only meant for reading, to the current internet with applications like Facebook, Twitter and Google, where users can interact with web-based applications.
Third-generation blockchains, such as Cardano (ADA), aim to resolve the fundamental flaws of scalability, interoperability, sustainability and governance that previous generations suffer from. These blockchains seek to enable mass adoption of blockchain technology globally and offer a more secure environment for building decentralized applications.
These blockchain networks also enable governance, where participants holding the network’s native cryptocurrency are granted voting or governance rights. This allows them to participate in the decision-making process of the network, including voting on proposals and changes to the network's protocols.
This generation of blockchains are designed to handle complex dApps and enterprise-level use cases that require high-speed and low-cost transactions as well as applications like decentralized identities (DIDs) and decentralized money markets.