Blockchain technology is a cryptographic chain that allows peer-to-peer transactions. Decentralized nodes verify and commit blockchain transactions, which are kept in a trustless fashion.
Bitcoin, the first cryptocurrency, introduced blockchain technology to the world and the concept of a Blockchain Ecosystem. We must look back at 2009 when we examine the history of blockchain technology. The Bitcoin white paper, which was written anonymously by Satoshi Nakamoto, described a solution for the double-spend problem that surrounds digital ledger peer-to-peer payment.
Blockchain transactions
Nakamoto transformed transactions into trustless entities, eliminating the need for intermediaries. Nakamoto's whitepaper outlined the problems of traditional finance and stated that e-commerce has come to depend almost exclusively on intermediaries to process bank digital transactions.
These intermediaries have to spend time and money in order to mediate transactions. This increases costs for transacting parties and limits the potential for small, daily transactions.
This solution involved immutably timestamping transactions using computational proofs, and hashing those transactions into an ongoing chain of hash-based evidence-of-work.
This chain would be distributed among all participating nodes in a decentralized fashion -- as a timestamp server. If nodes wanted to leave or come back, they could take a copy of the longest chain and continue.
The decentralization of the transaction process enabled trustless peer-to-peer interactivity and, ideally, provided faster and cheaper transactions for all. Once the technology was established, however, users still needed to be able to transact using it. This is where Bitcoin comes in.
We now know that blockchain is the first to have been invented, so we can ask whether Bitcoin or blockchain was the first.
Blockchain Contracts
Blockchain technology is more than peer-to-peer transactions. Decentralized applications (DApps), which are built on top of blockchain technology, have been created. Security and speed have improved. Smart contracts are a major driver of innovation.
The blockchain ecosystem was created after the introduction of Bitcoin's first generation blockchain project (or blockchain 1.0). For example, Ethereum (ETH) is widely considered to be the future blockchain solution.
This moniker is derived from the fact that Ethereum is more focused on blockchain applications and harnessing smart contracts to create blockchain-based currencies than just existing as a decentralized currency.
Vitalik Buterin was the founder of Ethereum. He envisioned his platform to replace the online experience and decentralize all digital asset processes. Peer-to-peer payments are being revolutionized. Instead, one can revolutionize financial lending, borrowing, gaming, and social media.
To help him realize his vision, Buterin used smart contracts. Smart contracts, which are digital currency agreements between two or more people, are similar to real contracts. A real-life contract, however, requires a lawyer or other intermediary in order to work, which can complicate the process.
Immutable set rules govern a smart contract. These rules are embedded in Ethereum's blockchain. This ensures that no one can change them once they start. It also eliminates the need for intermediaries. When both parties have fulfilled their obligations, the contract will be executed.
Applications
Decentralized applications can be trusted completely, so users don't need to involve an intermediary.
Ethereum offers developers the opportunity to create DApps and use the power of smart contracts, while Bitcoin has a basic version of smart contract technology.
Because of its capabilities that go beyond Bitcoin, Ethereum can be considered a second-generation or blockchain 2.0. Ethereum lets users create their own cryptocurrencies using its platform. It also harnesses the Ethereum blockchain to speed up security and speed.
Developers might create an application that allows borrowing and lending to be managed entirely via smart contracts. Smart contracts could be used to escrow funds and secure the funds before lending the loan.
Despite the many innovations made possible by smart contracts and other decentralized applications, Ethereum has severe scaling issues. This means that it is unable to validate transactions when it becomes too busy. This is due to the consensus method used by Ethereum and Bitcoin: proof-of-work (PoW).
PoW requires miners to validate blocks using their computers to solve complicated equations. There can only be so many miners validating transactions. If there are too many people trying to transact, the miners will become overwhelmed and the validation process may take longer. Ethereum 2.0, is a network upgrade that will see it adopt a proof of stake (PoS), consensus method to address these issues.
Let's now enter the third generation of blockchain, or blockchain 3.0.
Blockchain 1.0 vs. Blockchain 2.0 vs. Ethereum 3.0
Blockchain 3.0 expands upon the concepts of blockchain 1.0, and blockchain 2.0 and introduces new consensus methods and interoperability solutions.
The third-generation blockchain ecosystem addresses many of the problems that plagued both blockchain 2.0 and blockchain 1.0 networks, including interoperability and scaling. The scalability problem is often solved by blockchain 3.0 networks using a new consensus algorithm, proof-of-stake.
PoS allows users to lock in or stake their tokens and become validators, instead of mining. To ensure that transactions arrive in good faith, validators verify them before they commit them to the blockchain companies' network. They also earn transaction fees.
It is believed that users with stakes in a network will want the best for it, and they will do their best to validate transactions. Transaction validation is also faster than mining, which means that a network can scale with more validators.
There are also blockchain 3.0 interoperability options. Many blockchain ecosystems are not interoperable with each other despite their many similarities. It is expensive and time-consuming to convert funds between blockchain ecosystems via cryptocurrency exchanges. This can prevent users from enjoying true financial freedom.
Bridges are a common solution for blockchain 3.0 interoperability. Bridges allow users to connect multiple blockchain space networks and convert assets between them. Bridges connect all types of blockchain ecosystems and offer financial freedom.
Different types of Blockchain Permissions
Blockchain networks are permission-based and allow for different levels of use, depending on the user's needs.
There are many types of blockchain, apart from the generations. These can be viewed from a permission-based perspective. There are three types of permission: public, private, and permissioned. Each type offers a unique use case that a company or user might need. If you are asked to name the three types, you will know the answer.
Public blockchain
A public blockchain is the simplest form of a Blockchain ecosystem. Anyone can access a public blockchain. For example, Ethereum and Bitcoin are public blockchains.
These networks are open to everyone and do not have a central authority. Instead, developers from all parts of the globe implement upgrades and other changes. Anyone can use a public blockchain infrastructure to create DApps.
Private blockchain
Blockchain technology is an essentially decentralized distributed ledger technology. However, it is sometimes not necessary to make that ledger public. For example, a corporation's employee database doesn't have to be shared, but it can still benefit from the efficiency offered by blockchain technology.
A private blockchain would be used by a company in this instance. The private blockchain can be used by the organization just as a traditional database. While some information might be available to all employees, more private information can only be accessed by the C-suite.
Permissioned blockchain
A permissioned Blockchain, also known as a consortium or consortium blockchain, limits access to certain parts of the database only to those who have special permission. Imagine, for example, that a central team is developing a public blockchain network to be used by the rest of the globe. This team may have the exclusive right to access network-centric information.
Hybrid Blockchains
Hybrid blockchains are a promising future in blockchain development, as they combine characteristics of both public and private networks. Hybrid blockchains could be used by corporations to provide public-facing services.
Let's take, for instance, a blockchain-powered video game. A hybrid blockchain might be used by a team working on a multiplayer online game, but not wanting to make their development public.
Players can interact with the public side by signing up and playing. They may also be able to enact governance when voting on game mechanics and proposing them. The game's developers can keep their code and inner workings secret from the public by using the private side of the hybrid Blockchain.
Enterprises can choose between a private or permissioned blockchain. This is because hybrid blockchains are multifaceted.
