4 Generations of Blockchain
Introduction to 4 Generations of Blockchain; which One Conquers the Future?
To date, as we enter the final quarter of 2021, 4 generations of blockchain have been introduced along with unique digital projects and currencies. Bitcoin as the first generation, Ethereum as the second generation and Cardano as the third generation are familiar to all users in this world.
The era of blockchain
The first generation of blockchain : Bitcoin and cryptocurrency
The advent of blockchain defined the state of the distributed office as a virtual coin known as the bitcoin blockchain. This virtual currency allows users to make financial transactions and is also called digital money.
This currency is registered as an encrypted currency because each coin or coin has an electronic signature in which the private key is used to sign the transaction and the public key is used to confirm the transaction.
Bitcoin General Office is a finite state transfer automaton that includes modes that show the ownership of all existing Bitcoin users and their transactions in the form of transitions between modes.
If the transaction is operated successfully, the output of each particular case is a transaction value, which means that there is not enough bitcoin in the account of the sender or the initiator of the transaction, otherwise the transaction will fail.
Ability to transfer our state to a new state. Each node in the network records a copy of this finite state transmission system in the general ledger. The Proof of Work (PoW) mechanism was performed using the Bitcoin alert scheme based on the Hash Cash algorithm and the SHA-256 alert function.
As a result, third parties were eliminated in an anonymous decentralized system where the user could manage their money and make transactions.
General ledger view for all peers in the Bitcoin network
As shown in the figure above, users can make transactions using Bitcoin by referring the buyer to their signature, which is a 16-digit encrypted code. The buyer decrypts the code on his receiving device and receives the sent bitcoin.
As a result, digital currency becomes a medium for buying and selling goods and services through anonymous and unauthorized networks. Schemes of all transactions can be accessed and viewed as a general ledger for all peers in the network.
Advantages of the first generation of blockchain
The following items are the pros of bitcoin generation:
- Lower transaction costs compared to other electronic payment channels.
- Secure and transparent transactions with the possibility of tracking money, thus eliminating the possibility of counterfeiting.
- Limited supply of bitcoins, just like the gold market.
- Relative anonymity in transactions.
Disadvantages of the first generation of blockchain
These are the cons of blockchain first generation:
- Low speed of transaction verification compared to other electronic channels.
- Existence of various fraudulent schemes in Bitcoin wallets such as Panzi schemes, Bitcoin mining scams, and scams committed in exchange offices and Bitcoin wallets.
Challenges and limitations in bitcoin environment
Bitcoin with a size of 1 MB block has scalability problems because it can process only 7 transactions per second. In comparison, the Visa network can process an average of hundreds of transactions per second.
If Bitcoin wants to compete with Visa, it needs 8 GB of capacity per block every 10 minutes, which means generating more than 400 terabytes of data per year.
In this case, only nodes with high storage capacity can continue to operate on the network, and this centralizes the bitcoin network. Several solutions have been proposed to address the problem of network scalability, such as soft and hard forks, SegWit, and Lightning Network.
Also, the proof-of-work algorithm has now changed to Equihash. This has increased the scalability of the network and made it possible to extract bitcoins on heavy GPUs. The amount of nonce is set in each bitcoin block instead of each 2016 block.
Second Generation Blockchain: Smart Contracts and Ethereum
With the shift to decentralization, the limited capabilities of Bitcoin could no longer meet the needs of public applications. As a result, the need to develop a general purpose platform was felt. In 2013, the Ethereum project was launched with the goal of overcoming various limitations in the Bitcoin script.
Ethereum is a blockchain designed with the complete Turing programming language. As a result, Ethereum supports all different transactions, including loops. Ethereum contains a virtual abstraction, and anyone can create ownership instructions, transaction format, and transfer modes in person.
So Ethereum paved the way for smart contracts, which are small computer programs running on blockchain. These programs run and operate automatically based on predefined conditions. As a result, smart contracts reduce the cost of transaction verification, arbitration, and fraud prevention, and make transactions more transparent.
The following figure shows a smart contract code in the Ethereum blockchain that includes accounts, a 20-byte address, and a transfer mode function. There are two types of accounts: one owned by an outsider (by a private key) and a contract account (by smart contracts).
Smart contract accounts themselves are divided into two categories: smart contract code and smart legal contracts. The smart contract code is stored, verified, and executed on the blockchain, and each transaction includes nuance, ether balance, hash code, and storage root.
Example of a smart contract between two parties
- Smart contracts are accurate and record all terms and conditions in the smallest detail.
- The terms and conditions of the contract are fully visible to all counterparts involved in the transaction.
- Smart contracts are interpreted and scripts are executed live on the server, so transactions are executed quickly.
- Businesses no longer need to use paper, so smart contracts help advance an environmentally friendly plan.
- Smart contracts eliminate a wide range of intermediaries because only the parties to the transaction are involved in the contract.
Ethereum and smart contracts have become very popular in many fields because of their widespread use. However, there are still serious challenges and limitations that make the use of smart contracts risky. First of all, writing smart contracts is difficult. When a smart contract is executed, it will be very difficult to change and terminate it.
Also, there is little support for optimally designed smart contracts because understanding programming languages is often complicated.
Smart contracts may also be affected by transaction vulnerabilities, time dependency vulnerabilities, exception vulnerabilities, and re-entry vulnerabilities, respectively.
Finally, offenders may misuse smart contracts, and privacy issues such as the privacy of transactions, the privacy of data feeds, and the subsequent execution of contracts restrict the use of contracts.
Third Generation Blockchain: Convergence to Decentralized Applications
Given the growing popularity of smart contracts, current technology cannot support such a large volume of small transactions. Although Ethereum raised the rate of 7 transactions per bitcoin processed to 15 transactions per second, this number does not correspond to the size of today’s economy.
Thus, blockchain is moving towards a decentralized Internet that integrates data storage, communication networks, smart contracts, and open standard platforms.
As a result, there is a need for decentralized applications (dApp). Decentralized applications run on the blockchain network, and their front end and user interface can be in any programming language that can communicate with the backend.
Decentralized applications have open source features, built-in cryptocurrency support, a token for system services, and decentralized consensus mechanisms.
This allows for the formation of decentralized independent organizations (DAOs) in which all members can share profits by registering their activities in the chain.
- There is no break point because transactions are not controlled by a single node.
- No central authority owns a decentralized application network; Even if the intruder wants to manipulate the information, it will not be able to do so because the program does not rely on any particular protocol address URL, thus increasing system trust.
- The transaction processing speed in the distributed environment system increases by about 100 times.
- It is difficult to update and troubleshoot because all versions on the network need to be updated.
- The Customer Authentication (KYC) process is difficult compared to centralized applications.
- Achieving consensus requires the implementation of complex protocols to validate data, thus limiting the scalability of the network.
- Communication methods Decentralized applications through third-party APIs to receive user information reduce the flexibility of the communication ecosystem.
Fourth Generation Blockchain: Integration with Industry
Given the parallel growth of decentralized applications, we need a comprehensive platform that can integrate different services and architectures by connecting different blockchains.
Under such circumstances, users of different platforms can work together as a single group and meet the job needs and demands of Industry seamlessly. The current state of industry requires an enterprise resource planning platform that can automate and integrate different executive platforms as a cohesive unit.
This requires increasing trust and privacy and thus creating a scalable blockchain network. There is a need for fourth-generation blockchain to enable IT systems to integrate businesses and participate in inter-blockchain business processes, such as the ability to automatically register orders through smart contracts as well as ensure machine safety.
This facilitates supply chain management, financial management systems, health and Internet of Things workflow management, and asset management. In short, fourth-generation blockchain decentralizes third-generation blockchain to help real industry and business areas meet the requirements of fourth-generation industry. This trend is shown in the figure below.
Comprehensive trust and privacy solutions offered by 4th Generation Blockchain
The first platform to support Industry was Unibright, which allows seamless integration of blockchain business models. Currently, the SEELE platform integrates blockchain space by interconnecting different blockchain protocols across different services.
This platform allows chains to communicate seamlessly while operating independently of each other in a complex structure.
Flood operates on the basis of a neural consensus algorithm that enables linear scalability and operates both internally and externally. The Flood platform also has the ability to execute transactions at speeds of up to one million transactions per second, which currently seems impossible in a general blockchain.
The application of blockchain is not limited to building trust and privacy in the world of digital currencies, but the technology acts as a service provider in current industry jobs and meets market demands. In this article, we discussed the need for blockchain and its emergence, and then systematically and thoroughly examined the different generations of blockchain and their role in shaping organizational needs.
Blockchain is the most influential technology that has entered the market in the last few years, and most industries are gradually moving towards blockchain platforms. According to the 2018 Deloitte Global Blockchain Survey, companies and institutions have implemented approximately 74% of their blockchain usage, and nearly 40 organizations plan to use blockchain.
In the future, we may see the integration of artificial intelligence and blockchain to automate and secure business processes.