What are the BlockChain Generations & how are they different?

You may have heard the term “this is a second generation blockchain”. Or “this is a third generation blockchain”. What does that actually mean? How do you know which cryptocurrency falls under which generation? We take a look at the easiest way to decide.

First, let’s take a look at why they are segregated into generations.

Bitcoin is THE first generation Blockchain. It is virtually the only one referenced in this field. Because Bitcoin was the first and has the most basic principles. Of course, the popularity of first and second-generation terms did not come around until after they were well-established. Bitcoin’s basic abilities were to be able to send money in a peer-to-peer system, in a way that was decentralized and out of the control of any one central authority or establishment. This was incredibly limiting, though. Because of its scalability issues, when transactions picked up, the confirmation time and costs associated skyrocketed. It was not able to keep up with the simple demand of transferring value.

Building the next generation Cryptocurrency.

From Bitcoin, a lot of programmers realised the flaws that were evident in its makeup. They began to work on the revised thesis for Blockchain technology. Second generation Blockchain. This includes the infamous Ethereum, Litecoin, XRP, XLM, etc. The defining aspect of a second-generation cryptocurrency, was their ability to build in smart contracts. This meant that instead of only being able to send money, people could define when money would be sent. For example, you want to pay a company when they deliver x goods. The Ethereum Smart Contract platform would allow you to define these rules and execute them for you. Thus, not only was money a factor, but also services and a host of other business potential.

What are smart contracts?

A smart contract is technically code that follows a specific set of rules set by the programmer or client. In essence, a smart contract is no different to any other kind of contract around today. The main factor is that you are automating its process. An easy to understand example would be:

1: You want to order a large shipment of clothing to sell from a manufacturer in China.

2: You enter into the contract and lock the $5,000 required into the contract. The manufacturer can see the funds are secure but cannot access them.

3: The smart contract is set to release the funds when your shipment gets to your door and you have verified the goods.

Disrupting current technologies.

This streamlining of rudimentary and laborious projects has already gotten the attention of worldwide businesses on all levels. So in essence, the second generation of cryptocurrencies are those aimed at solving more problems than just value. They use a broader network and offer more capabilities. Ethereum is the first and foremost example of a Second Generation Crypto. On top of it, came a lot of the third-generation cryptocurrencies. These third gen blockchains even began as Ethereum-smart-contracts (ERC-20 tokens) to gain funding before moving to their own platforms.

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Building the Third Blockchain Generation.

With the likes of Ethereum adding smart-contract abilities to the blockchain technology, what is it that third-gen Blockchains hope to achieve? Like anything, improvements in technology and programming lead the way. Just as you update your phone’s software regularly, and even update the phone itself – because something is always coming out more refined. The technical definition of a 3rd-gen Crypto gets a bit hazy. Due in part because lot of them intersect in terms of features and timelines.

The most evident one that comes to the forefront is Cardano, shortly followed by VeChain, ChainLink and IOTA. The part that gets a even more confusing here, is that the way they handle blockchain transactions has changed too. The cryptography used in the past was secure but slow. Newer ways to encrypt data have since been created. Direct Acrylic Graph (DAG) is a new way of structuring the data and processing.

Creating Goals.

The goals of these 3rd-gen cryptos are to increase speed, efficiency and scalability while providing even more potential for the world and IoT (Internet of Value). For example, VeChainThor’s latest partnership with Walmart has shown how Blockchain can help change the world. For China, food safety has always been a huge concern.

VeChainThor (VET) has stepped in with a smart RFID tracking system that utilises its blockchain to effectively track food from the farm, to the table. Not only that, but Walmart has implemented it across a range of products. Its uses extend into proving genuine parts for vehicles (hence their partnership with BMW), proving goods are genuine and not fake (hello, Gucci handbag). In this sense, they are tackling logistical problems in ways people hadn’t really begun to think of prior to Blockchain, because the databases and infrastructure required were too steep.

Are there Fourth Generation Cryptocurrencies Yet?

Yes, there are! David Chaum’s recent project Elixxir has proven to be yet another upgrade to the world of Cryptocurrencies. Boasting transactions of over 100,000 per second scalability and nearly perfect and flawless security. Elixxir takes privacy, payments, and smart contracts to a whole new level. This project is still in development but should get some attention. Its creator, Mr. Chaum, is a well-known member of the cryptocurrency world and has had some huge successes in his past. Again, this one tackles its cryptography strategically.

Decentralised.

Being decentralised as all Cryptocurrencies are, it uses a randomized algorithm to select different sets of nodes. Instead of requiring all nodes to agree, or risking the same nodes belonging to a central authority and therefore negating security, this random use of nodes in different patterns guarantees speed and transparency. There are also a whole bunch of other technical things going on behind the scenes, and you can read the whitepaper here if you’re curious!

We hope that gives you an idea on why certain Cryptocurrencies stand where they do. Evidently at the top, Bitcoin, Ethereum, and XRP are still kings in their respective spaces. If you want to get started in Cryptocurrency investing, we recommend you read our “Get Started” guide here!