Blockchain as an effective provider of privacy and security, the meaning of smart contracts and their role, major aspects of blockchains and distributed ledgers and their use cases as well as the idea of Blockchain 3.0
Considereing the blockchain and its difference from a database and a distributed ledger, not to mention its benefits and opportunities. Here we provide an overview on the history and evolution of the technology staying behind cryptocurrencies and what it is actually used for.
Created in 2009, Bitcoin was the first application of blockchain technology. It was the simplest and most primitive blockchain designed specifically only to enable direct value transfers. Later, other simple cryptocurrencies, such as Litecoin, emerged with slightly different protocols but the technology did not actually evolve. This was the first generation of blockchain technology, or Blockchain 1.0, and cryptocurrencies seemed to be the only viable application.
It was not until 2013 that blockchains made a new step in their evolution: the introduction of smart contracts. Their concept was proposed much earlier, in 1994, by Nick Szabo, an American computer scientist, but they were not possible then at that level of technological advancement.
Smart contracts are fully automated contracts that are executed whenever a certain condition is fulfilled. Smart contracts can be activated either by a user or another smart contract. This means that smart contracts can be put together to form very complex applications. Later, it turned out that blockchains could run smart contracts. This marked the new generation of blockchains, Blockchain 2.0.
Smart contracts present the backbone of a dapp (decentralized application), or its backend as technical people say. Ethereum, a blockchain-based platform for dapps, has its own programming language, Solidity. Anyone can learn it and write their own smart contracts. But what makes a bunch of interconnected smart contracts an actual usable application is the interface, the frontend. It can be written in any programming language. Dapps can theoretically run forever as their operation relies on the total computing power of the network.
Privacy and security
First-gen blockchains offered a new approach to payment systems: a completely transparent history of transaction. While an advantage in some projects, they did not see any use in other projects demanding privacy. With Blockchain 2.0 solving the issue of confidentiality in finance, second-gen blockchains can possibly see application in many other areas of human activity.
Blockchains also prove to be an effective tool against attacks and can ensure the high security of a system. This is because a blockchain records its entire history; an attacker wanting to change something on a blockchain will have to change all subsequent data, which is not at all possible without the majority consent.
People distinguish several major aspects of blockchains and distributed ledgers: digital currency, securities, record keeping, and smart contracts. Each of these can disrupt a particular area. For example, blockchain-based digital currency and securities can affect equity in finance, private markets, charity, derivatives, and debts. Smart contracts can help us improve digital rights, wagers, escrow, and many others. Immutable record keeping can be used in healthcare, ownership, voting, and intellectual property, Chronicled, Agora, doc.ai, stem.is being the examples.
The market of blockchain technology is only emerging, and many companies try to bring something new to the table. Creating a blockchain-based project is facilitated by new crowdfunding possibilities, such as ICOs (Initial Coin Offering). This means that a company can generate assets in the form of cryptocurrency and sell it to investors. If the project has a great potential, the coins will appreciate with time and bring profit to its initial holders.
We still are not sure what Blockchain 3.0 will have in store for us but we know that it will have to address the issue of scalability and quick second-layer off-chain transactions, some solutions to which are now implemented with various degrees of success. We are hopeful that third-gen blockchains will allow for truly decentralized automated organizations to fight corruption and bring transparency to business and government.