The Evolution of Blockchain Technology
What is a blockchain:
A good way to describe a blockchain is as a shared ledger that can be used to record data which is useful in the representation of ownership and value. Blockchains are distributed because data is not stored centrally, instead, multiple computers store data and must agree on the record of the data in order to maintain the blockchain.
Blockchains have enabled the development of many kinds of solutions where trust is central. The technology has led to the development of alternative currencies, organisations governed by its users and decentralised applications. It is important to consider how much blockchains have evolved over the last few years.
Bitcoin:
Bitcoin is arguably the first successful iteration of blockchain technology. It was first conceptualised by an anonymous person or group known as Satoshi Nakamoto in 2008. The idea was to create a digital currency called bitcoin that has no central issuing authority and does not require middlemen to process transactions.
Bitcoin was proposed to be a peer-to-peer public network and has grown from just internet money to legal tender in some parts of the world. However, Bitcoin isn’t a perfect iteration of a blockchain, and it has its limitations. Bitcoin is criticised for its energy-intensive consensus protocol and its lack of scalability and support for general purpose applications. While Bitcoin is a successful use case of blockchains, its limitations led to the development of alternative Blockchains.
Ethereum:
Ethereum was initially proposed by Vitalic Buterin in 2014 through the Ethereum White paper. The white paper was used to describe his idea of Ethereum to the public. He envisioned a blockchain that went beyond payments and currency. Ethereum was designed to be programmable so that it could run code that was stored on it. The code stored on the blockchain, would run without a third party, and is called a smart contract. Smart contracts enabled the development of new types of applications and services that are integrated with the blockchain. Ethereum developers are able to create decentralised applications (DAPPs), that leverage the programmable nature of the blockchain. However, Ethereum in its current implementation shares a number of limitations with Bitcoin.
Firstly, Ethereum still uses the POW consensus mechanism which is energy intensive and wasteful. Also, Ethereum’s current scaling issues have led to high network fees which have pushed users to alternative platforms. However, there is a roadmap set out by the Ethereum team to mitigate these limitations as alternative blockchains are being developed and tested.
The Alternatives and Layer 2:
Public blockchains have to tradeoff between maintaining scale, security and decentralisation. However, a public blockchain can only really maintain two of these properties at a time. This is known now as the scalability trilemma, as coined by Vitalic Buterin. As a result, when developers decide to focus on maintaining decentralisation and security, it will theoretically cost their blockchain scale.
Many alternative blockchains exist to solve this problem of scale. Some exist as alternative layer one blockchains with their own set of rules, while others exist as parallel blockchains called side chains. Side chains are independent blockchains that are designed to run their own consensus and maintain their own history whilst being connected to another chain. Side chains make it possible to transfer digital assets across blockchains as well as expand the reach of DAPP development.
Alternatively, there are blockchains solutions that are built on top of other blockchains called layer 2 blockchains. These blockchains are designed to improve scale by reducing the load of transactions that the main chain has to handle. What this means is that a layer one blockchain can be used to record transactions that occur on a layer 2 blockchain. L2 blockchains can be designed to improve throughput of layer one by processing and summarising the data off-chain while still benefiting from the security of layer one.
What’s next?
The next stages for blockchain development will have to be focused on solving the scaling problem. Blockchains have evolved substantially but the technology has not evolved to be able to handle global demand. It is still early days in blockchain development, so it is expected that the technology will evolve well beyond its current state.
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