Is the Next Generation of Blockchain Technologies Already Upon Us?
Bitcoin and blockchain are very much not the same innovations they were since Satoshi Nakamoto first proposed the Bitcoin Whitepaper.
Blockchain has evolved beyond the scope of digital currencies and into new unimaginable uses. At the core of blockchain technologies still lay the fundamental principles of distributed, immutable and Byzantine fault tolerant digital accounting.
However, the numbered versions of blockchain have been a steady evolution of the limitations at hand. By design, the first blockchain (Bitcoin) was engineered to have low transaction speeds, be single-functioned and maintain public governance.
These limitations of Bitcoin are arguably strengths of its blockchain. However, they also limit the use of bitcoin beyond being the settlement layer to a larger economic movement.
Since Bitcoin, there have been subsequent versions of the blockchain, each one building on the fundamentals of its predecessor.
In a nutshell, the lines between each version are not hard and fast, but the path they took crosses Bitcoin, smart-contracts, decentralized applications and into new wholistic blockchain environments.
Insolar, in particular, is pushing the boundaries into the next generation of blockchain.
First Generation Blockchain: Immutable, Distributed, Peer-to-Peer Digital Cash
In the beginning, there was Bitcoin. Built atop the shoulders of pioneering engineers and scientists like David Chaum, Adam Back, Nick Szabo, Wei Dai and Hal Finney.
This novel network was the first time the Byzantines General Problem was truly being challenged digitally. In short, the problem revolves around how to verify and trust independent agents (nodes) to work in concert with each other on a common goal.
– Satoshi Nakamoto [Source]
This well-known problem was a particularly difficult vector to overcome in networking. It is exponentially threatening to networks using large datasets to influence human lives. For example, air control, medical supply chains, railway management, and nuclear power projects.
Although pioneering, Bitcoin and other first-generation blockchains are single chains with singular purposes. Bitcoin was to be a “Peer-to-Peer Electronic Cash System” and has since been mostly limited to that function, despite later developments expand the ecosystem such as side-chains.
Blockchain v1.0 Strengths
In addition to solving the Byzantine Generals Problem, Satoshi Nakamoto conquered one of the biggest issues facing digital currencies: double-spending.
Double-spending, as the name implies, involves a user spending the same unit of value twice or more times. In the non-digital world, this would be as though you promised two vendors to pay each $10. After you exchange your $10 with each vendor for their goods it is later revealed that one of the two vendors was given a fake $10.
In the real world, double-spending is controlled for with difficult to duplicate tangible fiat coins and paper bills. In the digital world, this has been near impossible to overcome. Computer files and data can be easily copied and proliferated making verifying digital authenticity very complex.
“Up until Satoshi’s innovation, the double-spend was the Achilles’ heel of digital currency transactions — it simply wasn’t possible for a digital system to prove two, or more, different people didn’t spend the same digital money without the use of an intermediary.”
– Bill Barhydt | founder and CEO of Abra [Coindesk]
Nakamoto curbs double-spending similar to the Byzantine Generals Problem; through a cryptographic chain of hashes secured and verified by a proof-of-work consensus.
Blockchain v1.0 Limitations
Depending on the perspective you hold on Bitcoin, whether it’s a store-of-value, a settlement network, or a payment processor, for example; there are limitations to the Bitcoin blockchain that may hold it back from realizing these various use cases.
Items like block time and size restrict transaction speeds. Furthermore, Bitcoin is singularly programmable money, groundbreaking as that is, it is relatively limited in function.
In addition to low transaction speeds and relatively limited functionality, Bitcoin has little ability to natively interact with other blockchains. This lack of interoperability is understandable as the first on the scene but the need for siloed blockchains to interact has grown.
Furthermore, despite overcoming the Byzantine Generals Problem, early generation blockchains are limited in consensus options and flexibility.
Initially, proof-of-work (PoW) provided a solution to consensus. However, since then, there has been a range of new experiments with consensus mechanisms like proof-of-stake (PoS), delegated proof-of-stake (dPoS), and proof-of-identity (PoI) to name a few.
So far, blockchains have remained rigid in their ability to alter their consensus algorithms. This has limited projects looking to leverage new methods to secure the blockchain.
For example, the smart-contract blockchain, Ethereum is currently in a contentious debate to change from PoW to PoS in a forthcoming update called Casper. There is a lot of uncertainty surrounding how best to implement this change, if at all, leaving the future of Ethereum unclear to all stakeholders involved.
In this regard, Insolar is a significant improvement in the interoperability and plasticity of a blockchain consensus. Deployable domains can be custom catered to the needs of a blockchain project, whether private or public.
“…the use of blockchain in a live enterprise environment is not about applying just a single consensus algorithm for an entire network, but rather allowing users and businesses to decide which rules they want to apply to their own business processes.”
– Insolar Team [Source]
First Generation Developments
Other first-generation blockchains have attempted to solve these limitations according to how they defined the purpose of Bitcoin. The most powerful vehicle to push these solutions was to hard fork a new blockchain from Bitcoin.
In short, this was a copy and pasting of Bitcoin with some modifications tailored to your needs. Litecoin and Bitcoin cash, for example, are responses to Bitcoin’s limited transaction speeds. Altcoins could be spun off and redeveloped to better suit the different ways users thought about how a digital currency should exist.
The general, consensus is that Bitcoin is still very early in its development. However, these limitations are typically at the protocol level and there is fierce opposition to making amendments at that fundamental stage.
Instead, limitations to scaling, functionality and interoperability are being developed off-chain, commonly referred to as layer two. Not to be mistaken with Blockchain 2.0, layer two solutions build ontop existing blockchains.
For example, state channels like Lightning Network are increasing the restrictions on scaling, namely transaction speeds. Additionally, Segwit made it possible to pack more data into each block, getting more transactions confirmed with each one. Lastly, Atomic Swaps have been increasing interoperability by connecting sovereign blockchains.
Bitcoin was the first to leverage a proof-of-work (PoW) blockchain to solve the Byzantine Generals Problem and double-spending. However, now that the secret sauce was out, new uses and paradigms have been developed for blockchain.
Second Generation Blockchain: Programmable Value Networks
The second generation of blockchain ignited after Vitalik Buterin unlocked the blockchain from programmable money to programmable value.
A reimagining of a blockchains potential, Vitalik conceptualized and developed the Ethereum blockchain. This unique network, often referred to as the world computer, utilizes a blockchain in the traditional sense with two network-wide cryptocurrencies, Ether and Gas.
However, at the heart of the network is the software that separates this blockchain generation from the previous.
The Ethereum Virtual Machine (EVM) is a Turing-complete suite of software protocols which allows anyone to run any program on the Ethereum blockchain, given enough memory and time.
Developers can write software which is executable on Ethereum’s EVM in exchange for Gas, the cryptocurrency for the EVM economy. The most important subset of EVM executed software is the deployment of smart-contracts.
If the EVM separated this generation of blockchain from the first, then the smart-contract defines the second generation.
Blockchain v2.0 Strengths
The most significant milestone for the second generation of blockchains is the advent of the smart-contract — autonomous software executed by a Turing complete virtual machine.
In a nutshell, these are programmable agreements between two agents void of any third-party to facilitate or mediate the contracted agreement.
To illustrate a smart-contract, consider an ecommerce giant like Amazon. The online marketplace acts as the third-party agent to facilitate and mediate purchases between two unknown people. One buyer, one seller.
Amazon’s purpose, in this case, is to bridge the trust gap between the buyer and seller. The buyer needs to trust they will get what they bought. Conversely, the seller needs to trust they will be paid for what they sold. Amazon satisfies these needs for trust by helping to move the payment to the seller and the purchase to the buyer.
In theory, Amazon’s third-party role could be replaced by a suite of smart-contracts, autonomously and programmatically removing the trust factor between two parties entangled in a contracted agreement.
“Whereas most technologies tend to automate workers on the periphery doing menial tasks, blockchains automate away the center. Instead of putting the taxi driver out of a job, blockchain puts Uber out of a job and lets the taxi drivers work with the customer directly.”
– Vitalik Buterin | co-founder Ethereum and Bitcoin Magazine
The EVM and smart-contract are pivotal components to the second generation of blockchains. Combined with a blockchain ecosystem, these pieces have enabled higher transaction speeds, improved scaling and an explosion of functionality.
Furthermore, the use of smart-contracts opened the path to Proof-of-Stake (PoS), a new consensus option. This method of validation and security stakes network cryptocurrencies to nodes as an incentive for cooperation. Staked nodes are rewarded proportionally for their participation in securing and validating the blockchain.
PoS is often seen as competitive to PoW, as the former requires substantially less energy to maintain, a considerably smaller impact on the environment.
Blockchain v2.0 Limitations
Despite making massive strides in functionality and unlocking higher transaction speeds, the smart-contract generation of blockchains was still leaving value on the table.
Second gen programmable value networks are still restricted in network native interoperability and future scaling. Some of these limitations, like the generation before it, are being addressed by layer two and off-chain solutions. However, relative to subsequent generations of blockchains, smart-contract networks like Ethereum, EOS, Dvinity and Hyperledger will require solutions to scaling if they are to become the world’s computer.
Insolar leaves these limitations behind with default network interoperability and unprecedented transaction speeds. Enterprise-grade applications can be readily levied into an ecosystem already touting nearly twenty-thousand transactions per second.
Second Generation Developments
As more uses for smart-contracts are being experimented with, the need to scale is becoming omnipresent. New schemes such as sidechains and drivechains are being tested along with new approaches to PoS and a similar permutation named Designated Proof of Stake (DPoS).
These off and on chain solutions are a direct response to the need to scale up to the growing demand for network resources. This increased demand can largely be attributed to the shift to the third generation of blockchains, the era of the decentralized application (Dapp).
Third Generation Blockchain: Decentralized Applications
Although decentralized applications (Dapps) have been around since the first generation of Blockchain, technically bitcoin is a Dapp, it wasn’t until after smart-contracts when the Dapp concept really took-off.
The third versioning of blockchains doesn’t necessarily represent a generational shift of the blockchain, rather a new frontier of functionality. Decentralized applications began to connect the blockchain industry with a real-world purpose. From micro-payments and asset tokenization to digital collectables and decentralized lending — Dapps were the next iteration of blockchain potential.
“Dapps are just now gaining media coverage but will, I believe, someday become more widely used than the world’s most popular web apps…”
– Siraj Raval | “Decentralized Applications”
Blockchain v3.0 Strengths
If smart-contracts brought tenfold more functionality to the blockchain then Dapps and the infrastructure they require was another tenfold leap forward.
A Dapp is not unlike the applications you find in the Google Play Store or App Store. Traditional apps will run on centralized hardware commonly owned or leased by the application’s developers. For example, Google Docs is owned and operated by Google. The software is closed to only the developer team and runs on hardware owned and secured by Google.
Alternatively, a Dapp is more often an open source project (although not necessarily) with its software running on a decentralized network. There are already Dapps for businesses, consumers, gamers, collectors, infrastructure management, social networking, online privacy, stable coins, and decentralized exchanges (DEXs) to name a few.
The lion’s share of Dapps run on a smart-contract blockchain. Decentralized applications such as Radar, Augur, MakerDAO and Decentraland on the Ethereum network; Bancor, Murmur, and Newdex on the EOS network; and Fundition, Steemit, and eSteem on the Steem Network.
Although Dapps began to bring the blockchain closer to users, there were noticeable limitations to the networks operating them. None more pronounced than when the collectibles Dapp, CryptoKitties, nearly brought the Ethereum network to its knees near the height of the 2017/2018 bull run.
High volume Dapps began to test the upper limits of their blockchain necessitating the explosion of innovation and marking the third generation of blockchains.
More efficient blockchains and peripheral technologies were theorized, tested and brought to market. Software like Metamask grew into a vacuum as imaginations outpaced most blockchains technical capabilities
Blockchain v3.0 Limitations
Most notable limitations of a Dapp are directly impacted by their underlying blockchain. Issues of scaling, transaction speeds, and limited consensus methods are often inherited from the smart-contract network they run on. A Dapp can only grow as large as the blockchain can allow.
Many of these limitations are being improved on with second-generation developments like the previously mentioned sidechains or protocol layer sharding.
For Insolar, sharding is a dominant tactic in reducing smart-contract weights and keeping transaction fees minimized. Insolar is able to run smart-contracts simultaneously with the use of sharding and unique node management. This parallel processing of smart-contracts prevents software from being bottlenecked by block queues.
Third Generation Developments
In many cases, the development of Dapps surpasses the limitations of the blockchain they are using. Not unlike how a young Netflix’s on-demand video streaming service exceeded the capacity of the infrastructure behind the internet. Applications like Netflix pulled the network to a new generation. Dapps pulled the blockchain industry into the third generation.
As highlighted, smart-contract blockchains, directly and indirectly, impose limitations on the Dapps in their ecosystem. As such, the rapid boom of Dapp development has spawned more projects to expand the limitations of blockchains. Whether it is to improve the user experience or to implement a wholly new network, projects are experimenting to find the most effective smart-contract environment for their needs.
Major players like EOS, Steem, Ethereum, Stellar, and Cardano differentiate themselves in this space by offering various tradeoffs. Each blockchain prioritizing how they believe a smart-contract network should operate; balancing factors like security, transaction rates, finality, governance, consensus type and ASIC tolerance to name a few.
However, often prioritizing one factor will compromise another.
Fourth Generation Blockchain: Distributed Enterprise-Grade Value Networks
The generational evolution of blockchains has followed a familiar pattern so far. Between each version, there is a paradigm shift on how we perceive the limitations of blockchain based networks.
The fourth generation is a recognition of blockchains previous limitations. Limitations which would restrict the potential to underpin industry-wide networks in business-to-business and consumer-to-business markets alike.
This generation leapfrogs over the balancing act of comprises currently differentiating the various blockchain projects.
Insolar is Driving the Fourth Generation of Blockchain
First, transaction speeds. The rate at which a blockchain can process transactions is paramount to enterprise-level integration. The Internet of Things (IoT) is exponentially expanding and sectors such as manufacturing, shipping, agriculture and telecommunications are generating more data than can be managed.
Transactions speeds don’t only need to be high, they also will need to dynamically scale with the network volume. On an enterprise-ready blockchain, developers can’t be playing catch up with volume demands, scaling the network only after demand has hit the limits.
Software optimizations and node management within Insolar enable an ecosystem which scales to the needs of the network before limits are met.
Second, Insolar is hyper customizable at every layer of the stack. Hardware clouds can be configured to individual blockchain needs and domain logic can be configured to run smart-contracts exactly as needed
“Rather than being a single blockchain that applies single logic, Insolar creates distributed business networks, which support multiple applications according to all possible scenarios and standards”
– Insolar Team [Source]
Third, through the unique network architecture, private and public blockchains, members and Dapps are natively interoperable. Each cloud, domain, and smart-contract can be fundamentally different and still not restrict their ability to work with the rest of the network. Insolar is an ecosystem of interoperable networks.
Finally, Insolar consolidates massive scaling, hyper-customization, and interoperability into a wholistic enterprise-ready network of networks. Business logic compatibility and accessibility are baked into Insolar from blockchain to Dapp
Ultimately, Insolar is a new way of thinking of the blockchain. Putting the dynamic demands of an enterprise ecosystem at the forefront of distributed open-source architecture.
Disclosure: Blockchain tech is developing rapidly and to highlight the generational improvements, this article was commissioned by Insolar.io
