What is a Blockchain?
In short, it is a distributed or fragmented data ledger that simplifies the processing and recording of transactions. Therefore, the evolution of digital systems towards this type of register would be ideal because it offers several advantages, like transaction, accounts, and payments tracking, while providing transparency for authorized entities. In addition, security on the Blockchain is more potent than any other digital system of information, thanks to the cryptographic nature of the network.
How many types of Blockchains exist?
There are four types of registries: public, private, hybrid, and consortium.
- Public Blockchains
The public ones are registries without any restriction or permission that anyone can connect to only with internet access to participate in the network, either as a user or miner/ validator. A user can access several registered transactions (some are of interest) or even verify the new ones. The primary use of decentralized public networks is exchanging and mining cryptocurrencies.
- Private Blockchains
Private Blockchains are restrictive networks where users require permission, which a sole authoritarian entity can give. These kinds of ledgers are not wholly decentralized because an authority operates them, and public access is not allowed.
- Hybrid Blockchains
Hybrid networks represent a combination of the previous two, trying to profit from the capabilities and advantages. In a Hybrid Blockchain, transactions are private, but they can be verified by external users that receive the authority to do so. In addition, interactions on a Hybrid Blockchain are personalized, and members decide who can also become a member of the transactions that are going to be public.
- Consortium Blockchains
Consortiums are a type of Hybrid network. Companies and organizations are the ones that use this type of registry more often for several categories of activities. The distributed ledger can only be accessed by the company’s employees or authorized users. The company’s network security team decides employees’ permissions and accessibilities.
The Three Generations of Blockchain Technology
- Blockchain 1.0
Blockchain 1.0 is the first generation of Blockchain networks and refers to the ideas that have existed since the beginning and represent the basis of cryptocurrencies (introduced once Bitcoin emerged). When the public registry was created, Proof of Work consensus and mining was submitted (the protocol that makes transactions possible). During this time, Bitcoin was considered a Store of Value.
- Blockchain 2.0
The second generation of Blockchain (2.0) was created by Ethereum and referred to the large array of economic and financial applications that exist and can be built on the Blockchain, beyond the simple cryptocurrency transfers. For example, with Blockchain 2.0, this technology could be used for traditional banking instruments like credit or loans. Other types of trading instruments introduced by this phase would be futures or derivative contracts. The most important aspect of the second generation of Blockchain is the emergence of Smart Contracts, which truly represent a considerable innovation. When using Smart Contracts, transactions occur thanks to pre-setting terms, eliminating the need for any other third party because the contract manages itself.
- Blockchain 3.0
The third generation of Blockchain (3.0) proposes to solve the problems faced by the first two generations: Bitcoin and Ethereum. However, the main issue that networks still confront is scalability, and cryptocurrencies still have difficulties with processing times of transactions, especially when networks get congested. Thus, the latest-generation improvements on the Blockchain are the ones that solve existing problems.
Smart Contracts
Smart Contracts represent the most critical characteristic since the second generation of Blockchain (2.0). The Blockchain further offers a technical base and a decentralized system of calculus (that is safe and immutable) where Smart Contracts can be written, implemented, and executed. Instead of using legal language, law companies, and dozens of pages that an average user can’t understand, these Smart Contracts can be written using a programming language. They use calculus networks to execute actions depending on the received orders automatically.
Smart Contracts significantly streamline operations, offering speed and accuracy to the cryptocurrency space. There is no document to process or sign – nor any wasted time with infrastructure operations and connection – they are executed automatically.
Besides all of this, Smart Contracts offer transparency and security because each party already knows the terms.
For example, a Smart Contract can sound like this: WHEN the 20 ETH transaction is received by the X address, the owner of the SnowBall NFT will be address Y.
Of course, this is a simplified version of the actual Smart Contract – but it’s important to remember that once a transaction is signed, it cannot be modified or reverted, so there is no risk of paying for something and not receiving it.
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