Just when you thought you got your head around one blockchain, along come a bunch of other ones operating in slightly different ways. Each of them is trying to lay a claim to the future, but history shows most of them will not succeed.
The blockchain is all about generations. The first generation was Bitcoin which finally cracked how to deliver a digital currency. The second was spearheaded by Ethereum which set out to address some of Bitcoin’s flaws such as speed and scalability
Ethereum has earned itself a leading position in the blockchain marketplace with the use of smart contracts. These are pieces of code that perform general-purpose computations. With these, Ethereum runs decentralised applications (Dapps) which allow people to make agreements and sell goods by cutting out the middle man. For example, you can send money without a bank or skip a lawyer to draw up a sales contract.
However, Ethereum still has plenty of issues surrounding scalability and security, which prevents it from attaining wider spread use. It is attempting to address this issue with the launch of Ethereum 2.0 which aims to bring speed, scalability, and security to the Ethereum project.
At the same time, it is facing competition from a host of others, all of which have set out with their own specific purposes. Polkadot, for example, looks to create the ‘mother of all blockchains’ by promoting interoperability. It allows users the chance to interact with other blockchains in the Polkadot ecosystem saving money and resources.
The rise of EOS
EOS hit the headlines when its parent company raised a record $4bn for an initial coin offering. As well as performing smart contracts, it also creates fully decentralised applications which appear identical to normal solutions. It aims to offer faster transaction speeds with developers claiming the ability to offer 10,000 transactions per second.
It is also cheaper. With Ethereum developers have to pay GAS fees to develop applications. This is effectively a congestion charge for using the Ethereum blockchain to create applications. The more complicated the application, the higher these GAS fees will be.
EOS aims to eliminate these GAS fees. Instead, users can lease their tokens to cover bandwidth and pay for transactions.
EOS also moved away from a proof of work model favoured by Bitcoin and Ethereum towards proof of stake. In Ethereum, each node must serve a cryptographic hash puzzle to confirm a transaction and create a new block. This can make it difficult to scale and uses a large amount of computational power.
In proof of stake, rather than having all nodes competing to solve a puzzle, one node is randomly chosen to produce the new blocks. To become a validator, a node must deposit a certain amount of tokens as a stake. The more tokens you deposit, the greater your chances of being chosen to forge the next block.
EOS takes this a step further by using ‘delegated proof of stake’. The network votes on witnesses who will produce the next block. These are rewarded for verifying transactions
The third generation
Cardano comes in as a third-generation blockchain. It aims to address the key challenges of previous blockchains to take the technology into the mainstream. It uses a layered architecture which is composed of two key elements:
- The Cardano Settlement Layer: Manages the flow of coins. This is where peer-to-peer transactions are facilitated such as moving tokens between one user and another.
- Computational Layer: Maintains the chain’s security, deploys smart contracts, and recognises the ID of data.
This gives it an advantage over other blockchains which only function using a single layer. This can cause network congestion, slower transactions and higher fees.
Cardano aims to offer a solution that balances the needs of service users with those of the regulators. It believes the blockchain will eventually become another piece of technology which is regulated in much the same way as everything else. That means delivering a certain level of transparency, security and privacy.
It allows it to deploy smart contracts with various rules and promises to bring a level of security and transparency that can bring banks into the fold. For example, a smart contract can force a sender to reveal its identity and origin. Alternatively, if confidentiality is needed, that specific contract can be executed confidentially.
This feature is what banks, need to get involved. Previously, blockchains did not publish any metadata for transactions which was a problem for governments and banks.
Currently, Cardano is still lagging some way behind Ethereum, but as it begins to roll out smart contracts that could change. If it can deliver on its promises of scale, speed and compatibility with the wider market, the future could become very exciting indeed.
(Written by Tom Cropper, edited by Klaudia Fior)