Blockchain 1.0 vs 2.0 vs 3.0

1. Bitcoin
2. Ethereum
3. Cardano

The world of crypto and digital assets is changing faster than ever. More and more people are getting involved in the various tokens it offers, from stimulus warriors over in the US to the massive corporations such as Tesla and MicroStrategy.

Many people plunging their money into these currencies don’t know anything about them. All they need to know is they’re going to the moon! *sarcasm* (or is it). Bitcoin went up 160% in 2020 alone. Bitcoins numbers stack up well compared to the S&P at 13% and the FTSE 100 at -14.3%. So what are all these different cryptocurrencies, and which ones should you buy.

The world of crypto is vast, scary and very misinformed. Today I’m going to talk about the three blockchain technologies that represent the different steps in the blockchain development story.

Blockchain 1.0 — Bitcoin

Bitcoin is the most well known and most valuable cryptocurrency in the world. By now, we’ve all heard of it, and the price shows that. When writing this, one bitcoin is trading at $55,972US, recently dropping down from a high of $61,283 per coin.

Many people call bitcoin digital gold, and for this reason, the market cap comparison to gold is often seen as a critical statistic. Bitcoin is hovering at a trillion-dollar market cap, around 10% of the market cap of gold. This could be seen as a sign; there is still plenty of growing to go!

So now that we’ve talked about the basics let’s go back to the beginning. The creator is Satoshi Nakamoto, an unknown person or group of people. Bitcoin’s first-ever translation took place on the 12th January 2009 between Satoshi and Hal Finney. Bitcoin with a capital B is the blockchain technology in which the transactions take place. bitcoin with a lowercase b is the token that transfers value between two entities. The blockchain as a medium of exchange is relatively simple compared to the deep and endless financial system we currently rely on. Bitcoin is used to transfer bitcoin between two people or entities simply. Many people believe a significant reason for bitcoins popularity is widespread distrust of the global financial institutions we currently depend on for everyday use. Bitcoin allows people to transfer value with no middle man or centralised organisation to control funds’ movement.

*WARNING — TECHNICAL JARGON AHEAD*

The blockchain is a digital chain of transactions organised into blocks by miners. Bitcoin miners nowadays are massive computers that verify transactions on the Bitcoin blockchain. If I send you one bitcoin (very generous, I know), a miner will ascertain that A) I have one bitcoin to send in my account, and B) I have listed a public key to the person I want to receive this bitcoin. Miners will verify thousands of transactions and place them into a block of transactions which is then pushed onto the blockchain. The blockchain acts as a history of all the transactions to take place. Each block must have the previous block’s cryptographic hash (a complex hash to keep each block unique), a timestamp and the transaction data. Each block containing the previous blocks hash code creates the chain and makes the blockchain incredibly difficult, if not impossible, to manipulate or change. A block is pushed onto the Bitcoin blockchain every 10 minutes, limiting the number of transactions that can take place. The miners are rewarded for their work with bitcoin, and this is called a proof-of-work system. We can go further into detail, but I’ve never been one for complex jargon, so we’ll leave the tricky stuff there!

*TECHNICAL JARGON OVER*

Bitcoin’s early success and lingering legacy of being a fraudulent creation was its ability for anonymous transactions. It allows two people to transfer value with no absolute traceability. It was a magnet for dark web sellers and was the infamous Silk Road website’s primary currency. Revenue from this site alone was around 9,519,664 bitcoin. Today that is worth more than $500 billion. The use of bitcoin by the Silk Road created a massive spike in price in 2013 and the ensuing crash when people realised what the currency was being used for, and the Silk Road creator was arrested.

Fast forward to 2021, and Bitcoin is far beyond its very organic beginnings. While Satoshi Nakamoto has remained anonymous, and the criticism has only increased as its popularity has expanded, bitcoin continues to explode in value and has created a domino effect of around 4,000 different cryptocurrencies at the beginning of 2021. While its technology has not changed a huge amount since its creation, the fact it is the original blockchain and its security is complicated to beat makes it the most valuable cryptocurrency available.

Bitcoin’s simplicity has been a great strength for it but has allowed other cryptos to try and build on this. The first popular one being Ethereum.

Blockchain 2.0 — Ethereum

Ethereum, like Bitcoin, is the name of the blockchain technology that this crypto asset uses for transactions. The token used is Ether.

In 2013 a group of developers led by Vitalik Buterin proposed a new blockchain technology called Ethereum. The idea was to build a blockchain, which would allow for applications to be built on top of it. After a very successful initial fundraiser, Ethereum was launched in 2015. It currently has a market cap of roughly $190 million.

Ethereum’s key unique selling point was the ability to build applications, known as DAPPS or decentralised applications, on the blockchain smart contracts. Smart contracts are the foundation for DAPP’s. These are applications similar to a regular website or mobile application. Ether is used as the token to validate transactions in the same way bitcoin is used on the Bitcoin blockchain. The reason DAPP’s are so popular, and in turn, Ethereum, is their decentralised nature. There is not a central controlling organisation which means there are no rules.

The law, according to the developers behind the blockchain, was the code. It removes all human trust elements and means people cannot manipulate and change the transactions that occur on the Ethereum blockchain. This law got the development team in some hot water; however, in 2016, when $150 million worth of Ether was stolen via a hack of a DAPP called The DAO.

Now according to the Ethereum law that Ether should have been gone! Lost to the hackers, if the code is law, then stealing Ether using a flaw in The DAO’s code is entirely legal, as argued by the Ether thieves themselves.

Many of the development team behind Ethereum were also part of the team that created The DAO. They, therefore, decided to hard-fork the Ethereum blockchain, essentially stealing back the funds from the hacker.

This hard-fork caused a considerable uproar in the crypto community. It was seemingly the centralisation of a decentralised platform, leading to distrust of the Ethereum blockchain and causing the blockchain fork Ethereum Classic.

Ethereum Classic is the original blockchain where the code remains the law.

Over time the developers behind Ethereum regained trust, and Ethereum Classic waned. Do not confuse the two Ethereum remains the most popular and successful of the two.

Now over the coming months and years, Ethereum is undergoing upgrades to Ethereum 2.0. Drastically increasing the number of transactions the blockchain is capable of carrying out. Currently, an Ethereum block goes on the chain every 13.2 seconds. This limits the capabilities and drives up the transaction costs. Ethereum 2.0 is the next step in blockchain technology by one of the leading Cryptocurrencies globally, and it will be exciting to see the results.

Blockchain 3.0 — Cardano

Cardano and its token ADA are the newcomers to the scene. Some call it Blockchain 3.0. Like every other cryptocurrency out there, Cardano was created to solve the issues other decentralised platforms have failed to fix. Charles Hoskin created Cardano and released it in 2017 after initial fundraising began in 2015. Charles Hoskin was a part of the team that created Ethereum, after which he moved on to make his blockchain, Cardano.

Currently, Cardano is the fifth most valuable cryptocurrency with a market cap of roughly $50 million. It set out from the beginning to be the best cryptocurrency for building smart contracts making it direct competition for Ethereum.

Bitcoin and Ethereum, as mentioned, use a Proof-of-Work system to allow miners to validate blocks of transactions onto the blockchain. The Proof-of-Work system has worked well for Ethereum and Bitcoin so far; however, it has many criticisms. The key one being the massive amount of electricity that goes into powering the miners. Bitcoin miners used the same amount of power as Ireland’s whole country in a study done in 2018!

For this reason, Cardano was launched on a Proof-of-Stake consensus protocol. Proof-of-Stake means that instead of any person being able to validate blocks, you must have a stake in the ADA token to be allowed to validate transactions. This is also helping to improve network security as people invested in Cardano are working to maintain the blockchain. Why would someone with significant holdings in ADA have a reason to do anything malicious that would inevitably tank the ADA price? They wouldn’t, which is one reason Cardano used this consensus protocol and why Ethereum is moving to this system as part of Ethereum 2.0.

*JARGON WARNING*

Most Proof-of-Stake blockchains allow the nodes (computers to keep it simple) with the currency’s highest stake to validate the blocks. Cardano has gone with a different approach using their algorithm called the Ouroboros. Ouroboros divides the time into epochs. Inside these epochs, there are time slots that are fixed.

The epochs are given a slot leader who must attempt to validate the blocks of transactions within the given time. If they can’t achieve this, the next slot leader will get a chance. This competition is gamifying the process and giving the validators more reason to do their jobs within the given time.

Input endorsers approve all transactions within a block produced by the slot leader. Yet another level of security on the Cardano blockchain.

Ouroboros is designed to reward availability and transaction verification over the enormous computational power of Bitcoin miners. All rewards for this work are split between input endorsers, multiparty computation stakeholders, and slot leaders.

*JARGON OVER*

Cardano and its developers have openly talked about the fact that the blockchain is ever-changing, and many large scale DAPPs have spoken of moving over to the Cardano blockchain once it allows DAPPs. Large scale companies moving away from Ethereum is mainly down to their massive transaction fees. Ethereum 2.0 is working to improve this.

The creation of Ethereum 2.0 and the ever-changing blockchain of Cardano is setting up for a battle to see which can create the superior system. While Cardano is the newcomer and still has work to do to improve, it shows signs of being the next step for blockchain. Will it be able to overcome too many entrenched developers based on Ethereum. Time will tell.

Summing it All Up!

Blockchain, crypto and our world, in general, is changing faster than ever. Many people see the skyrocketing prices of crypto and think they are too late to jump on the train. We are only just starting to see the impact that blockchain and decentralised systems will have on our society.

Bitcoin, Ethereum and Cardano are all unique and groundbreaking in their ways. There is space for them to fit in overtime as they establish their niche within this world. Will anyone ever get close to Bitcoins incredible value? We will have to wait to find out.

For people looking to invest, I push you to continue your research and learn what you are buying. Don’t go crazy; only put in what you are willing to lose. Cryptocurrencies are still highly volatile compared to other investments, and you must keep this in mind when deciding how much to commit.

I will detail the best places to buy and store your crypto in other articles, but for those looking to buy cryptocurrencies, Gemini and Binance are fantastic places to start. Gemini offers a basic UI that anyone can use; while Binance is slightly more complex, it provides a broader range of cryptocurrencies. Use either of the links below to sign up!

Binance — https://www.binance.com/en/register?ref=94327380

Gemini — gemini.com/share/m7z9xyd27 — Invest $100USD, and we’ll both receive $10 worth of Bitcoin!

Storing your crypto once you have bought it is complex. BlockFi and Celsius offer two excellent wallet services and are used by many in the community to gain interest in their crypto holdings. I recommend holding your crypto over at least two wallets to decrease any risk. Use the links below to sign up!

BlockFi — https://blockfi.com/?ref=e97b04d2 — Deposit $100 for a reward!

Celsius — Use the code 10399160f4 in the app when registering for $30 after you deposit $200 of crypto into the app.

I am not paid to endorse these apps. I use them for my crypto and recommend them to anyone who asks. Why don’t we both benefit from that fact!