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- Ethereum, which was launched in 2015, is the second largest cryptocurrency in the market.
- The third generation cryptocurrencies have the ability to overcome scalability problems.
- Polkadot, Cardano, Solana and Avalanche are some examples of third gen cryptocurrencies.
Ethereum is a second generation of cryptocurrency, which primarily introduced the concept of smart contracts and supported decentralized applications (dApps). While the second generation also employs Proof-of-Work (PoW), the Ethereum Shanghai upgrade will shift to a Proof-of-Stake (PoS) mechanism, after its launch on 12th April 2023. Examples of blockchain projects which fall into the third generation category are IOTA, Cardano, Nano, Chia, Holochain and Qurakchain, among others.
2nd vs. 3rd Generation of Cryptocurrency
Ethereum emerged as a game-changer that revolutionized the crypto world. Its platform is based on Javascript which supports the creation of several NFT projects and dApps. One of Ethereums’ contributions was making it easier for developers to create their own cryptocurrencies on their blockchain. This led to a surge in Initial Coin Offerings (ICO), whereby people created new coins to gain profits.
Smart contracts were introduced by Ethereum for automating transactions after the execution of certain conditions mentioned in the contract. This ultimately enhanced the security of transactions and enabled it to handle complex deals. The use-cases of smart contracts include trading activities, supply chains, mortgage, copyright protection, healthcare services, government voting and storing records.
One defining feature of Ethereum is the use of Solidity, a complete programming language for creating dApps and Decentralized Autonomous Organizations (DAOs) on its blockchain. Ethereum was founded by Vitaly Dmitrievich Buterin, popularly known as Vitalik Buterin, a genius in the field of blockchain technology. However, the crypto industry has witnessed delayed transactions and high gas fees due to traffic overload on the Ethereum blockchain.
Ethereum has a serious scalability problem like Bitcoin. The issues are being addressed by developers, who are working on solutions, such as sharding (splitting the Ethereum network to manage data) for Ethereum. This is expected to speed up the network and help in scalability. However, the network still suffers from interoperability issues and high energy consumption.
The emergence of the third generation of blockchain or Blockchain 3.0 is most likely a response to the need for more efficient and easy-to-scale blockchain solutions. This generation has a better design with wider functionality to avoid scalability problems. They even have the ability to process cross-chain transactions, with improved mechanisms for smart contracts. PoW is replaced by PoS, which is environment-friendly and provides efficient processing.
Blockchain 3.0 has numerous applications in the field of healthcare, cybersecurity, and supply-chain, etc. The third generation blockchain aims to solve fundamental flaws such as interoperability, sustainability and scalability, thus making it easy for mass adoption. Blockchain projects like Polkadot and Cardano are set to create an open and interconnected ecosystem.
The new generation has found ways to scale without affecting network security and the decentralized nature. It also has a new consensus mechanism called the Proof-of-History (PoH). PoH combines with PoS to allow the network to verify the order of transactions without the need for nodes to separately communicate with each other. The two major benefits are lower or minimal transaction fees and high speed transactions.
Nancy J. Allen is a crypto enthusiast, with a major in macroeconomics and minor in business statistics. She believes that cryptocurrencies inspire people to be their own banks, and step aside from traditional monetary exchange systems. She is also intrigued by blockchain technology and its functioning. She frequently researches, and posts content on the top altcoins, their theoretical working principles and technical price predictions.
