Blockchain 3.0 — Innovations in The Distributed Ledger Technology
The Bitcoin blockchain is typically regarded as the original blockchain since it was the first implementation of an innovative technology that is usually described today as distributed ledger technology (DLT). The beginnings of the Bitcoin blockchain 1.0 were followed by the programmable Ethereum version as the blockchain 2.0 and then came the third generation, the blockchain 3.0 in the form of IOTA, Nano, or Hashgraph. Blockchain 3.0 in fact no longer can be referred to as the blockchain, since it doesn’t have the same technology basis. Instead, directed acyclic graph (DAG) is the keyword. DAG is a new variant of DLT, characterized as a post-blockchain concept.
The Weaknesses of Current Blockchains
In theory, the first and second generations blockchain technology already revolutionized the way we think about the technology and how we use it. There is a large number of fields that could be fundamentally changed by the blockchain. In practice, however, the situation seems to be somewhat different.
Currently, early blockchains such as those of Bitcoin and Ethereum are still limited: to date, they have not achieved any major scaling success. This means that the number of transactions and speed limits these blockchain protocols. While traditional systems such as PayPal can process about 200 transactions per second (tps) and Visa 56,000 tps, Ethereum currently only can do approximately 25 tps, while Bitcoin only has a capacity for 7 transactions per second. It is clear why this poses a problem when it comes to mass adoption.
But why are these technical limitations there in the first place?
The answer is simple — the blockchains are not slow due to some inherent scalability barrier. The restriction is, instead, the result of a “conscious” decision — to form a decentralized blockchain network. One of the core principles of public blockchains such as Bitcoin and Ethereum is to give everyone the possibility to run a network node. Each node processes every single transaction and has to store the complete transaction history of the blockchain on the computer. Public blockchains are only as secure as their weakest link, which means that scalability and transaction speed depends on the capacity of the slowest node. Certainly, slow nodes could be discarded, but then the crucial feature of censorship resistance would be damaged, as individual network members would be deliberately excluded. So this is causing a dilemma between security and scalability that prevents the older blockchains from achieving the higher transaction speeds.
In the next part, we will explore the blockchains which are not blockchains per se and see how they could improve the distributed ledger tech. Stay tuned and don’t forget to follow us on social media!