Blockchain is termed as one of the most disruptive technologies to arrive in recent times. Before its advent, the internet was mainly a marketplace for information, but the exchange of value, such as cash and securities, was inefficient. Blockchain, at its core, showed promise in enabling the shift from “Internet of Information” to “Internet of Value.”
In our three-part series, we will look at how this technology has evolved through the years to achieve this feat.
The 1st Generation Blockchain: Bitcoin
In 2008, Satoshi Nakamoto, the anonymous developer of Bitcoin, released a whitepaper called Bitcoin – A Peer-To-Peer Electronic Cash System. The whitepaper explained the technology behind Bitcoin as a decentralised currency, which would be operated on a network, not controlled by any particular state or country, or any other governing body. In place of one central bank recording transactions, now all participants would have copies of the same ledger of transactions, which could not be tampered with.
This first generation blockchain, called “Bitcoin Protocol,” allowed people to exchange digital currency (Bitcoin), in exchange for monetary benefits. The technology prevented double-spending; people could transact only with the Bitcoins they held, and the supply of the coins was limited. All the participants of this distributed network had to agree, in order to modify or exchange value. Thus technology, not law, became the basis of trust between people, enabling the creation of “Internet of Value.”
Blockchain 2.0: Ethereum
From 2009, for the next five years, blockchain was synonymous with Bitcoin. By October 2013, Bitcoin started being accepted as a mode of payment by more than 1,000 merchants worldwide. Until 2014, the protocol was restricted to only cryptocurrency (Bitcoin). It did not have the scripting language to enable it to go beyond digital currency.
In 2014, Vitalik Buterin developed a new protocol called “Smart Contracts.” These contracts were programmed agreements, which could be formalised only if certain conditions were met, and without any third-party intervention. This blockchain was named “Ethereum.”
Smart contracts enabled the technology to go beyond financial transactions. It now allowed developers to build programmes and APIs on the protocol, which could be entrusted with money. It was realised that blockchain could be separated from Bitcoin, and used for all kinds of transactions, which led to a frenzy of investments. Entrepreneurs started using the technology in almost everything, from hospital records to supply chain management and even digital rights in the music industry.
The Present Scenario
It was only in 2017 that people sat up and took notice of this technology and its significant advantages over the traditional forms of accounting and record keeping. Financial incentives, in the form of digital tokens, are now being baked into the network design, and scores of investors, along with network participants, are building enterprises around them. We saw dozens of such tokens being floated in the market in the form of ICOs in 2017.
However, the reluctance of statutory bodies in accepting this system and other inherent flaws is proving to be a hindrance in its adoption by major enterprises. In the next article, we will discuss how this obstacle is being overcome with Enterprise Blockchain.