6 Generations of Blockchain: from Bitcoin to UMI

Almost 12 years ago, Satoshi Nakamoto used blockchain to create the Bitcoin network. Back then, no one knew this technology would change the world. Over this time, blockchain itself changed a lot. It traveled the path from simple transactions to a fully featured decentralized infrastructure for all categories of digital assets. Let’s look at the milestones in blockchain development: from Bitcoin to UMI. Let’s see how much the world has changed. 

Story behind Blockchain

The first form of blockchain known as the hash tree or the Merkle tree was patented by Ralph Merkle back in 1979. This technology was used to verify data exchanged by computer systems. In 1991 the Merkle tree was used to create a secured chain of blocks where each block was connected to the one before it and the newest record added to the chain contained history of the entire chain. Basically, it was the foundation of modern day blockchain. 

In 1998, the programmer Wei Dai introduced a concept of anonymous digital currency he labeled B-money. That same year, the cryptographer Nick Szabo (who could well be one of Bitcoin’s potential founders) designed the Bit Gold concept. Blockchain was just a theoretical fun project for researchers at the time, and no one could foresee how it would change our lives. 10 years later, it was used as the foundation for creating Bitcoin that triggered creation of a new decentralized world. 

Generation 1: Bitcoin, PoW-algorithm and first cryptocurrencies

In 2008, an anonymous developer (or group of developers) named Satoshi Nakamoto inspired by Dai and Szabo’s ideas designed the first fully featured blockchain-based cryptocurrency — Bitcoin. This is how the first generation of modern day blockchains emerged — distributed data registers simultaneously verified by a large number of machines scattered around the world. 

Later, Bitcoin became foundation for Litecoin, Ethereum, Dogecoin, Bitcoin Cash, Bitcoin Gold, Monero, Dash, Zcash and other cryptocurrencies. They are all more or less alike, written in C++ and using Bitcoin source code as the basis. 

Distinctive features of first-generation blockchain:

  • Use of Proof-of-Work (PoW) consensus algorithm. Some network users (miners) use special equipment to verify transactions and prevent other users from spending the same coins twice. It’s called mining. Miners are rewarded for their services by new coins. The system is decentralized, but too expensive. Mining consumes too much power, and users have to pay fees to miners for approving transactions. 
  • Limited functionality. Satoshi Nakamoto saw bitcoin as an alternative to fiat money — a currency that could be used without a centralized intermediary by freely sending coins to each other. The Bitcoin network is peer-to-peer, decentralized, anonymous, but also transparent. Together, these characteristics make cryptocurrencies completely different from fiat money. The problem is though that first-generation blockchains were only used for cryptocurrency transactions — they simply had no other functionality. 

At the time, bitcoin and other first-generation cryptocurrencies were a real breakthrough. They demonstrated people could build an alternative, improved financial system as compared to the conventional banking system. They even didn’t need assistance or approval from the government. 

Over time, it became clear that PoW blockchains had too many imperfections. They have poor scalability, they’re slow and expensive, they don’t allow for smart contract programming. Today, bitcoin is one of the world’s slowest cryptocurrencies — transaction confirmation takes about 10 minutes. Fees can exceed transaction amounts. Coins with these characteristics cannot be simultaneously used by millions of people. This is why bitcoin and other early cryptocurrencies failed to become the new money.  

Generation 2: Ethereum — smart contracts, tokens and decentralized apps

Bitcoin’s blockchain functionality was limited to effecting payments. Over time, developers figured out blockchain could do more — it could be used as infrastructure for digital asset management. This is how smart contracts and second-generation blockchains came into being.  

The first and main blockchain of the second wave was Ethereum initially designed in 2014 by Vitalik Buterin, a Russian-Canadian programmer. Ethereum is also based on the PoW algorithm (though written in Javascript) and on mining, but it has a far wider functionality. The Ethereum platform is not just cryptocurrency; it’s a digital ecosystem that can be used as basis for other decentralized projects. 

Distinctive features of second-generation blockchain:

  • Smart contracts are the main innovation of the second-generation blockchains. These are special programs that automatically ensure compliance with agreement under certain conditions. Just like blockchain, they cannot be changed or forged. Smart contracts expanded horizons for possible blockchain uses since now this technology could handle complex transactions, such as voting, identity check, real estate transactions, etc.
  • Tokens are accounting units used to represent balance for an asset, obtain access to the asset or service functions (read more about differences between tokens and coins). Tokens are managed via smart contracts. Tokens are mainly used to pay for services and utilities within a specific project. They grant access to additional features and capabilities in decentralized networks and apps.
  • dApps (decentralized apps) are programs with open source code operating on the blockchain. It means no one controls them; the entire community decides whether to develop them. For operation and calculation purposes, dApps generate their own tokens. It opened the door to a whole new financial sector — DeFi (we already told you in detail about it and its risks). 
  • DAO (decentralized autonomous organizations) are a new type of companies characterized by decentralized horizontal structure and autonomy, by contrast with conventional companies. These companies have no single owner or a board of directors — each member of community is a co-owner enjoying equal rights and having full access to all functionality and information.
  • Ability to create new coins and tokens. Thus, you can easily write a token based on Ethereum, for instance, in ERC-20 format, and create a completely new digital asset based on the Ethereum blockchain. This is exactly why the notorious initial coin offering (ICO) boom happened. 

Ethereum changed our understanding of blockchain potential. It set a direction for development, but couldn’t resolve major technical issues of the Bitcoin network. It has the same problems as the first cryptocurrency. The main problem is its scalability.  ЕТН can handle about 15 transactions per second, but it’s not enough. The ЕТН network is overloaded, transactions are gradually slowing down, their cost rising. The network has a whole bunch of problems that cannot be resolved due to poor scalability. To fix this, developers have been working on an upgrade to Ethereum 2.0 for a few years — a transition from PoW algorithm to PoS. It’s bound to happen by the end of this year, but complete transition will take some years. So a fast solution to the Ethereum’s scalability problem isn’t to be expected. 

Generation 3: Second-level solution — Lightning, Plasma and others  

Neither Bitcoin nor Ethereum could resolve the issue of blockchain scalability. One of the solutions was creating the second level of blockchain, on top of the first one. It’s a pretty complex system that takes the load off blockchain and enables handling of more transactions without modifying main network code. In real fact, it’s a new fast system operating within the old and slow one. 

Thus, the Bitcoin network implemented Lightning Network — the second layer allowing to run transactions in specialized payment channels outside the main network. This technology allows Bitcoin to raise its transaction handling rate up to 7,000 transactions while also reducing fees. However, it has a lot of drawbacks, is unintuitive and often causes loss of coins.  You can only send coins online. Both the sender and the recipient must always be online. If one of them is unavailable, coins will be sent back or lost. Therefore, Lightning Network cannot be used en masse just yet. 

In Ethereum, there are multiple second-level solutions: Connext, Counterfactua, Fuel Labs, OMG Network, Optimistic Rollup, Raiden, Synthetix, Plasma, TrueBit. The latter two solutions are the most well developed. They allow to both run transactions and launch smart contracts bypassing the main network. Unfortunately, these solutions are also unintuitive and cannot be used en masse. 

Second-level solutions promised to become a breakthrough, but couldn’t fix the inefficiencies of the first-level blockchains.  

Generation 4: Ethereum competitors using PoS and DPoS

In an effort to resolve Bitcoin and Ethereum’s technical limitations, fourth-generation blockchains were created. Focused on scalability, they also want to improve compatibility and rise network speed. They mostly use two similar algorithms: PoS (Proof-of-Stake) and DPoS (Delegated Proof-of-Stake). New coins are generated via forging/staking rather than mining. 

The most well-known examples include: Cardano, IOTA, Binance Chain, Nano, NEO, TRON, EOS, TomoChain, Ziliqa. All these projects are competing with Ethereum, in an attempt to take its place. They share similar functionality — ability to create smart contracts, tokens and decentralized apps — but have better speed and scalability. Thus, Cardano and EOS can handle over 3,000 transactions per second, NEO — 4,000, TRON — 2,000. Moreover, they feature low fees and minimum power consumption.  Finally, they use a markedly different approach to generating new coins — employing use balances instead of high power.

Blockchains of this generation are widely different in their structure, but share similar characteristics:

  • Solution to the scalability problem via sharding, i. e. breaking up the network into smaller parts, with each part handling part of the transaction.
  • Building blockchain interactions — the so-called cross-chain transactions allowing to transfer coins and pass information from one blockchain to another.

In an effort to get rid of blockchain drawbacks and limitations, some projects even use technologies which differ from blockchain. For instance, Holochain, Sidechain, Hashgraph and others.  

Generation 5: FreeTON, multi-blockchains and decentralized Internet

We would like to point out another generation of blockchains — multi-blockchains, i. e. decentralized networks comprising multiple blockchains. 

Free TON blockchain is a good example. This is a decentralized blockchain network and platform based on the Telegram Open Network (TON) protocol. It was developed by Nikolai Durov (Pavel Durov’s and one of the VKontakte and Telegram founders), the Telegram team and TON Labs. Unfortunately, a ban by the American authorities forced Pavel Durov to abandon the project. In spring, Free TON was launched by the Free TON Community

Free TON is not a single blockchain; it’s hundreds of blockchain networks in one. Developers came up with a unique solution — dynamic sharding splitting the main network into 232 separate working networks, each of them also divided into 2 more shards. Transactions run in the less loaded channel. It already ensures the speed of 60,000 transactions per second and can potentially speed up the network to a million transactions per second. 

Free TON was designed as a decentralized version of the Internet with no censure, with blockchain apps and cryptocurrency. It already has dozens of component services: browser, operating system, data storage, virtual machine for smart contracts, etc. 

In early October TON Crystal (TON), Free TON’s main cryptocurrency, was added to the trading platform of our partner SIGEN.pro. For details about TON advantages and prospects, read the article by the SIGEN.pro team. 

Generation 6: UMI, cryptocurrencies for mass acceptance, ordinary people and daily tasks

Blockchain technology is developing by leaps and bounds, but no one has yet resolved the scalability trilemma of being decentralized, secure and scalable at the same time. It’s hard to create blockchain featuring all three characteristics. Today, UMI is one of the key projects qualified to resolve these issues.  

UMI cryptocurrency took a different approach as compared to most blockchains. Its operations are based on the Proof-of-Authority (PoA) algorithm that resolves the main problems of PoW and PoS algorithms. It’s one of the most advanced algorithms lacking drawbacks of its predecessors. It also allows you to launch smart contracts and decentralized apps, and it has no problems in terms of scalability, speed and fees. 

PoA algorithm has been around for a while and has drawbacks too, centralization being the key one. However, the UMI Team managed to solve the algorithm’s multiple problems while preserving its advantages

In UMI, new blocks are generated very fast, there are no fees, and network scalability is virtually limitless. Even now, tests demonstrate the speed of 5,000–10,000 transactions per second, and it could potentially rise to a millions transactions (there’re no technical limitations).  

PoA doesn’t use mining or forging. Users don’t have to compete for the right to generate a block first and receive a reward. Instead, new coins are generated via staking based on a smart contract. In UMI, staking allows users to generate up to 40 % of new coins per month — it’s really simple and easy: there’s no need to configure nodes and understand the technical issues which other cryptocurrencies cannot boast of. A smart contract allows you to generate new coins in your own wallet which is why you don’t have to entrust anyone with your assets or lock them.

UMI is not just about free and instant transfers and staking at the rate of 40 % per month with no risks or complications. It’s also about developing new solutions for business and economy. The PoA algorithm is seen as one of the most suitable for implementation on various economic sectors. Thus, it’s been in long use on the Microsoft Azure cloud platform. 

UMI is a multifunctional blockchain that can be used in multiple areas of everyday life, such as law, logistics, games, item collection, insurance, even art. UMI has far-reaching future plans. Moreover, the network plans to implement dynamic sharding and all capabilities of multi-blockchains. 

UMI’s greatest advantage is that it’s a blockchain for ordinary people rather than geeks and crypto enthusiasts. Users don’t have to deal with technicalities or configure anything. All it takes to make a step towards the future is basic knowledge about your smartphone or PC. Let’s make this step together!

Sincerely yours, UMI Team!