So far there have been four distinguashable versions of blockchain, each with its own unique use cases and each built on top of one another, taking the best pieces of each generation and putting them into the latest tech. Blockchains revolutionize the way we transact as a globally defined race. For the first time in human history geographical barriers no longer pose as a barrier to entry in life. Anyone, anywhere, with an internet connection and a laptop or phone can create a globally significant movement.
Blockchain 1.0 was used for one sole purpose, facilitating transactions of monetary value. Satoshi Nakamoto saw there was a major flaw in the global monetary system in the form of centralized power of the issuance of the world's various currencies.
Commerce on the Internet has come to rely almost exclusively on financial institutions serving as trusted third parties to process electronic payments. While the system works well enough for most transactions, it still suffers from the inherent weaknesses of the trust based model. -Satoshi Nakamoto in the Bitcoin white paper
This was a great start. It showed the world that the myth of a trusted intermediary being required to transact was false. There needs not be trust in a third party, instead Bitcoin allows users to trust the protocol.
This trust in protocol segways directly into blockchain 2.0, which implemented code as law. Since blockchain 1.0 introduced immutability, a characteristic of the data strucure which makes it mathematically impossible to revert the past histoy of transactions. In blockchain 2.0 structures, the implementation of smart contracts came about to leverage immutability and borderless, trustless payment networks.
A smart contract is simply a piece of code which dictates certain restrictions users who wish to particicpate in the contract must abide by. The contracts require the transacting parties to stake tokens on the outcome of a certain event or prediction. They provide a new layer for transacting with parties who regulalry would never be able to trust one another, they have an immutable blockchain which keeps their funds safe, and a contract which cannot be deviated from without losing their staked coins to the other party.
Blockchain 2.0 also gave rise to the Internet of Things. In this model, users tokenize the physical assets they own through sensors. These sensors collect micro data from the assets and display it on the blockchain. It facilitates autonomous machines transacting between one another. For example, a Tesla with the ability to drive itself could be fitted with sensors and registered on a blockchain. It could then be used as a driverless uber, making a revenue stream out of a fixed cost asset. The car sould even sense when it needs maintenance, and schedule an appointment with a mechanic on its own, drive itself there, and pay for the service with its own cryptocurrency wallet. The IoT enables autonomous machines to transact without the need for their owners to take part in any of it.
Blockchain 3.0 takes samrt contracts and leverages it to create stable coins and decentralized finance. Stable coins are tokens which exist on a blockchain 2.0 platform, and use a smart contract to continually manage the supply, in order to peg the price to a certain stable value.
To understand DeFi, it helps to understand centralized finance, or CeFi. In the traditional finance world, banks are in full control over the money loaned out, at what interest rate, and to whom. The money they loan out is not even theirs, instead they are paid for by using fractions of other deposits made by other bank-goers. For example, you deposit 100 dollars into an account, 90 dollars is then made into credit with that deposit and loaned out to someone who needs the funds that the bank trusts. There is now 190 dollars in existance, with only a deposit of 100 dollars backing it, this is called fractional reserve banking.
With DeFi the power returns to the hands of the depositors, who can decide what interst rate they are willing to loan at, what amount, and to whom. There are so many new business use cases with this model that can come out of DeFi because it creates a much more efficient mechanism for funding those ventures.
Now we are at the stage of blockchain 4.0, which makes blockchains work with blockchains. In particular it is the idea that there can be one main chain, which handles all governance and consesnsus mechanisms with its miners. The main chain can support smaller side chains which contain smart contracts that govern those chains' mechanics.
With so many chains being validated at once, scalability is key. One novel implementation of blockchain 4.0 was recently covered in the Coin of the Day section, Seele. They claim to be the first and currently only blockchain 4.0 tech platforms, and they deserve that title.
Seele uses sharding, a technique which reduces the size of the blockchain because the whole blockchain is not always needed for transactions. Instead all that is needed are the relevant records within the shard that the transaction is occuring. Transactions can happen across shards as well, and still keep track of the double speding vulnerability sharding sometimes causes.
It also requires simultaneous verification across multiple chains at once. The side chains relay their blocks to the main chain on a customary basis. This way the main chains wallet balances are kept in accordance with what is going on in the side chain economies. This allows users to take partial withdrawl of funds from the side chains to the main chain, something previously unachievable.
Another very intersting aspect of blockchain 4.0 is the heterogenous nature of the chains' assets. This was a page taken directly from Ethereum, which allows users to develop ERC-20 tokens, which are all the same code-wise. This way there is total network fungibility, any coin from any chain can be swapped directly with one another, with no need to use an intermediary currency. For example, Bitcoin cannot be directly swapped for a token that exists on Ethereum, instead a user has to trade their BTC for ETH, then their ETH for the desired ERC-20 token. Now on blockchain 4.0, any side chain can directly interact with any other side chain, creating seamless integration between multiple economies. The possibilities are endless.
Why not just build a legacy chain for every project with a unique coin for each? Well that would be very tedious, and result in a plethora of coins and chains which would likely be redundant. It is more efficient to have a structure in which there is a main structure that supports the side chains. This also allows smaller projects to get up and running without needing to have the know-how of creating an entire blockchain ecosystem from scratch.
One way to think about it is as mom-and-pop shops that are supported by a larger entity, say Walmart. Imagine if Walmart closed all its doors today, sent all their employees and customers to smaller shops, and said we will do all this if you give us a very small fee of each transaction.
In the case of blockchain 4.0, Walmart is replaced by a decentralized market place of users who opt into the main chain currency. Users can then choose their mom-and-pop side chains to support, and receive goods or services in exchnage for their tokens. All the while, the main chain supports the transcations on each side chain as well as the main chain.
Seele, the first blockchain 4.0, has a method called the Heterogenous Forest Network. In this network, all the side chains are built using the same code base, with a few tweaks in the math for consensus which optimizes each chain to its specific use case. This way chains can interact with one another seamlessly. Users can move from chain to chain with no hiccups, and the network can simultaneously verify transcations across several chains at once.
This way, as mentioned before, coins can be swapped for one another across the side chains without needing to be first converted into the main chain's currency. Now there can be partnerships between side chains. One chain can offer a gaming network and another access to cooking videos. Users who are talented at the game can use their winnings in the form of that game's coins to buy cooking videos, without needing an intermediary step.
Here we are, at the forefront of blockchain tech. Every time a new layer is added on there has been exponential increases in opportunity. The best way to take advantage of the growing trend of blockchain usability is not only through investment, but building something.
The need for decentralization grows greater every year as more and more government tyranny across the globe runs rampant. There is a intrinsic value in blockchain tech, verifiability. There is no need to trust one another anymore, instead we can put our trust in distributed technology and code. A much more sound and secure method of transacting.