Blockchain technology and cryptocurrencies are all the rage these days. What was once discussed only among dark-web dwellers and financial anarchists has now become a hot topic of discussion for billion-dollar conglomerates.
Over the last five years, cryptocurrencies have gone through a major evolution which is characterized by three specific paradigm shifts. Let’s go through these shifts one-by-one and see how these have and will change the crypto space for better or for worse.
Fiat to Bitcoin
The first shift was definitely the birth of Bitcoin. People still don’t realize how important this event was. For years, people have been trying to develop a digital currency which was not owned by a single central entity. However, in order to achieve decentralization, developers were forever falling to the “double spending” trap. Basically, they were finding it hard to make each and every transaction unique.
Along came an unknown programmer by the pseudonym of Satoshi Nakamoto. He published the whitepaper, “Bitcoin: A Peer-to-Peer Electronic Cash System.” We finally had a digital currency which was truly decentralized and solved the double spending problem! The way Nakamoto achieved this was by leveraging Blockchain technology. Blockchain technology has two truly amazing features (among many others):
Immutability means that all the data inside the Blockchain is tamperproof. So once you have put some data inside the chain, you can’t change it. You can imagine how desirable this property is for a payment system since this will prevent any type of financial fraud.
Transparency basically means that anyone who is part of the Bitcoin network can look into the Blockchain and see all the past transactions. This property keeps everyone accountable for their actions.
Bitcoin gave people a currency which they completely own. They can send it to anyone without getting the bank involved in it. Every person is their own bank. As of writing, Bitcoin has a market cap of $111 bln.
Blockchain technology, which is the backbone of Bitcoin, became a subject of interest for many people. They soon realized that Blockchain technology had far more use cases than just being a means of powering a payment system. This was when a 19-year-old Russian-Canadian prodigy helped the crypto space evolve from Shift 1 to Shit 2.
Cryptocurrency to Blockchain infrastructure
In 2013, Vitalik Buterin (the afore-mentioned prodigy) published the Ethereum whitepaper which transitioned the world from the first generation of Blockchain technology (i.e. Bitcoin) to the second generation. While Ethereum can be used as a cryptocurrency, its greatest use is as a smart contract platform.
Smart contracts are self-executing agreements between two parties. It gives users a lot more control and flexibility over their transactions than what Bitcoin allowed. Ethereum enabled developers to use its environment to execute smart contracts. Think of it as a global supercomputer which could rent out its computational powers for developers around the world to create their own decentralized applications aka dApps.
This property is directly responsible for the sudden growth of the ICO industry which has raised billions of dollars. The fact that developers had an environment where they can make their projects and raise millions of dollars in a crowdsale with relative ease saw adoption go through the roof.
However, for all its good, second-generation Blockchains have their own issues. For a long time, the crypto-space has been plagued by scalability and general interoperability issues.
To make this as short and succinct as possible, lack of scalability means that as the number of users increases in the network, the network performance gets worse. For a Blockchain-based platform to become truly mainstream, it is critical that it addresses this issue.
Interoperability, on the other hand, is a network’s ability to interact and communicate with other networks. In the future, multiple dApps could be up and running on multiple Blockchains. How do we make sure that they can seamlessly communicate with each other without any point of weakness?
To address these issues, a whole new generation of Blockchains are being developed as we speak. These third generation Blockchains include projects like Cardano and EOS which uses specialized consensus mechanisms to achieve faster transaction speeds and hence higher scalability. They have also worked extensively on improving interoperability. While they do promise quite a lot, we will need to wait and watch how their implementation pans out in the future.
From machine-maintained Blockchain to people layer
Martti “Sirius” Malmi is well-known in the crypto community as the only active developer to have worked with Bitcoin founder Satoshi Nakamoto. His project “Identifi” along with some other projects are spearheading Shift 3. The idea of this shift is to move on from a purely machine-based Blockchain infrastructure to a social one.
So, why is this shift needed?
One of the most fundamental components of a successful cryptocurrency is a strong community. Ethereum is a perfect example of this. However, most of the newer cryptocurrencies simply don’t maintain a good community. They mostly use messaging applications like Telegram where the members are not really incentivized into contributing anything of their own.
Because of this reason, members are not really that invested into the projects and they don’t stay loyal and have a high tendency to speculate about the token’s value instead of actually learning about the project and have a more realistic expectation.
This is why, every single time the market fluctuates and the token loses value, the users immediately leave the project. This is the biggest reason why, some truly incredible Blockchain projects have lost steam simply because of the user loss rate. In fact, this is so bad that according to a Deloitte Insights report published in November 2017, Blockchain projects’ failure rate is as high as 92 percent, mostly due to “the lack of actual application scenarios and the quick loss of community members.”
The idea of this shift is to establish a strong user growth scheme which is integrated within the Blockchain itself. These projects utilize a reputation system, wherein each and every community member is incentivized to act in the best interest of a project.
Think of how Uber operates. The star ratings of the drivers and the passengers incentivize both the participants to be on their best behavior.
Along with Malmi’s Identifi, the other projects who are spearheading this shift are DREP by the founders of Google X and U°Community.
There you have it, the three shifts that have defined and are going to define the evolution of the crypto space.
So, are these all the phase shifts that we are going to have? The crypto space is constantly evolving after all and we invariably going to see more shifts. However, as of right now let’s focus on the data we have instead of speculating. We hope that you have gained immense value from this article.
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