ELI5 First, second, third and fourth generation cryptocurrencies [2021 Update]

Although the theoretical building blocks that form cryptocurrencies existed prior to 2009, it was only in January of that year that Bitcoin registered its first ever transaction on a blockchain.

The very first BTC transmission was stored in the now legendary Bitcoin Genesis Block, and carried an interesting message encoded within it:

"The Times 03/Jan/2009 Chancellor on brink of second bailout for banks".

The reference to the 2008 financial crisis is very meaningful in retrospect.

Satoshi Nakamoto was making a statement about currency, the central banking system and the financial crisis which exploded the year before.

It was the birth of a new currency, which would challenge all the financial instruments we knew and used until then.

Bitcoin was born.

First Generation Cryptocurrencies

Bitcoin is the first generation cryptocurrency.

The One which started it all and showed the world that decentralized financial consensus was not only possible, it had already been implemented in software.

Software which worked so well from its very first release, it instantly conquered hundreds of fans who built online communities around the technology. Bitcoin then spread like fire.

Bitcoin was not only a concept, it was immediately successfully deployed everywhere.

It was a proof of concept for a revolutionary new technology that could be demonstrated anywhere using a common PC running MS Windows and basic Internet connectivity.

People could instantly send Bitcoins to each other anywhere in the world. Not only that but, by just running the Bitcoin software, you could actually earn coins. Early in 2009 anyone running a node would earn 100 to 200 BTC per day by just leaving Bitcoin Core running on its own.

Because of its pioneering role, Bitcoin forms the base for all cryptocurrency projects that would appear shortly thereafter. The first generation of cryptos had been launched.

The first generation cryptos is made up of Bitcoin and all the coins that forked its source code and basic concepts.

Note: Blockchain Forks are not the same as Github Software Forks
A software fork is a concept derived from open source software development and means that programmers decided to take a software project and make modifications to it under a separate source code tree. Blockchain forks means the blockchain of a cryptocurrency has forked and followed at least two different paths forming several chains. Cryptocurrency source code forks often do involve blockchain forks as well, but technically they're two different things.

Litecoin was a famous early fork, and so was Dogecoin.

These software projects simply forked the Bitcoin source code tree, changed the logo and cryptographic hash function from Bitcoin's SHA256 to the more memory-intensive scrypt algorithm. With these simple changes, a new cryptocurrency was born!

Noticing how easy it was to create new coins based on Bitcoin Core source code, other (software) forks soon followed and, while we won't be able to list them all here, they all shared some traits.

First Generation Cryptocurrency Traits

All first generation cryptocurrencies have these things in common:

These are the main traits of all 1st generation cryptocurrencies.

While there were variations in source code style, all of them based their initial releases on the existing Bitcoin base.

Several programming languages began to be used other than the C++ language used for Bitcoin. Concepts from the Bitcoin source code tree quickly became available in many other programming languages.

Goodbye CPU Mining

One of these programming language translations would spark a revolution that would both hurt Satoshi's original vision and also launch the world into a graphics card buying spree.

When Bitcoin mining code was migrated to the AMD Radeon GPU graphics cards' API, called OpenCL, the world would never be the same again.

GPU's could run thousands of times more numeric operations than the best CPU's could ever hope for.

GPU mining killed CPU mining and ended the romantic era of Bitcoin's fully P2P network of full mining nodes.

ASICs later appeared which killed GPU mining and the rest is history.

Bitmain is one of the world's largest ASIC manufacturers and their Antmain mining machines provoked a second revolution in Bitcoin mining. All these developments set the reality farther and farther away from Satoshi's original vision where each node, each PC, mined Bitcoins and participated on the network fully. Mining had gone professional and full nodes no longer mined, but simply verified mined transactions.

Second Generation Cryptocurrencies

For years Bitcoin reined alone. Every other coin which appeared seemed to have cloned the concepts behind Bitcoin. Everyone began releasing their own coins. Joke coins like Dogecoin appeared, Litecoin promised to be the silver of cryptocurrencies whereas Bitcoin was gold. Reddcoin promised to be the social networking cryptocurrency. Iceland got its own crypto, though not official. It was crazy in the early days of cryptocurrencies and it seemed like everyone was cloning the Bitcoin source code and translating it into various ideas, most of which were only meant to make coin creators rich quick.

Ethereum is Born

It was in this context that a revolutionary new concept was launched.

It was called Ethereum and it was nothing like any of the clones that came before it. It wasn't forked from the Bitcoin source tree, it used Javascript on its front-end, it had modularized front and back ends into separate components and many more software innovations that made it very different from Bitcoin.

But there was one big concept that set it apart from every other cryptocurrency from the time. Ethereum was actually a virtual machine that ran sophisticated computer programs called smart contracts.

This was the single greatest contribution to cryptocurrencies since the inception of Bitcoin itself in 2009.

Smart contracts made it trivial to create new cryptocurrencies, which we now call tokens. Anyone could write up an ERC20 token, publish it on the blockchain and a new cryptocurrency was born. This multiplied the ICO boom where startups from around the world became able to launch crypto assets in a matter of minutes. Crowdfunding had gone crypto.

Second Generation Cryptocurrency Traits

The main traits of a Second Generation Cryptocurrency are:

These characteristics turn the very basic transactions from first generation cryptocurrencies into complete computer programs stored on the blockchain.

These programs can theoretically solve any computable problems known to us (computable problems).

Third Generation Cryptocurrencies

Third generation cryptocurrencies are a concept that expands on second generation cryptos and builds further abstractions on top of them. Since we do not have third generation cryptos in full production mode at the time of this writing, please bear in mind that this concept may change or evolve as it becomes more concrete within the cryptocurrency community.

Cardano ADA

One of the farthest developed projects of a Third Generation Cryptocurrency is Cardano ADA.

While it is still on the development phase of its core system, planning to release its decentralized staking system soon, Cardano has all the traits which, according to the theory we've been able to research about Third Gen cryptos.

Third Generation Cryptocurrency Traits

The main characteristics that will likely mark this new evolutionary phase include:

  • Scalability becomes a core priority and should be built into the base platform;
  • Cooperation and crosschain transactions with other cryptocurrencies is built into the core;
  • Governance and compliance get built into the core system and are not accessories built on top of it;
  • Smart contracts have formal software verification built into them to guarantee perfect software.

The following talk by Cardano CEO Charles Hoskinson gives a complete overview of what Third Generation Blockchains will mean for the cryptocurrency universe:

Fourth Generation Cryptocurrencies

While third generation cryptos have barely gone mainstream, a new class of cryptocurrencies is redefining the state of the art.

They're cryptocurrencies based on metastable consensus mechanisms, such as Avalanche.

In this class of consensus mechamisms, the network is never fully stable and hard set on a given consensus. Instead, it's flexible to change as long as enough nodes believe it should change.

Fourth generation cryptocurrencies provide extremely high transaction per second scalability, competing with VISA or MasterCard level of TPS.

Example 4th Gen - Avalanche Consensus

Avalanche consensus is surprisingly efficient and is able to reach finality within milliseconds. Nodes query each other about transactions in a random order. Nobody knows which node will query which. As such, it's very hard to defraud the system, as you can't predict who'll be asked about a certain TX (vertex). Nodes then quickly form their conviction about transactions, validating them or rejecting them.

In Avalanche systems, there is no set single chain tip consensus. Everyone arrives at this consensus on their own, but each at their own pace. It's the most decentralized cryptocurrency out there - anyone can validate, stake and participate by simply running a lightweight process.

Fourth Generation Cryptocurrency Traits

  • Avalanche or similar high transaction per second metastable consensus mechanism
  • NFT's - Native Non Fungible Token support
  • Subnets and network sharding - splitting the blockchain into several segments, allowing it to scale
  • Native Asset Registry - Segmented architecture accommodates several cross-chain assets each having their own infrastructure and resources, allowing for an asset registry to be built.
  • Atomic cross-chain operations - Move assets freely from one subnet or subsystem to another in a single atomic operation that either succeeds or fails. No more centralized exchanges or custodial requirements.


We hope this short overview of first, second and third generation cryptocurrencies has given you a perspective on the evolution of this exciting new technology.

Cryptocurrencies are an open and very fertile field for research and innovative projects are bringing more and more incredible ideas into the mix.

In the coming years will shall see fourth generation cryptocurrencies spring up, building even higher abstractions on top of the previous ones.

While Bitcoin is the father of all these ideas, it is not falling behind technology-wise. Second and third generation ideas are being developed for Bitcoin as layers on top of its core system. Lightning Network is one such layer, which promises to speed up Bitcoin transactions immensely.

The cryptocurrency community is inter-wined and good ideas from one project end up being incorporated into other projects, which is a great catalyst for development.

In less than 10 years since the Bitcoin launch, cryptocurrencies have gone from a crazy idea to a revolutionary concept that has found its way into the world's financial system. And this is just the beginning!


Cryptocurrency: Ten Years On

Wikipedia: History of Bitcoin

A Short History Of Bitcoin And Crypto Currency Everyone Should Read

Ethereum History in 5 Charts

A decade of cryptocurrency: from bitcoin to mining chips

Coursera: Short History of Altcoins

Smart Contract History and Law

How Smart Contracts Started And Where They Are Heading

Which cryptocurrency will be fourth generation and why?

Blockchain Technology's Three Generations

Why Third Generation Cryptocurrencies Are Game-Changers for Venezuela

What is the third generation blockchain?

Cryptocurrency of the 3rd Generation: Lessons Learned

The History of Blockchain: An Evolution of Three Generations

Cardano is a Revolutionary 3rd-Generation Cryptocurrency Project

About the Author
Published by Crypto Bill - Bill is a writer, geek, crypto-curious polyheurist, a dog's best friend and coffee addict. Information security expert, encryption software with interests in P2P networking, decentralized applications (dApps), smart contracts and crypto based payment solutions. Learn More About Us