This very first transaction was stored in a block which 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 subtle statement about currency, the central banking system and the crash from the year before. It was the birth of a currency which would question all the financial instruments that had failed just months before.
Bitcoin was born.
First Generation Cryptocurrencies
Bitcoin is the first generation crypto.
The One which started it all and showed the world that decentralized financial consensus was not only possible, it was already implemented in software – software which worked surprisingly well from its very first release.
Bitcoin was not only a concept, it was now a successfully deployed software project that worked as a proof of concept.
First generation cryptos include Bitcoin and all the coins that were forked from it.
Litecoin was a famous early fork and so was Dogecoin. These softwares simply forked the Bitcoin source code tree and changed the logo and cryptographic hash function from Bitcoin’s SHA256 to the more memory-intensive scrypt algorithm.
Other (software) forks soon followed and, while we won’t be able to list them all here, they all shared some traits.
First Gen Traits
All first generation cryptocurrencies have these things in common:
- Were based on Bitcoin source code written in the C++ language;
- Employed proof of work mining;
- Had a limited scripting language.
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.
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.
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 Gen Traits
The main traits of a Second Generation Cryptocurrency are:
- Smart contracts on the blockchain;
- Virtual machine or platform that runs decentralized software/contracts;
- Turing-complete programming language that runs on its virtual machine.
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.
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 Gen 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:
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!
Canadian Immigrant Generations Photo Credit: BiblioArchives / LibraryArchives of Canada