What Blockchain 3.0 Means for Your Favorite Cryptocurrencies

Author: 
Joel S.
Date: 
November 20, 2018
Read time: 
7 minutes
blockchain 3.0
scalability
consensus mechanisms

Blockchain 3.0 describes the future of the crypto landscape with one oversimplified term. Third generation blockchain refers to new technology still being built and proven. Nearly all of the aspects discussed in this article are still theoretical but the tenacity of development teams to bring them to fruition divorces this conversation from the possibility of being ignored. Distributed ledger technology is evolving so quickly, soon we won’t be able to categorize blockchain in simple numerical versions. Before that happens, I think it’s time to go past the headlines in blockchain news and dive into the speculative future of what is blockchain 3.0.

 

Blockchain 3.0 describes the future of the crypto landscape with one oversimplified term. Third generation blockchain refers to new technology still being built and proven. Nearly all of the aspects discussed in this article are still theoretical but the tenacity of development teams to bring them to fruition divorces this conversation from the possibility of being ignored. Distributed ledger technology is evolving so quickly, soon we won’t be able to categorize blockchain in simple numerical versions. Before that happens, I think it’s time to go past the headlines in blockchain news and dive into the speculative future of what is blockchain 3.0.

 

Blockchain 3.0 Technology Explained by Solving Existing Problems

What is blockchain 3.0? New technology aimed at bringing cryptocurrency into the mainstream. Most likely, you know what a distributed ledger is – it’s how transactions are proven and trusted on a decentralized network, like Bitcoin. The underlying fabric of the first generation of cryptocurrencies used blockchain technology to implement distributed ledger technology. Every transaction relies on the previous one, creating an extremely robust and trustworthy network.

A consensus mechanism verifies transactions within a protocol. Blockchain 3.0 focuses on solving the issues of energy consumption, scalability, interoperability, and user experience.
 

Problem 1: Electricity Demands Exceed That of Many Small Countries

Studies show that Bitcoin's electricity use exceeds that of Austria. The largest and most robust digital currency, Bitcoin is the ideal laboratory for new ideas. Developers use it as inspiration for better-distributed ledger technology. The following shows the evolution of consensus mechanisms – highlighting the similarities, differences, benefits, and concerns with each.

 

How PoW Works

PoW, short for Proof of Work, is a consensus mechanism used by many cryptocurrencies to verify transactions and add new blocks to their blockchains.

Verification occurs when a CPU-intensive mathematical equation called a cryptographic puzzle is solved by miners. Miners host networks and participate in verifying transactions by solving these cryptographic puzzles. The solving of each puzzle results in the adding of a new block to the blockchain. Miners are rewarded with block rewards when they successfully find the next block by solving the puzzle. Miners also receive transaction fees when they verify value exchanges.
 

Benefits of PoW

PoW became popular because it presented an effective way to prevent DDoS (Distributed Denial of Service) attacks. Since participating in PoW requires significant expenditures of computing power and electricity, DDoS attacks are too expensive to mount against Proof of Work networks. Proof of Work makes it prohibitively expensive to change the history of transactions.

Drawbacks of PoW

Although the expenditures of computing power and electricity help for preventing DDoS attacks, they come with some negatives, as well. The energy consumption required increases with the size of the PoW protocol. The increased demand for electricity makes each transaction more expensive. Over time, the costs can be too prohibitive for most miners, leading to mining centralization.
 

How PoS Works

PoS, short for Proof of Stake, is another consensus mechanism that’s used to accomplish the same goal as PoW. However, the approach is different:

Networks that utilize PoS are hosted by “Validators” running full nodes. Each node stakes tokens for a chance to validate transactions and win the reward associated with each transaction fee. The more coins a node holds in their wallet, the better probability it has to be chosen.
 

Benefits of PoS

Staking is more energy-efficient than PoW mining. The amount of electricity needed to operate a full node is much less than it takes to mine. This opens the playing field to more people, helping to keep the protocol decentralized.
 

Drawbacks of PoS

Over time, some PoS ecosystems could be controlled by long-term holders, reducing the incentive for new people to own the coin. If a single actor takes control of 51% of the token supply, they will be able to validate untrustworthy transactions.

Source: lisk.io
 

How DPoS Works

DPoS is short for Delegated Proof of Stake. As its name suggests, it shares some similarities with PoS.

Similar to PoS, nodes in DPoS are used to host the network. Holders of tokens vote for a representative instead of hosting their own node. This means holders can earn tokens without hosting the network themselves.
 

Benefits of DPoS

Fewer nodes utilized by DPoS means that even less energy is required for hosting than in PoS. Users who are not as tech savvy or who lack the ability to run a node all times of the day are still able to participate and be rewarded.
 

Drawbacks of DPoS

Super Representatives run full nodes and are given a higher reward for it. This produces inequality between the voters and the Super Representatives. This can lead to bribes, political alliances, and infighting. It adds a human element to an otherwise automated network.
 

Problem 2: Scalability

The largest bottleneck facing cryptocurrencies is transaction speed. For example, Bitcoin can only process 7 transactions per second at the moment. Since cryptocurrencies strive to be globally accepted, they must compete with options like PayPal, which can handle 193 transactions per second. Luckily, there may be answers to the problem of slow transaction speed that plagues cryptos today. Blockchain 3.0 technology illuminates exciting solutions which are hard to even classify as blockchain.

Tangle is a promising new technology that offers a road to true scalability for cryptocurrencies. With Tangle, transactions are confirmed via a network of nodes and find the most direct route between users. The more nodes a network has, the faster the transactions are. Theoretically, a large enough tangle network will allow for infinite t/x.

Source: Simply Explained - Savjee Youtube Channel
 

Another option that is being explored is called sharding. In a network that utilizes sharding, each node holds only a piece – or a shard – of network information. This allows for a more efficient transaction network to be built. Zilliqa boasts that their network is capable of 2,000tps.

Blockchain 3.0 technology explained in simple terms – it’s going to be dope.

User experience is the elephant in the room when it comes to blockchain 3.0.

Problem 3: Interoperability

For cryptocurrency to gain mainstream adoption, existing coins must be able to work together. Mainstream acceptance relies on the ability of users to enjoy the benefits of their favorite coins while interacting with other existing protocols. Think of blockchain 3.0 as producing plugins and extensions to your favorite tech, like MetaMask. This browser add-on lets you interact with the Ethereum blockchain via intuitive UI. You can think of it like interoperability between the internet protocol and blockchain technology.

Blockchain 3.0 is bringing interoperability the crypto world. The following highlights some exciting possibilities:

  • Decentralized Trading
    Atomic swaps allow for different coins to be traded with each other without needing a 3rd party verification from an exchange.
  • Application Protocols
    3rd party apps built on top of successful protocols like Bitcoin and Ethereum. Wanchain allows for anonymous messages to be sent between users while relying on the Ethereum blockchain to keep transactions trustworthy.
     
  • Faster and cheaper transactions
    PoW is proven to work albeit expensive and bulky. Concerns about PoS stem from the weaknesses the protocol faces including monopolization and a 51% attack on transactions. Hybrid protocols are developed that enjoy both the speed of PoS and the security of PoW.

 

Problem 4: User Experience

Does your mother know how to trade Bitcoin? Do you think your neighbor with the flip phone follows blockchain news? User experience is the elephant in the room when it comes to blockchain 3.0. All these wonderful technologies won’t mean anything if only techies can use it.

Source: giphy.com
 
  • Fun to Use Wallets
    Distributed ledger technology needs to be as easy and fun to use as Venmo. If blockchain 3.0 is going mainstream, it needs to bring everyone along for the ride.
     
  • Transaction Fees
    Consumers making purchases with crypto must understand the necessity of paying nodes or miners to host and secure the network. It’s up to developers to make this as simple as sales tax is.
     
  • Easier Security
    Memorizing the various passphrases required for a crypto wallet is great – if you like to pretend you’re in a Mission Impossible movie. The everyday consumer doesn’t have that kind of time. Designing simpler private keys or implementing biometrics is coming with blockchain 3.0

Blockchain News on Who’s Leading Blockchain 3.0

There are a three stand out coins that are continually making headlines in blockchain news. Blockchain 3.0 technology explained is easier done with examples. With the notable exception of Ethereum, while the following coins do exist, their white paper promises are still mostly theoretical. As an investor, it’s up to you to research first. The following list lays out their technical potential:
 

1. Cardano

Using PoS as the foundation, this cryptocurrency seeks to do it all. Included in their white papers are smart contracts, value exchange, and most interesting to me – gambling. Their underlying PoS uses the Ouroboros algorithm to randomly choose the next node which adds to the blockchain. This randomness has the potential to be used as an underlying protocol for decentralized gambling.
 

2. Zilliqa

Mentioned briefly before, this is the first cryptocurrency to prove sharding. The technology creates a highly scalable PoS system that allows each node to only host a piece of the overall data in a network.  In order to keep the protocol robust, Ziliqa uses a hybrid consensus protocol. For a node to be given a place in the network, PoW is used to prevent bad actors from attacking the system. One exciting use? Allowing for smart contracts with almost unlimited transaction speeds – a great example of what is blockchain 3.0.

Source: zilliqa.com
 

3. Ethereum

Currently, Ethereum uses PoW but it is rapidly developing a PoS system in order to become blockchain 3.0. The development team is responding to bottlenecks in the current system, working to keep Ethereum relevant well into the future.

Another exciting development is the goal to implement WebAssembly, ditching their proprietary virtual machine. In laymen’s terms, dAPP development will be opened to almost all developers, speeding up mass adoption.
 

Blockchain 3.0 is Going to Blow Everyone’s Mind

If you think the solutions offered by existing cryptocurrencies are exciting, wait until the blockchain 3.0 technology explained here is implemented and gains mainstream adoption. Current issues that are preventing wide stream acceptance will soon be fixed and the cryptomarkets will witness another bull market that brings worldwide attention. Blockchain 3.0 solutions are improving the existing ecosystem, creating potential technology that will disrupt everything from money to the internet.

Staying updated on the latest blockchain news will help position yourself to invest before the next big thing becomes – the next big thing. Follow the website that cares about research and will keep you informed on the latest trends affecting blockchain 3.0. Visit CryptoManiaks for all the latest cryptocurrency news.

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