Blockchains of today versus blockchains of tomorrow

Blockchains of today versus blockchains of tomorrow

(Written by @ElliotHill of the Cardano Foundation)

When Satoshi Nakamoto first described Bitcoin in his famous 2008 whitepaper, it set forth a revolutionary new way to move and transact value peer-to-peer, one which transcended international borders and maintained low fees irrespective of the value of a transaction.

However, Bitcoin—still the largest cryptocurrency today by market capitalization—is at its core a fairly simple and limited blockchain in terms of utility, despite its clear usefulness as digital cash. In fact, since Bitcoin’s launch over a decade ago, there have been multiple iterations of blockchain technology, some of which impart much greater utility than a simple value layer.

Blockchains are often described as belonging to a ‘generation’ based on how old they are, and their improvement over older blockchains. For example, Bitcoin is widely regarded as a ‘first-generation’ blockchain, a simple ledger for transferring value. Ethereum, on the other hand, is described as a ‘second-generation’ blockchain, adding in layer-two functionality such as decentralized applications—or DApps—and smart contracts.

‏‏‎Value layer ‏‏‎ ‎‏‏‎ ‎‏‏‎Smart contracts ‏‏‎Decentralized applications Consensus mechanism Staking rewards ‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎Block creation time⁺
Bitcoin ‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎✔ ‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‏‏‎ ‎‎⨯ ‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‏‏‎ ‎‎‏‏‎ ‎‏‏‎ ‎⨯ ‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎PoW ‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎⨯ ~10 Minutes
Ethereum ‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎✔ ‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎‏‏‎ ‎ ‎✔ ‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‏‏‎ ‎‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎✔ ‏‏‎ ‎‏‏‎ ‎‏‏‎PoW/PoS ‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎⨯ ~20 Seconds
Cardano ‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎✔ ‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎‏‏‎ ‎ ‎✔ ‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎✔ ‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎PoS ‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎✔ ~20 Seconds


By definition, Cardano is a ‘third-generation’ blockchain protocol, offering a value layer through Byron, staking and rewards through Shelley, smart contracts and DApps through Goguen, scalability and interoperability through Basho, and paving the way towards truly decentralized governance models through Voltaire. But, this time-based classification does not account for the constant and dynamic development that blockchains—especially those which are permissionless and open-source like Cardano—undergo on a regular basis.

Instead, it is far more useful to compare the features of blockchain ledgers in existence today, versus their proposed utility in the near future—in other words, the blockchains of today versus the blockchains of tomorrow.

Here, we examine what the blockchains of tomorrow might look like, discover what is in store for the Cardano protocol in the near future, and discuss the potential of blockchain to disrupt diverse industries and establish new paradigms.

Scaling up and staying decentralized

The recent release of Shelley, which brought staking and delegation to Cardano, represents the beginning of true decentralization—arguably the most important aspect by which a blockchain can be considered a truly distributed ledger.

True decentralization, which can be validated on-chain through the number of nodes participating in consensus, is one of the founding tenets of blockchain technology and it may become the hallmark of the most successful blockchains of tomorrow.

Proof of work (PoW) blockchains, like Bitcoin, may appear superficially decentralized; however, in reality, there are ample opportunities for miners, or mining confederations with adequate infrastructure to collude, to disproportionately influence the protocol by collectively holding a great deal of the mining power.

In April 2019, research published by the IEEE computer society revealed this risk of collusion. The research revealed that 40%–50% of the mining power in the Bitcoin network was controlled by just three of the largest mining pools, a far cry from what one would expect from a truly decentralized network, and this problem has become fairly consistent across other PoW blockchains.

How does Cardano remain decentralized and scale?

Cardano, on the other hand, using a proof of stake protocol, reaches consensus through the collective effort of potentially thousands of decentralized nodes, or stake pools, who are selected as slot leaders in an almost lottery-like randomized manner.

Ada holders from across the world can delegate to any of these stake pools, irrespective of how much ada they hold. Cardano’s Ouroboros Praos consensus mechanism, and its staking and delegation, is designed to reach a point of equilibrium, stabilizing the network when the number of stake pools reaches the desired level.

To prevent a handful of stake pools from wielding too much influence over the blockchain—by having too much ada delegated to them and, therefore, being disproportionately chosen as slot leaders—stake pools reach a ‘saturation point’, known as the ‘K’ value, upon which their staking rewards decline.

In this way, PoS blockchains scale organically and sustainably through more pools and delegates, whereas PoW blockchains can only scale using more hashing power, thereby using more resources as demand for computing power increases.

Adequate decentralization promotes the security and stability of the network, but there is also the issue of scalability—the ability of a blockchain to handle multiple transactions in a short amount of time. This is measured most often in ‘transactions per second’, or ‘TPS’.

For blockchains to become useful as world computers for the internet of value, it is imperative that scalability issues are addressed while also remaining decentralized, at which point we will see a shift towards a ‘blockchain-complete’ era.

If you are interested in taking part in the consensus of Cardano, you can learn how to start staking or delegating your stake here.

The Blockchain-complete era

If we continue to categorize blockchains by generation, every new blockchain which emerges may class itself as the next-generation of distributed ledger—implying that it is somehow superior to the older generations of blockchain.

However, such an assumption is wrong because blockchains are always evolving and adding functionality, and even those which serve a single purpose have their own utility and interoperability with other chains.

Instead, a more accurate term for the blockchains of tomorrow would be ‘blockchain-complete’, an all-encompassing ecosystem that could be used to transfer value, build and deploy DApps, participate in on-chain governance, generate staking rewards, and more.

In Cardano’s case, the blockchain improves through both formal developments with its engineering partners, IOHK, and also through community improvement proposals (CIPs), becoming a constantly evolving distributed operating system.

The blockchains of tomorrow

Essentially, blockchain-complete ledgers—the protocols which will define the blockchains of tomorrow—can solve the pressing issues of interoperability, scalability, security, and decentralization.

Once these hurdles are overcome, blockchains of the future, such as Cardano, can become complete operating systems that enable powerful use cases, such as enterprise solutions, monetary transactions, supply chain tracking, traceability, educational resources, and public services.

Atop these blockchains of tomorrow, users will be able to transfer value seamlessly peer-to-peer, write and deploy smart contracts and DApps, access decentralized finance products, and meaningfully take part in the consensus of the overall protocol.

The blockchains of tomorrow will not necessarily replace the blockchains of today. Instead, it is more likely that the blockchains of today will evolve into the blockchains of the future, and the most successful projects will focus on interoperability while working towards becoming the de facto financial and social operating system based on blockchain technology.

Read more articles in our Shelley blog series below:


It’s a cool overview. Thank you.