Hi all,

In our previous post, we looked at the early history of blockchains and how various developments led to the launch of Bitcoin as the first widely-known cryptocurrency (read all about it here). Today, we're looking at more recent developments.

So what’s up?

This is our second of two articles briefly explaining the history of blockchains from the 1970s until today. Today, we’ll look at:

• Ethereum – the next generation of blockchains

• Better tech, more use cases

And we’ll look ahead at some potential developments which we’ll cover in more depth later on.

Let’s get started! 🤓

Bitcoin was neither the first form of digital money nor the first blockchain. Nevertheless, the combination of characteristics made it unique and its release came at a time when confidence in central banks was very low.

Ethereum – the next generation

Adoption in the broader economy has been very limited. Nevertheless, Bitcoin generated a lot of media interest from the beginning. Until today, cryptocurrencies remain the one and only use case of blockchains for many people.

The underlying technology, however, had much more potential. In late 2013, the programmer Vitalik Buterin published a whitepaper which described a blockchain that was designed to support decentralised applications. In July 2015, this concept was officially launched as the Ethereum blockchain.

Comparing Bitcoin and Ethereum is like comparing a bookkeeping software and a computer. The software is very useful to track the movements of money yet it can't be used for anything else. The computer is an incredibly flexible tool but you have to figure out how to use it. You can also rely on other people to provide an operating system and actual applications.

Ethereum has often been described as a "world computer" which is accessible to everybody for an extremely broad range of potential applications. It didn't take very long for the hype to start with headlines promising nothing less than revolutions for the music industry or global supply chains, to name just two examples. As you may have guessed, the hype turned out to be a bit too optimistic.

In addition to distributed computing, Ethereum also introduced the "blockchain trilemma". Every public blockchain aims to be scalable, secure and decentralised yet optimisation is only possible for two of these aspects.

At the beginning, Ethereum developers concentrated on decentralisation – similar to Bitcoin – and security. Without the necessary scale, however, revolutionising anything was impossible. In the early days, Ethereum could only support a pretty small number of transactions.

Starting in 2016, efforts to design blockchain systems for enterprise use cases started to generate attention. By and large, these were permissioned systems, meaning that participants needed to be invited or accredited. It solved the lack of scalability, but within a centralised system that resembled a traditional database much more than the unique characteristics of a decentralised public blockchain.

Better tech, more use cases

Private blockchains may be a good solution under specific circumstances but they were mostly designed to overcome one important bottleneck of public blockchains: the lack of block space. In recent years, however, many efforts have gone into solving this problem.

Various blockchain projects have been launched with the promise of offering more and cheaper transactions while Ethereum has grown into an ecosystem with additional layers. By and large, these layers are designed to offer scalability and a high degree of security by relying on Ethereum as their foundation.

It's pretty similar to an organisation like NATO leveraging US dominance to provide security guarantees to all their members. This allows smaller countries to flourish, concentrate on their strengths and contribute to the system themselves – which ultimately benefits the US as well.

The scalability problem has not been solved completely. Nonetheless, significant progress has been made and ongoing efforts show that available capacity should not hold back enterprise adoption in the coming years.

Another issue has therefore received more attention: privacy. Public blockchains have traditionally been transparent by design. Workarounds are possible but it is generally possible to trace transactions in great detail.

If you want to employ blockchain technology to optimise your supply chain operations, that's not ideal.

As the technology becomes more mature, this issue is very likely to be solved as well. The first privacy-centric blockchains are already available, allowing for enterprise use cases at scale. Moreover, the current hype around Zero-Knowledge Proofs (ZKPs) suggests that privacy may very soon become a much more important feature of the internet in general, not merely of blockchains.

The technical side of ZKPs is incredibly complex but the day-to-day usage is simple to explain. They allow anybody to prove that they have or know something without giving up information about what they have or know. One simple example: ZKPs could allow you to prove that you have enough money to rent a flat without providing lots of financial details to the owner or an estate agent. (We'll cover the use of ZKPs much more in-depth in some upcoming newsletters.)

Looking ahead

Blockchain technology has come a long way from the start of Bitcoin to its current state. The track record is still limited though. Bitcoin was only launched in 2009 – two years after the first iPhone. Using blockchains to support decentralised applications is an even younger concept which really started with Ethereum's launch in 2015.

Widespread enterprise adoption of blockchain technology will depend on various factors. The mere fact that technical infrastructure is becoming readily available is not enough. Questions over regulation of cryptocurrencies, shortages of qualified developers and concerns over the interoperability between different blockchains are other important holdups.

We believe that these hurdles can – and will – be overcome. Education, however, is key to understand the potential benefits of public blockchains, enabling enterprises and other large organisations to identify areas where these are useful in practice.

Unfortunately, the first impression for most outsiders is that blockchains are complicated and cryptocurrencies are a scam. An unregulated industry that combines incomprehensible tech with greedy traders is not exactly a good environment for a compliance-driven business.

However, regulation is making progress. MiCA in the European Union is arguably the most prominent example. Various other countries are also moving along.

Understanding concepts such as decentralised networks or trustless transactions could therefore provide companies with a competitive edge. We're trying to help along the way by explaining crypto values, exploring technology and – most importantly – keeping the broader context in mind.

Rather than staying in the comforts of the blockchain/crypto bubble, we want to make sure that everybody in the "real" world can find aspects that are useful for their own purposes.

That’s the end for today! 😢