Three generations of Blockchain

blockchain layers

Blockchain is the most revolutionary innovation of the last decade

Robert-Reinder Nederhoed, CEO Biccur

In this article I discuss the generations model for blockchain, which can provide insight into its possibilities and can be used to successfully implement blockchain in practice.

With blockchain you can reliably make transactions without the need for a third party. Since the blockchain works on top of the internet, transactions are independent of country borders and national currencies. That’s why blockchain is seen as the greatest invention since the Internet.

Since its invention (Satoshi Nakamoto, 2009) the blockchain was developed further and has been applied to varying degrees in products. One can divide the application of blockchain in three generations: money, assets and contracts. With each generation both its capabilities and its complexity increase.

Cryptocurrencies, the first generation blockchain

The first application of blockchain is money. For the first time it is possible for two parties to transfer money directly to each other: secure, worldwide and without third-party intervention. The blockchain transfers ownership and records the transaction. This type of money is called cryptocurrency, the first generation of blockchain.

A cryptocurrencies, such as Bitcoin, exists outside the current financial system. It derives its value from guaranteed scarcity and new use cases enabled by its programmable nature.

Property, the second generation blockchain

The use of cryptocurrencies brought the idea to apply the blockchain ledger to broader use cases, by offering the administration of assets in general. In this generation anyone can issue shares on the blockchain. These shares may receive dividends and voting rights can be granted to owners of the shares. All on the blockchain.

This blockchain generation facilitates crowd ownership: shared property on a small scale with control for the owners via voting and distribution of profits via dividends. This fits perfectly in the current trends of crowdfunding and the sharing economy.

we could not foresee the changes the Internet would bring to our world

Small businesses and organizations can issue shares to raise funds. Other examples of applications are jointly owned solar panels, cars and real estate. Democratic voting could be set up using this generation, where both the voting process and the election result will be registered transparently and irreversibly in the blockchain.e block

Contracts, the third generation blockchain

In addition to money and assets, agreements can also be registered on the blockchain. Such a digital contract enforces the participants to keep their promise. As an example, think of an insurance contract that requires regular payments. The contract can end the agreement unilaterally when the participant misses payments.

A more futuristic example could be a self-driving vehicle that can park autonomously. The car reserves a parking spot near your destination, drive to it and pay the parking fee. The parking spot uses a contract to handle the availability and parking costs. The car and parking location can do business without the intervention of human activity.

The capabilities of blockchain contracts are unprecedented. The impact of blockchain on the way we do business is yet to be determined. Similar to how in the early nineties we could not foresee the changes the Internet would bring to our world.