A Brief History: 11 Years of Ups and Downs

On November 1, 2008, Satoshi Nakamoto published a paper titled Bitcoin: A Peer-to-Peer Electronic Cash System, in which he illustrated the concept of blockchain. Over the past 11 years, evolving from a professional term used by tech geeks to a widely-known emerging technology, blockchain has witnessed many changes. Today, we will dive into the development history of blockchain.

 

So far, blockchain has gone through three stages: blockchain 1.0, blockchain 2.0, and blockchain 3.0. First proposed by Melanie Swan in Blockchain: Blueprint for a New Economy, the theory gained universal recognition in the blockchain community. Over time, people started to have different views on the definition of the three blockchain stages.

 

Blockchain 1.0

 

On January 3, 2009, the Bitcoin network was officially launched, and Satoshi Nakamoto mined the genesis block, the first block ever generated in the blockchain space, which marked the realization of blockchain technology for the first time.

 

In the first two years since the birth of blockchain technology, there is only one blockchain application: Bitcoin.

 

On April 18, 2011, NameCoin (NMC), the first altcoin ever created, was released. It is a domain name system that’s based on Bitcoin, with certain modifications. For instance, instead of Bitcoin’s SHA-256, NameCoin uses SHA-512. Namecoin is now on the verge of dying, many of you might not have heard of it. When it was young, NMC did flourish for a while — it frequently ranked as one of the top 10 cryptos by market cap before 2015.

 

In October 2011, Litecoin (LTC), the king of altcoins, was born. Compared with Bitcoin, Litecoin has made three major changes: the block time is shortened to 2.5 minutes, the total supply is capped at 8,400, and the encryption algorithm is changed to scrypt.

 

When it comes to Litecoin, most people might be familiar with the catchphrase “Bitcoin is gold, while Litecoin is silver”, a vivid analogy that tied LTC to BTC. In today’s market, where altcoins have been forsaken, Litecoin remains one of the top 10 cryptos by market cap all thanks to the memorable catchphrase.

 

In August 2012, Sunny King, the father of PoS, released Peercoin (PPC). PPC set itself free from the fixed model where altcoins are directly forked from Bitcoin and innovatively adopted a mixed consensus mechanism: PoW+PoS, making it the first project to use PoS in the history of blockchain.

 

A year later, Sunny King introduced Primecoin (XPM). Tough it went back to PoW, XPM innovatively requires that mining hashrates should be used to find prime numbers, turning hashrate consumption into scientific contribution, which is a fascinating mechanism.

 

Both XPM and PPC had been trending projects during blockchain 1.0 and were favored by many crypto big shots. However, at the end of 2016, Sunny King, the founder, disappeared suddenly and was nowhere to find for more than a year, leading to the failure of XPM and PPC.

 

On July 31, 2013, MasterCoin (MSC) started the first token financing in the blockchain world and eventually raised 5,120 bitcoins, which were worth about $500,000 at the time.

 

Few people have heard of MasterCoin, but most of you might be familiar with OMNI, which is the second name of MasterCoin. That’s right, OMNI is the chain on which USDT is issued. Although its native coin diminished, tokens powered by OMNI have thrived. OMNI is indeed a miraculous project.

 

In addition to the projects we just covered, Ripple (XRP), Dash (DASH), Futurecoin (NXT), Monero (XEM), Dogecoin (DOGE), and BitShares (BTS) were also once-famous projects created during blockchain 1.0. Some of them failed halfway through, and some others are still doing well. It’s as if their failures and successes are all destined.

 

During blockchain 1.0, we witnessed many tech innovations, and mixed consensus mechanisms such as PoS, DPoS, and hybrid consensus mechanisms started to emerge. Moreover, concepts such as anonymous coins and decentralized exchanges that we still use today were also coined during blockchain 1.0. That said, essentially, blockchain 1.0 projects still focus on cryptocurrency, and there were only a few application scenarios. Therefore, the period is defined as blockchain 1.0.

 

Blockchain 2.0

 

In 2013, the Bitcoin community quietly kicked off a series of big debates about the future trend of Bitcoin.

 

The debates were triggered by a post published by Jeff Garzik, an early BTC developer, in 2010. In this post, Jeff Garzik suggested modifying the code of Bitcoin to scale up the block size, which was rejected by Satoshi Nakamoto at the time.

 

After two and half years of growth, Bitcoin made great progress in terms of trading volume, and scaling once again captured the spotlight.

 

While everyone was trying to find ways to scale Bitcoin, Vitalik Buterin, a 19-year-old Russian prodigy, proposed a different view. He believed that rather than improving performance, the blockchain world should focus on introducing more functions.

 

In a later interview, Vitalik concluded his view in a vivid metaphor. He regarded Bitcoin as a Swiss army knife, and developers could build one that they believe to be perfect. Yet, if users raise new functional requirements, developers need to build a new knife. Vitalik, on the other hand, wanted to build a smartphone that allows users to meet their new demands by installing different apps.

 

On December 9, 2013, Vitalik released the first version of the Ethereum white paper: Ethereum: A Next-Generation Smart Contract and Decentralized Application Platform, and officially introduced the concept of smart contracts into the blockchain world, which started blockchain 2.0.

 

The concept of smart contracts was proposed back in 1996, but Vitalik sought to combine them with blockchain for the first time. Equipped with smart contracts, blockchain could execute complex logic programs through smart contracts.

 

In fact, the first version of the Ethereum white paper was an improvement proposal drafted by Vitalik for Mastercoin, but J.R. Willet, the founder of Mastercoin at the time, did not take it seriously, which reaffirmed Vitalik’s decision to create Ethereum.

 

As the first project to conduct blockchain financing in history and a project whose native coin was overshadowed by on-chain tokens, Mastercoin also missed the opportunity to start the blockchain 2.0 era. It is truly a “fascinating” project.

 

On July 24, 2014, Ethereum started a 42-day pre-sale of ETH (Ether at the time) and raised 31,531 bitcoins, equivalent to $18.43 million according to the BTC price at that time.

 

The ICO stirred up an Internet storm, and many started to attack ETH for its massive fundraising. At the time, members of the Bitcoin community regarded ETH as a “scam”. No one could have imagined that this “scam” project would facilitate the biggest progress in blockchain technology ever.

 

Thanks to Ethereum’s Turing completeness, the cost of project development on Ethereum is much lower than that on Bitcoin or new public chains. Without having to complete repetitive tasks, developers can focus on functional innovations, which gave rise to concepts such as DApp (decentralized application) and DAC (decentralized autonomous corporation).

 

At the end of 2015, Ethereum released the famous ERC20 standard, and since then “one-click crypto issuance” has become another label of the network. Through smart contracts, anyone can issue their own tokens, which can be converted into ETH. In a way, ERC20 is a double-edged sword. It not only started a great bull market in 2017 but also led to the ICO madness later on.

 

Blockchain 2.0 only lasted a short period. Though some other smart-contract-focused public chain projects were also launched during blockchain 2.0, few projects can top Ethereum in terms of ease of use, which is the most essential user demand. As such, the entire blockchain 2.0 era was almost a one-man show of Ethereum.

 

Blockchain 3.0

 

Blockchain 3.0 saw a large number of outstanding early DApp projects, the most iconic of which was CryptoKitties.

 

On November 28, 2017, CryptoKitties was launched on Ethereum as the first GameFi project. After the project went live, many people were introduced to blockchain for the first time by the lovely “Kitties”, which helped blockchain reach more users.

 

How popular was CryptoKitties? Before the project was launched, the number of pending transactions on Ethereum rarely exceeded 5,000, but starting from December 3 (6 days after CryptoKitties went live), the figure soared and surpassed 10,000 in the early morning of December 4, 15,000 in the afternoon, and 20,000 in the evening of December 5.

 

In just three days, the number of pending transactions skyrocketed by 4 times, and Ethereum had become extremely congested for a while. At the time, users had to wait a whole day for just one transaction. Apart from the prolonged confirmation, network congestion also led to higher gas fees. This also made people realize that as the user base expands, sooner or later, Ethereum has to deal with the issue of insufficient performance, a challenge that Vitalik bypassed in the early stage.

 

Generally, we use the number of transactions per second (TPS) as a standard to measure the performance (or scalability) of a blockchain project. The TPS of Bitcoin stands at about 7, which means that the network can process 7 transactions per second. Ethereum, which is slightly better, features a TPS between 10-20. However, this level of performance is far from sufficient for large applications. For example, the average TPS of VISA is around 1,700, and the peak TPS can reach 4,000.

 

Therefore, developers started to think of ways to improve the performance of blockchains to meet the demand for killer DApps that might appear.

 

Driven by the great bull market in 2017, the number of blockchain projects saw exponential growth, and plenty of public chain projects that aim to improve blockchain performance were launched.

 

The market also received these public chain projects with enthusiasm. For instance, EOS’s public offering lasted for nearly a year, which is unprecedented, and it raised $4.213 billion. It should be noted that when it comes to VC investments, companies valued at more than $1 billion are called unicorns, which is why people are stunned that EOS, a start-up project, raised over $4 billion in the blockchain space, a relatively smaller market.

 

Apart from EOS, many other well-known projects, such as Cardano, Tron, QTUM, and Polkadot, also claim that they aspire to become “blockchain 3.0”.

 

As public chain projects flourish and receive enthusiastic market feedback, there seemed to be an illusion among crypto users that “blockchain 3.0 is coming soon”, and many crypto big shots predicted that 2018 would be the first year of the public chain boom.

 

It has been more than two years since then, and the much-anticipated “super public chain” is still not in sight. The big-name projects have either underperformed or kept delaying their launch to this day. No one mentions the public chain boom anymore, and crypto users now speak of “booms” as a laughing stock.

 

Groundbreaking progress of an emerging technology often requires plenty of time and massive funding. Although none of the projects we mentioned became the “super public chain” with universal recognition, it is undeniable that they have achieved something in their respective fields and promoted the progress of the blockchain industry.

 

A long journey can be covered only by taking one step at a time. For pioneers, failures are inevitable, but such setbacks will lay the most solid foundation for blockchain 3.0.