Blockchain evolution vs efficiency
Blockchain evolution vs efficiency — More and more people and companies are becoming interested in blockchain technology with regard to its application. Like any other technology, blockchain has its advantages: greater transparency, lesser dependence on intermediaries. Its downsides certainly include efficiency, number of transactions per second (TPS).
From the point of view of business, this is very important. We know very well that in every project we seek maximum efficiency; ensuring the best solution has a huge impact on the final outcome. When advising clients I always try to choose a solution that will bring maximum benefit while maintaining efficiency and transparency.
I raised the question of the efficiency of blockchain technology at the last Blockchain Business in Szczecin and today I will try to shed more light on it in the form of a short article. It will also serve as an introduction to a demonstration of the possibilities offered by the third generation blockchain.
Internet & IoT — The world is moving forward; today technologies like blockchain, IoT or AI are becoming part of everyday reality and in 10–20 years they will probably become standard in our lives.
Let us look at the development of the internet in recent years. Before 2005 the internet was centralised and closed. Today the internet is open and centralised in the form of clouds. IBM estimates that after 2025 the internet will be open and dispersed.
This shows in which direction the internet and technology are going. It also shows what technologies will be the main part of our lives and of industry 4.0.
First generation blockchain — The first generation blockchain was “conceptualised” in 2008 by an anonymous person or group of persons known as Satoshi Nakamoto. The idea was implemented in 2009 and so we have been using the original bitcoin protocol for 10 years. It has also inspired the development of new generations of blockchain technology.
Second generation blockchain — The second blockchain generation went a step further, making it possible to create smart contracts. This considerably increased the possibilities of applying technology. The first blockchain to introduce it was Ethereum, the second most popular blockchain in the world.
Third generation blockchain — Recent years have seen a rapid development of the third generation blockchain technology. The main emphasis is on efficiency. We are speaking here mainly of the number of transactions per second. Today the efficiency of the traditional centralised systems is much greater. Consequently, in many projects perfectly suited to blockchain the technology is abandoned because of its bottleneck, that is TPS.
The picture above shows the efficiency of the various transaction systems. Let us start from bitcoin, which has only 6 transactions per second, then we have the second generation blockchain, i.e. Ethereum, with 15 transactions per second. The third option is the traditional, centralised system, PayPal. Number four is the Ripple blockchain, associated with the banking industry. Number five is the most popular form of payment today, i.e. VISA, which, with its 1700 transactions, is an efficient centralised payment system.
I will dwell a little bit longer on the last two items. Hyperledger is a private blockchain developed by IBM among others. Hyperledger’s 3500 transactions per second seems very high, but we need to bear in mind that the various nodes are not far from each other. A private blockchain is quite specific and in many cases is designed for business solutions and larger ecosystems. I encourage you to explore the differences between private and public blockchains.
The last item is a public blockchain, IOTA, a very interesting project. It is still under development and the target number of transactions has not been reached yet. These are just assumptions. The question is, why so many TPS?
IOTA is a third generation blockchain. It is not a traditional chain of blocks, but a directed acyclic graph, DAG. It is a very efficient blockchain, the scalability of which increases with size. The project is innovative and offers a lot of possibilities, and despite being at an early stage, it has very ambitious plans to be a very good project.
As we can see above, we are dealing with a completely different concept when it comes to adding new blocks. In the article, I will not analyse in detail how it works. I only want to note that 10 years after the emergence of bitcoin the technology is evolving and is looking for new solutions to be even more efficient.
With its blockchain, the IOTA Foundation solves many problems, including the amount of data to be processed as well as their economy. Today the amount of data we process has become so huge that in a few years centralised data centres will not be able to service them. That is why decentralisation is currently the best solution in terms of both scalability and security. What IOTA wants to tackle is challenge humanity will face in a few years.
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