Blockchain 1.0: Currency
The implementation of distributed ledger technology (DLT) led to its first and evident application, the cryptocurrencies. It allows financial transactions based on blockchain technology or DLT to be executed with Bitcoin being the most prominent example in this segment. It is being used as “cash for the Internet,” a digital payment system and can be seen as the enabler of an “Internet of Money.”
Blockchain 1.0 has as main features the distributed ledger, the cryptographic security, and the immutability.
|Blockchain 1.0||Blockchain 2.0|
|Applications||Bitcoin||Ethereum, Corda, Hyperledger, etc|
|Applicability||One Blockchain||Multiple Linked Blockchains|
|Taxonomy||Public Blockchain||Public, Private, Consortiums|
|Consensus Concepts||PoW||PoW, PoS, DPoS, PoI ,PoV..|
|Source||Always open & Distributed||User Choice|
51%, DoS, Taxations,
Money Laundering, Privacy
Scalability, Halting Problem, Security,
Delivery Based Timeline, DAO Challenges
How Does Blockchain Technology (1.0) Work?
Blockchain is also referred to as a distributed ledger technology because a large number of nodes on the blockchain network possess their copy of the entire ledger, and they are all connected. Thus, it creates a distributed arrangement of nodes. This technological achievement obtains a critical design choice. This can easily be explained by the fact that when a block of transactions is ready to be uploaded onto the blockchain, the individual nodes participate in a voting mechanism to decide which node, called the ’leader,’ makes the addition.
Bitcoin uses cryptographic proof instead of the trust-in-the-third-party mechanism for two willing parties to execute an online transaction over the Internet. Each transaction is protected through a digital signature, is sent to the “public key” of the receiver, and is digitally signed using the “private key” of the sender. To spend money, the owner of the cryptocurrency needs to prove his ownership of the “private key.” The entity receiving the digital currency then verifies the digital signature, which implies ownership of the corresponding “private key,” by using the “public key” of the sender on the particular transaction. Each transaction is broadcasted to every node in the Bitcoin network and is then recorded in a public ledger after verification. Every single transaction needs to be verified for validity before it is recorded in the public ledger.
While there are ways to change the blockchain, as in the case of hacks or upgrades, these changes are difficult to implement and require structural modifications rather than changes to the block transactions themselves because of the very same property of immutability.
Blockchain 1.0 includes two main concepts.
The first is the Byzantine Fault Tolerance, and the second one is the Public Key Cryptography. The Byzantine General’s Problem refers to a hypothetical scenario where consensus must be reached between participants. The problem statement is that several generals of the Byzantine army must coordinate their movements on the battlefield. Public key or asymmetric cryptography is a sub-field of information theory that underpins much of modern-day computer security. The mathematical underpinning of public-key cryptography lies in families of mathematical functions that are injective and irreversible.
Elliptical Curve Cryptography uses a different class of functions that is less computationally intensive than those used in RSA. It has been getting attention from computer security experts as a possible replacement for RSA. Elliptical curve cryptography is the implementation of choice in Bitcoin.
Unfortunately, Blockchain 1.0 it was incompatible with regulated financial industries, and that led to the rise of Blockchain 2.0 and Smart Contracts.