To understand the progression of blockchain technology, it’s necessary to look at where we've been and where we are today.
The history of blockchain technology goes back to 2008 when an anonymous person or group of individuals known as Satoshi Nakamoto published a whitepaper titled Bitcoin: A Peer-to-Peer Electronic Cash System. This whitepaper introduced the concept of a decentralized, trustless, and transparent digital currency called Bitcoin.
The fundamental breakthrough of Bitcoin was the use of blockchain technology. A blockchain is a distributed ledger that records all transactions in a decentralized and transparent manner. It relies on a network of computers, known as nodes, to validate and verify transactions. Each transaction is grouped into a block, which is then added to the chain of previous blocks, creating an immutable and chronological record.
The launch of Bitcoin in 2009 demonstrated the value of blockchains and decentralization by creating a robust, decentralized payments system. However, the Bitcoin network supports a small number of transactions per second, and Bitcoin’s architecture makes it difficult to adapt its codebase for any use other than digital payments. Several other blockchain platforms duplicated the Bitcoin codebase, with some small modifications, to issue their own coins. Most of these copycat efforts provided zero additional value from both a technical and business perspective. Bitcoin’s main value proposition today is as a store of value and hedge against inflation.
In 2014, Ethereum introduced the innovative idea of using a decentralized application (Ethereum) to launch and use new decentralized applications (smart contracts). Before, it had been impossible to launch blockchain-based decentralized applications (dApps) without creating and launching one’s own blockchain. Ethereum sparked a huge wave of new dApps, including decentralized finance (DeFi) applications.
Blockchain 3.0 and Avalanche®
Like Bitcoin and Ethereum, Avalanche introduces new paradigms to the blockchain world.
Just as Ethereum allows one to launch a decentralized application defined by a smart contract, Avalanche allows one to launch a decentralized application defined by a Virtual Machine. Unlike Ethereum, each dApp runs on its own independent blockchain. Each blockchain is validated by a Subnet, a dynamic, custom set of validators. This allows for the creation of private blockchains.
Avalanche is not just a platform for creating custom dApps. It also has native support for creating and trading smart digital assets. This allows users to get the functionality they want and to comply with regulations.
Avalanche is the first blockchain network to use a new family of consensus protocols created by distributed systems researchers in 2018 from Cornell that allow Avalanche to process thousands of transactions per second. Avalanche permanently finalizes transactions in a few seconds, making Avalanche suitable for real-time payments. Avalanche can be used to achieve consensus on not only linear blockchains but also on blockchains that are Directed Acyclic Graphs (DAGs).
Avalanche uses proof-of-stake, which allows tens of thousands of validators to have a first-hand say in the system while consuming minimal energy.
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