Every few years, a form of technology arises that reshapes how humans view and interact with the world. In 1983, that technology was the internet; today, many say it’s the blockchain.
A blockchain is a distributed ledger that stores data and validates transfers across an interconnected network. All information placed into a blockchain is first formulated into a “block.”
Blocks are added to the blockchain only after they’ve been validated by network nodes. The requirement for a consensus between the nodes before a block is placed ensures that the information is accurate and trustworthy. Additionally, any modification to an existing block would trigger a change in all the blocks preceding it, making all information on the blockchain immutable.
With the advent of complementary technologies like smart contracts and cryptocurrencies, blockchain became the foundation of a $3 trillion cryptocurrency value and the cornerstone of the broader decentralization movement. According to a report by MarketsandMarkets, the blockchain market is expected to be worth $67.4 billion by 2026. The question on the minds of investors, entrepreneurs and spectators now is: What will blockchain look like in that time?
The Potential Evolution Of Blockchains
Currently, blockchains are divided into three domains and four types.
Public blockchains, like Bitcoin BTC/USD, Ethereum ETH/USD and Litecoin LTC/USD, belong to the permissionless domain, a class of blockchains that has no central authority and is dependent on the cooperation of independent nodes for consensus.
Public blockchains are the main propagators of the decentralized movement, and they’re by far the most well-known blockchains. Permissionless blockchains typically sacrifice transaction speed for security, as more nodes mean safer but slower data transfer.
Private and consortium blockchains, like Ripple and Hyperledger respectively, belong to the “permissioned” domain, a class of blockchains that has one or more central authorities dictating node accessibility and functionality within a blockchain network. Private blockchains control who is allowed to be a node, and what functions these nodes have.
Private blockchains represent the individualization of blockchain. These blockchains tend to be specific to the central authority’s purpose. For example, private blockchains are popular for supply management functions and insurance claims, two industries where the network’s function is improved by the restriction, rather than popularization, of information.
Hybrid blockchains reside in the middle of these two classes and represent the third domain of blockchains. As more Web3 projects aim to improve security while keeping decentralization an option, hybrid blockchains are quickly becoming one of the most popular forms of blockchain technology, and they could very likely be the next evolution of blockchains.
The Status Of Layer-2 Blockchains
Most of the blockchains discussed above are layer-1 blockchains.
Layer-1 blockchains set the groundwork for the way users can expect the network to operate. They not only provide the base on which all data transfer is made but also define the rules, outlining how consensus is achieved, how nodes operate and other essential requirements.
Achieving a high level of decentralization and security while maintaining efficiency is one of the great challenges of layer-1 networks. In May 2021, for example, the average transaction fee rose to $69 on the Ethereum network as a result of an overload of transaction requests. Bitcoin transaction speed, which reached a low of 4.6 transactions per second compared to Visa’s 1,700 transactions per second, is another template of layer-1s’ scalability issues.
Layer-2 blockchains help take the workload off of layer-1s. If the crypto industry were a kitchen, layer-1 blockchains are the chefs and layer-2’s are the sous-chefs. The primary function of layer-2 blockchain is to improve the transaction speed and reduce gas fees of layer-1 blockchains while layer-1 maintains the security and integrity of the overall system.
The popular layer-2 project Bitcoin Lighting Network, for example, makes Bitcoin transactions faster and less costly by executing Bitcoin orders through their network. This helps Bitcoin achieve its promise as a medium of exchange. Similar layer 2s are available for Ethereum, including Loopring, Optimism and Ethereum Plasma. While many see the necessity of layer-2 blockchains for scalability as a shortcoming of layer-1 blockchains, others argue that they’re a necessary ingredient in the recipe for global decentralization.
A layer-1 blockchain that can fulfill scalability, security and decentralization functions without a layer-2 could have a huge competitive advantage; it ranks highly in the category of the “next best thing.”
The Role Of Blockchain Developers In Long-Term Success
The importance of blockchain software developers like Blaize.Tech cannot be overstated in the pursuit of the next evolution of blockchain technology.
Behind Ethereum, Avalanche and Cardano is an army of talented blockchain developers working together with a singular purpose. Nothing large in blockchain happens without developers. Blaize has already had a head start on its competitors, deploying over 400+ smart contracts and completing over 70+ successful blockchain projects.
Developers like Blaize help companies create blockchain systems, decentralized applications, smart contracts and enterprise solutions. Blaize specifically has all these capabilities and even provides developer tools like software development kits, allows non-blockchain projects to integrate the technology into their business and provides blockchain-specific services like security audits and technical due diligence.
If you’re interested in any form of blockchain technology integration, Blaize.Tech is a go-to destination.
DeFi & The Fall Of NFTs
In many ways, decentralized finance (DeFi) is the reason for blockchain’s popularization.
Blockchain’s first public triumph was Bitcoin, a DeFi solution that allowed regular people to send and receive currency without the need for central authorities. The current examples of DeFi projects all reflect the financial decentralization concept, but express it in different ways.
Aave AAVE/USD, for example, is a DeFi project that allows the lending and borrowing of currency without the need for a central authority. Aave achieves this by using smart contracts, which are programs that automatically run on the blockchain when certain conditions are met. The automatic execution of smart contracts is what enables all DeFi services, including trading, investing, lending and borrowing.
Smart contracts have been central in the creation of decentralized exchanges like Uniswap UNI/USD, decentralized oracle services like Chainlink LINK/USD and inter-blockchain communication platforms like Polkadot DOT/USD. As a result of smart contracts and blockchains, the DeFi industry is expected to be worth $231 billion by 2030 according to a report by Grand View Research, but hacking, safety and trust issues must be addressed before the industry can advance.
Similarly, NFTs are currently awaiting a “renaissance” of their own after their fall from grace in 2022. Last year, it became clear that the majority of the value perceived by NFT traders was a result of one of the greatest bull markets of all time. As soon as the curtains receded, NFT valuations reverted to “sane” valuations, leading many to believe they had no value to begin with.
The conversation around NFTs is now changing. A growing number of NFT advocates contend that NFTs’ value can extend beyond speculation, and advocates have begun to test this idea with the launch of utility NFTs. Utility NFTs grant their purchasers something more than just an ownership stamp; they grant owners access to perks and rewards. Utility NFTs have been embraced by some of the biggest brands – from Nike and Dolce and Gabanna to Adidas and the Premier League. Many posit that NFTs will play a major role in broader-themed movements like Web3 and the metaverse.
Safe, secure and user-optimized DeFi services and utility-based NFTs have a strong argument for a place in the “future of blockchain.”
Using On-Chain Analytics To Make Educated Investment Decisions
One exciting domain of exploration for the future of blockchain is in on-chain analytics.
In traditional markets, investors have access to very limited information, and they must make predictive assumptions with a lot of missing variables. In an environment as complicated as the financial markets, acting on limited information only makes the process of investing harder.
The breadth and availability of information that crypto investors can glean from on-chain analytics is changing the investing landscape. In essence, on-chain analysis is the process of monitoring the flow of money into and out of crypto assets. Because of the sheer quantity of available information, many crypto investors are capable of making decisions with a much larger set of facts and information than their traditional counterparts.
On-chain analysis can involve a number of different ratios, calculations and observations. Some of these include monitoring central exchange flows, which could depict large-scale entry or exit from certain assets by examining exchange-based information. Others could include whale watching (i.e. monitoring large-scale orders), while others could take a more granular approach and record active addresses, supply distribution, miner revenue and realized profit or losses.
The use of on-chain analytics is considered by many the rise of blockchain’s own “fundamental analysis.” Despite all of blockchain’s potentially life-changing qualities, investing and trading remain two of the largest areas of interest in this industry. On-chain analytics represent the first clues of the emergence of educated speculation, and it, too, can play a large role in the future.
Where Will Blockchain Go Next?
As discussed, there are many potential avenues blockchain technology could take, and none are mutually exclusive.
On the private scale, blockchains have already been implemented in governments and corporations, but this avenue has the lowest potential to influence the world. Public blockchains, while the most problematic of the bunch, bring about a whole new ecosystem of products that are independent of central authorities.
There are suspicions that blockchain, as a peer-to-peer network, may have too many faults, and that these decentralized approaches could be better achieved through alternative systems like Urbit or Hedera. Nonetheless, thousands of entrepreneurs are pushing to improve blockchain’s trust and automation issues in order to take it to the next level, and there are plenty of promising avenues of exploration.
Featured Photo by Shubham Dhage on Unsplash
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