Although launched just ten years ago, the idea of the blockchain came about as early as 1991 when several scientists created a way to timestamp digital documents in a way that would prevent them from being either backdated or indeed tampered with. This patented technology remained unutilized until its patent ran out in 2004, just 4 years before the creation of the blockchain as we know it today.
The blockchain is the technology that stands behind the various digital assets and projects or digital apps which use smart contracts to verify and authenticate each and every transaction or process. The blockchain is decentralized and works through a network of users and virtual machines that share the data in a trustless way. That means that the systems reach a consensus on the transactions, which makes trust between parties obsolete. It removes human intervention from every process or transaction.
Bitcoin was the first-ever P2P (Peer to Peer) electronic payment system, and it was launched in 2008 by a person, or persons using the pseudonym Satoshi Nakomoto. It enabled a protocol that could track and reconcile every transaction within the network. Miners would “mine” bitcoins on the system, and be rewarded by receiving Bitcoin. Satoshi Nakomoto mined the first bitcoin block and was rewarded with 50 bitcoins.
Along Came Ethereum
Some years later, programmer and the co-founder of Bitcoin Magazine. Vitalik Buterin went on to start Ethereum in 2013. Bitcoin could not be used for programming or hosting apps and his vision was to build an ecosystem where apps could live, to aid the transaction and exchange of digital currencies, using smart contracts.
These pieces of code or scripts have since been used for hundreds of decentralized apps and to verify transactions, taking the blockchain to a whole new workable level.
Ethereum, although genius in its ability comes with a range of issues. These include the fact that the more transactions that take place, the more expensive they are to transact. Sometimes one transaction can cost users hundreds of dollars. Miners, who charge gas fees, effectively the costs for mining the coins, can now charge whatever they like.
The other problem inherent with Ethereum is the fact that too many transactions cause bottlenecks, making transaction times slow – too slow for certain apps. For instance, you could never use Ethereum for gaming as it would not make for an enjoyable gaming experience.
These primary chains would need a huge amount of work conducted on them to make them usable for large-scale projects. This is where Layer 2 chains came into play. These were side chains that could help a developer or project increase the scalability of their project by conducting processes on smaller chains. Oftentimes, these would be interoperable with Ethereum’s Virtual Machine, so that users could then transfer their coins directly onto the Layer 1 chain where there is much more liquidity. This also negates the transaction speed which is a common feature of a busy Layer 1 chain.
Layer 2 Chains
One example of a Layer 2 chain is MetisDAO. It is a platform where users, even with very little or no knowledge of the blockchain can build and host their apps or projects. Users can set up a project in 3 steps with no coding necessary.
On a smaller chain like this or Aragon for example, transactional charges are much lower, speed of transactions is light years away from those on Ethereum, and scalability using interoperability and connectivity to other chains means a business can grow as much as it likes.
With platforms like these, users can build and host real-world projects like NFT marketplaces. Social platforms, open-source communities (for code or script sharing), CrowdFunding, and decentralized financial projects, such as exchanges, gaming platforms, and prediction market platforms.
Interoperability and the new Layer 2 chain, bring the world of blockchain much closer to Web3, a new decentralized alternative to the internet, which removes the privacy, or data control issues that we face today.