The evolution of cryptocurrencies

Let’s together review the history and evolution of cryptocurrencies, from Bitcoin to the 3rd generation tokens we have today (there’s already a 4th generation, but let’s not go that far; sometimes less is more). It is necessary and our responsibility to help understand where we come from and where we are heading in this space, both for the experienced and for newcomers who have just arrived, in order to have a proper understanding of the current moment and the transition taking place.

Cryptocurrencies possess a technology that makes them resemble a living being, as they modify and evolve as if following Darwin’s theory, in order to survive in a hostile and ever-changing environment. Every new concept or technological development is born to solve a problem, and cryptocurrencies are no exception. Now that we’ve established that, we can lay down some foundations and guidelines to capture this natural evolution in 3 generations:


BITCOIN: Just as there exists a protocol for transferring information (TCP/IP), a protocol was needed to transfer value, and Bitcoin delivered it to us. The problem being addressed at that time was the creation of a sound currency: decentralized, scarce, limited in supply, tradeable, with commerce so simple and transparent that it didn’t require intermediaries to generate trust in the transaction, enabling it to be executed between two anonymous parties. It was also sought to have this currency run on a decentralized network maintained by different individuals from anywhere in the world, as long as they had access to a network and downloaded a program. “MONEY THAT’S FREE AND PERMISSIONLESS”

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The success of Bitcoin is due to two new and disruptive concepts in this new internet era, which years ago seemed impossible to achieve, but its protocol has made it possible: “Scarcity and Non-Duplication.” For the first time on the internet, something that is born and developed within it cannot be copied, duplicated, or imitated at will (like when we have photos or a PDF document to make and send as many copies as we want). Its function is simple and straightforward, which is why some realized that a transaction could include additional terms and conditions, such as “I’ll send you my money, Miguel, when you fix my car.” This is when the concept of a smart contract was born.

The Bitcoin blockchain was not suitable for this, as to make such a change in Bitcoin, either a new cryptocurrency had to be created (BCASH, BGOLD) or a cumbersome overlay protocol had to be installed.


People like Vitalik Buterin, Charles Hoskinson, Gavin Wood, and more came together to create the second generation of cryptocurrencies: ETHEREUM, This moment was to blockchain what JavaScript was to web browsers: a simple, static, and somewhat limited page that allowed for something more. It enabled the creation of fully programmable pages, which eventually gave birth to famous platforms like Facebook, Google, and Gmail.

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Ethereum brought programming languages to the blockchain, a new paradigm that allowed for the creation of smart contracts. This enabled fully customized transactions, embedding both value and data within a single transaction. Today, Ethereum is the second most important currency in the market, boasting the largest number of developers and holding a dominant position in that aspect.


Throughout the evolution and growth of Ethereum, many developers, close collaborators of the project, and other actors in the ecosystem realized that Ethereum couldn’t scale to millions of users while providing a good developer experience. This led to the emergence of third-generation cryptocurrencies like Cardano, Kadena, and Polkadot.

Furthermore, between 2014 and 2017, the issue of poor governance in many cryptocurrencies became evident when it came to reaching a consensus for growth and problem-solving. As a solution, new currencies were created with new teams, often branching off from the native project. However, this led to significant chaos, as most of these forks did not succeed. Examples include ETC (Ethereum Classic) and Bcash (Bitcoin Cash).

Another problem emerged in 2018, adding to the chaos. Large amounts of money flowed into Initial Coin Offerings (ICOs), mostly in the form of ETH, which was experiencing a sharp decline and devaluation at that time. This caused these projects to lose purchasing power and hindered their ability to finance growth and development, ultimately affecting their ability to achieve the milestones set in their roadmap. With little treasury management and an inability to make decisions, sustainability issues arose as the capital raised became increasingly less valuable and depleted over time.

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The third generation of cryptocurrencies was created to address three major challenges: Scalability, Interoperability, and Sustainability. If any project from 2017 onwards doesn’t have the philosophy or vision to solve each of these three challenges, it is practically destined to fail. These cryptocurrencies are expected to present an improved technical proposal inherited from generations 1 and 2, while also introducing new concepts and a differential value to the crypto space.

SCALABILITY: This concept has multiple meanings, but from the perspective of cryptocurrencies, it can be defined in three different areas:

  • TPS (Transactions Per Second): How many transactions can be included in a block within a finite time.
  • Bandwidth: Cryptocurrency transactions contain data, and as the number of transactions increases, more bandwidth is required to accommodate the data flow.
  • Data Scaling: Blockchain is designed to store data permanently and indefinitely. Therefore, it must be capable of accommodating increasing amounts of data. However, since blockchain operates on a replicated model where the security of the data depends on each node having a copy of the entire blockchain, this cannot be solely supported by individual machines due to efficiency and accessibility constraints.

INTEROPERABILITY: Interoperability holds significant importance in both technical and economic aspects. When well-developed, it enables regulated, semi-regulated, and even unregulated systems to conduct business together.

In the context of third-generation blockchains, interoperability means that they can interact and understand each other, even if they are not of the same kind. A third-generation blockchain should be able to verify and legitimize a transaction, allowing for the flow of value between different blockchains without the need for intermediaries.

SUSTAINABILITY: The two concepts to be addressed here are decentralized treasury and segregation of a cryptocurrency’s value. In simple terms, third-generation blockchains must be capable of creating a treasury, where a portion of the funds raised from an ICO is allocated, while the rest is used through proper distribution to enable stable and equitable growth.

A great example is the Bitcoin blockchain, which has a model where all funds go to miners, and Bitcoin distributes those funds as it sees fit and in a way that benefits its growth. It is a winning, robust, and fair model that ensures continuous funding flow without resorting to other financing models that could dangerously centralize the cryptocurrency. The main advantage of this approach is to avoid creating unnecessary tokens, launching ICOs that lead nowhere, or causing forks that do more harm than good.

From now on, we can start to understand that if we want to improve something, we cannot irreparably damage its native form. This is why self-sufficient blockchains could be the future, along with those that dominate the crypto market.