Updated On : Mar-30,2022 Tags blockchain, history
The Brief History Of Blockchain Technology

The Brief History Of Blockchain Technology

In the modern technological era, every single thing is transforming itself into a digital model. But with digitization, there is an increase in the popularity of cryptocurrencies. You might be familiar with the buzzwords Bitcoin, Ethereum, Blockchain, and many other terms. As I said, most of us are just familiar with the words or terms and not the actual concept. Many people would have suggested you start investing in cryptocurrencies (Bitcoin) and earn millions. But unless you know what it is and how it will impact your financial status, you won’t invest in cryptocurrencies. For understanding cryptocurrencies, you will have to dig a little deeper and understand the technology on which cryptocurrencies work.

Blockchain technology is the key aspect and intrinsic part of cryptocurrencies. With the support of blockchain technology, you would be able to transfer cryptocurrencies from one to another. The block will maintain the record of each and every transaction. If we want to know more about blockchain technology, it will start with Bitcoin.

It is because Bitcoin was the first technological innovation or practical implementation of blockchain technology. In the earlier days, Bitcoin was considered just a token that you could use for smaller transactions. But in today’s society, Bitcoin is by and far accepted as an authentic digital currency/cryptocurrency. Blockchain technology is not limited to the implementation of Bitcoin. Blockchain technology has extended to insurance, supply chains, healthcare, voting, transportation, and more.

Blockchain Technology In the 90s.

Blockchain technology is not something that came recently and became popular all of a sudden. It was the most researched topic since the early 90s. The Blockchain was used as a database structure to store documents and hashes. But today, blockchain technology has paved the path for trust in the digital world. When everything is online, maintaining data privacy becomes difficult. That is where Blockchain technology comes in. Blockchain technology is the foundation of digital trust. The users focusing on the application of blockchain technology can transfer value and information without relying on a central intermediary.

Do you want to learn more about blockchain technology and its applications? If yes, then you would have to start by understanding the history of blockchain and what lead it to cryptocurrencies. The historical aspect will make you understand the potential of digital trust across businesses and organizations.

Knowing About Inventor Of Blockchain

Blockchain technology surfaced in the year 2009 with the launch of a cryptocurrency - Bitcoin. Bitcoin and its underlying technology, Blockchain was made public when it was published in the Whitepaper by Satoshi Nakamoto (a pseudonym for the creators of Bitcoin). If you traceback path of the blockchain technology, you would find that there is no single blockchain inventor. It was in the year 1991, cryptographer W Scott Stornetta and physicist Stuart Haber provided information in a research paper regarding digital document time-stamping.

What Information Was Provided In The Research Paper - “How to time-stamp a digital document”?

  • The research paper by the experts referred to the immutability aspect of digital documents and records with the implementation of Time-Stamping Service (TSS).

  • Time-Stamping Service embraces hash functionality and digital signatures to improve the verification process and identify the originality of a specific document.

  • All the documents or digital records are connected to each other in the form of a chain. This chain generates a time sequence that in turn helps in the verification of time stamps associated with each document.

  • The concept of digital records or documents with a time sequence was used by Nick Szabo. It was the simplest version of blockchain that introduced Bit Gold. It was the earliest version of a digital currency.

Nick Szabo was a computer scientist who started focussing on the implementation of decentralized currency in the year 1998. He called this decentralized currency ‘Bit Gold’. Through the publishing of the Whitepaper, the scientist introduced the concept of time-stamped hash chain (hash chain is also called the blockchain). This could help in resolving the issue of “Double Spending”. You might be thinking what is double-spending. Well, we will discuss it later in the article.

The earlier version of Proof-Of-Work was resolved by Hashcash. It could be used in limiting spam on internet forums and emails.

With the powerful Bit Gold introduction, the concept of value-based cost for computational resources became popular. The scientist calculated the value of the ‘bits’ using a complex mathematical equation. The bits get stored in blocks and formed a chain. The value of the bits is correlated with the cost of their computation.

But the idea or concept of Bit Gold didn't seem to attract the attention of the target audience. In simple terms, the Bit Gold concept was wonderful but it didn’t materialize the way scientists expected it to be. There was a shortcoming of the Bit Gold. The limitation was the correlation between the actual value of Bit Gold and its computational cost. This limitation was overcome by Bitcoin.

How Bitcoin Is Different From Bit Gold?

The expert Satoshi Nakamoto overcome the limitation of Bit Gold by segregating the value of Bitcoin from its computation cost. It was left to the market to determine the value of the Bitcoin.

Why Do You Think Value Was Segregated From The Computational Cost Of Bitcoin?

When the value of Bitcoin is correlated with the computational cost, it will lead to discrepancies in the network. One Bitcoin may have a higher value and another may have a lower value. The changes in the values will be due to the underlying computation cost.

You can understand this by the fact that mining a single Bitcoin in today’s time will have the same value as that in the year 2010 (when it was first mined). This is because the Bitcoin value and computational costs are not correlated.

If you correlate the value of Bitcoin with its computation cost, Bitcoin would be cheaper in the year 2010 as compared to now. It happens because the computational cost of Bitcoin was lower in the early days.

In the year 2000, Stefan Konst did further research on the topic and proposed to make the blockchains more secur and safe with cryptography. He published a research paper “Secure Log Files Based on Cryptographically Concatenated Entries”. The research paper depicted a model that could in tracing back the entries included in a single block. The traceback could be from the genesis to prove the authenticity. This model was adopted by all the cryptocurrencies including Bitcoin that we see today.

In the year 2008-9, Satoshi Nakamoto curated all the ideas of distributed ledger, and cryptographic functions and released them in the whitepaper of Bitcoin. Bitcoin was the most practical use case for blockchain. Now that you have understood the basic history of the Blockchain, let’s understand the Protocol on which it works.

What Do You Mean By A Blockchain Protocol?

A blockchain protocol is a perfect blend or combination of blockchain technology along with other important parameters. These parameters include the network, governance, and consensus mechanism. Blockchain refers to the distributed ledger where you can store the stored data in a hash chain. The blockchain protocol is slightly different. I assume that you already know about the TCP and IP protocols. Just like that, the blockchain has different layers. You can also call it the technology stack.

Do you remember why TCP/IP was used? It was used for bilateral messaging for emails through the network. TCP/IP is based on the communication protocol that improves the speed and effectiveness of message transfer. TCP/IP enables effective communication whereas Blockchain enables the exchange of values and information. You can draw several parallels between the TCP/IP to enhance the efficiency of the protocol. Similarly, you can do it in the Blockchain protocol.

It was Joel Monegro who introduced a fat protocol theory to understand the value capturing of the blockchains through the protocol.

What Is The ‘Fat Protocol Thesis By Joel Monegro?

  • The ‘Fat Protocol’ explains that TCP/IP protocol is ‘thin’ with multiple ‘fat’ applications. In this layer, most of the information is encapsulated in the Application layer.

  • The blockchain protocol is ‘fat’ with multiple ‘thin’ applications. The values in the blockchain are captured in the protocol layer. The information captured is the real value.

  • The value captured by the Blockchain protocol will concentrate at the protocol level because of the shared data layer and economic incentivization with a unit of value (coin or a token).

  • As you know Blockchain technology does not have any centralized system. It aims to use decentralized ledgers. Therefore, the blockchain data will not be limited to centralized applications and is available to everyone.

  • When the availability of data on all the shared ledgers paved the path for innovation.

  • Every new participant in the Blockchain ecosystem can benefit from the available data. You have the opportunity to build competitive applications and reduce the entry barriers.

History Of Blockchain Consensus

The consensus mechanism is the intrinsic part of blockchain technology. It plays a vital role when you want to maintain the global state of the blockchain. It is also important for establishing finality through digital trust.

With finality and digital trust, you can guarantee the security of all the transactions. The transactions become immutable and part of the blockchain. The consensus mechanism was the helping hand that resolved the major issue of double-spending. The Blockchain protocol will focus on the verification of each transaction through the genesis block. The step ensures that the data that enters the block is immutable.

What Do You Mean By ‘Double Spending’?

Double Spending specifically refers to the glitch in the initial version of the digital case/currency system. The glitch of ‘Double spending’ was that a user can spend a single digital coin more than once.

For instance, if you go to the grocery market to buy bread. You are giving a 5 or 10 dollar bill to the vendor and get the bread. You can spend your 10 dollar bill only once. This is the right system of money exchange. Even if you are using digital platforms to pay the money, the money will be deducted from the account. You cannot use the spent money again for other things.

In the case of digital currency, there is no centralized system that ensures the authenticity of the process. The digital currency is based on a decentralized system. It was difficult to track the transactions of the digital currency and it led to the situation called “Double Spending”. But not anymore. With the help of a consensus mechanism, you can eliminate the occurrence of double-spending. Now, you can use the genesis of the block to track the ownership and all the transactions. The blocks will contain all the important records of the transactions along with the identity of the block.

Hashcash was the first version of the consensus mechanism. It was the inspiration behind Bitcoin’s Proof-of-Work model. People considered Hashcash as the brainchild of Adam Back. Adam Back is one of the greatest British cryptographers and cypherpunk. Earlier, the hashcash was limited only to the detection of spam on emails and blocking them. It was in the early days of internet forums.

Through his research work, Adam Back proposed a perfect solution for spam emails. The paper was published in the year 2002 and stated about a computational complex mathematical equation. He called this method the Proof-of-Work.

The Proof Of Work method could be used to reduce spam messages b more than 50 percent. This Proof Of Work was effective n preventing spam emails. Satoshi Nakamoto was smart enough to use the same approach for Bitcoin’s Proof-of-Work model. But he made the model more sophisticated as Bitcoin is a digital currency.

Proof of Work - Bitcoin Model:

Satoshi Nakamoto was the one to combine the Proof-of-Work concept (Hashcash) with an efficient blockchain in order to create a global and immutable distributed ledger - Bitcoin.

If you consider Bitcoin’s Proof-of-Work consensus algorithm, it is more sophisticated than the actual Proof of Work method. To obtain Bitcoin, the miners have to solve a complex mathematical equation using specialized hardware. The equation is very hard to compute but easy to verify.

The best part of mining Bitcoin is that, if the miner is able to solve the complex mathematical equation, they can get a few Bitcoins in return. But only on a condition that the entire network must verify the answer of the equation.

Proof-of-Work is not just a de-facto consensus mechanism used in Bitcoin. It is currently being used in Ethereum, Litecoin, Dogecoin, and others.

What Is Meant By Proof of Stake?

Proof Of Stake is another consensus mechanism that most of the blockchain protocols we use today. Ethereum, the second-largest network that uses the Proof-of-Work consensus mechanism, will also move to Proof-of-Stake in the upcoming Ethereum 2.0 upgrade.

In the Proof-of-Work consensus mechanism, you are spending resources. The resources can be electricity, equipment, and computing power. All these resources are used to solve the equation. In the Proof-of-Stake consensus mechanism, you buy a ‘stake’ in the network. For buying the stake, you can deposit some of your token/coins to become a validator.

If anyone buying a stake acts maliciously, their state in the network will be demolished. In simple words, with your malicious activities, you might lose all the funds for the penalty.

Proof-of-Stake follows that similar incentive model as that of Proof Of Work. If you are able to solve the complex mathematical equation, you will be rewarded with a few Bitcoins. Through the incentives, you can get block rewards, transactions fees, or both.

Proof-of-Stake concept uses different variants, one of which is Delegated Proof of Stake (DPoS). DPoS deals with the ‘delegates’. These delegates are elected by a voting process among the users who have a stake in the network. If you do not have a stake in the system, you can’t be part of the elective system. The delegates are responsible for block production and finality. If a delegate acts maliciously, users can vote him out and assign another delegate.

Proof-of-Stake is considered better in terms of throughput. The Proof Of Stake Method has better throughput than the Proof Of Work. It is because you don’t have to rely on physical resources or high infrastructure costs, which also makes them more environmentally friendly.

Besides, there are many recent consensuses such as Proof Of History, Proof of Authority, Proof of Burn, and many more that support enhancing the functionality and achieving consensus and finality on the blockchain.

Conclusion

Blockchain technology was made public in the year Jan 2009 with Bitcoin. It is offering a decentralized, borderless, permissionless, and trustless exchange of value without any bank or a central intermediary. Blockchain technology with digital currencies floating around will disrupt currency. Right now, it is focusing on building ‘digital trust’.

Blockchain is the new form of internet 2.0 and money 2.0!

Dolly Solanki Dolly Solanki

 Want to Share Your Views? Have Any Suggestions?

If you want to

  • provide some suggestions on topic
  • share your views
  • include some details in tutorial
  • suggest some new topics on which we should create tutorials/blogs
Please feel free to let us know in the comments section below (Guest Comments are allowed). We appreciate and value your feedbacks.

If you like our work please give a thumbs-up to our article in the comments section below. You can also support us with a small contribution by clicking on Support Us link in the footer section.