Lately, just out of curiosity and interest, I’ve been reading a lot about crytocurrencies such as the established Bitcoin and the new kid on the block, Ethereum. Delving deeper into the subjects, I started reading more and more about the underlying technology known as the “blockchain” (SO HOT!). I’m a little late to the party, but this entry hopefully shares my understanding of the early evolution of blockchain. And so we begin…
Since the invention of the World Wide Web (or “the Web” as we know today) in 1989, the standard model used for the Web is the client-server model. This model revolves around the concept of information and processing logic being handled by a centralized infrastructure server where clients/users are all connected to it through the HTTP protocol. The client-server model has since matured greatly and has become the backbone of most application program interfaces (or APIs). However, having a centralized server infrastructure posed multiple complications one being the scaling efficiency. This lead to the creation of the peer-to-peer (p2p) model.
In this model, information is exchanged between “peers” (essentially, clients/users) without the need of a centralized server, although, the model being application specific. If you were born in the 90's, you might have been familiar with programs such as LimeWire, KaZaA, or, Napster. Before all the others, Napster was a music service which allowed the uploading and downloading of music files between users using the peer-to-peer model. The company was a pioneer in the file sharing internet service, but was shutdown a couple years later due to copyright issues. But that was only the beginning of p2p as technologies such as BitTorrent adopted the p2p model and allowed the transfer of larger files such as videos to be shared between peers.
Introduced in 2009, Bitcoin is a peer to peer application that allows the exchange of digital currency known as the “bitcoin.” Unlike fiat money, bitcoins are a digital currency in that they do not take a physical form like coin or paper, but instead are stored as bits and bytes on a computer. Attached to each bitcoin is the identity of the coin and of the owner. This is in contrast to fiat money where a currency is established as money by a body of government and is regulated by the same government. For example, the Canadian government manages how many to print to meet supply and demand aspects of basic economics. Interestingly, bitcoins circulate online and is controlled by the community of participants rather than a single government. In this matter, there is no central authority which regulates the flow of bitcoin, but rather, developers implement algorithms which define protocols and rules on how bitcoins get generated, used by the owners, and how transactions take place. And because Bitcoin is public and open-sourced, the rules are transparent to the users which allows the building of trust and to ensure that no one can take advantage of the system.
How Bitcoin transactions take place can be essentially simplified to the following:
- A user must convert fiat money into bitcoin (BTC)
- Owner uses his or her private key to spend bitcoins
- Bitcoin exchanges are visible to everyone on the network, similar to a public ledger
- Transfer/Spending of coins require a small fee. The fee is paid to “miners” who use their computers to offer computational validation of the transaction
Bitcoin was created by Satoshi Nakamoto, however, the cool part is that it is still unknown whether Satoshi Nakamoto is a real person or a group of persons just using this name. The name did not come up until in 2008, when Satoshi Nakamoto published a paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System.” And in this paper, Nakamoto conceptualized the term “blockchain” as a core component of the bitcoin currency.
I’ll leave it at there for now, but I’m thinking for my next article to go over the actual blockchain technology, kinda like blockchain 101. Until then, I’m back to reading. Stay tuned!