Development of Blockchain Industry

SEED
SEED
Sep 3, 2018 · 5 min read

What on EARTH is Blockchain and how did the industry develop?

When Satoshi Nakamoto (identity still an outstanding mystery) released ‘Bitcoin: A Peer to Peer Electronic Cash System’ in 2008, this ‘white paper’ shook the world. The white paper explained Bitcoin as “purely peer-to-peer version of electronic cash”, without intermediaries such as banks or governments. Then, the technology called ‘Blockchain’ was introduced.

10 years have passed since. In 2018, we now know that we should approach Bitcoin, not with the slogan “it’s worse than gambling in stocks” but rather, focused on the Blockchain technology that lies on the basis of Bitcoin.

A lot of individuals and businesses are very well aware of the value of blockchain technology. This value was not awarded by some authority; rather, it was raised due to expectations and predictions that it will change the business paradigms, due to it’s highly secure nature, transferability (especially in terms of individuals in different countries), and it’s ability to protect privacy, eventually redistributing wealth and reconstruct the economy. Like the Internet, the blockchain technology will bring forth the 4th Industrial Revolution. So, since the introduction, how did the blockchain industry develop over the last 10 years?

The Birth of the Bitcoin and the Blockchain Tech

When someone discusses blockchain, one word that people cannot avoid saying is the word “Bitcoin”. After Nakamoto’s white paper was released, Bitcoin became “open-source” in 2009. Bitcoin and blockchain were perceived as one thing, a cryptocurrency; inseparable like the needle and the thread.

When people explain blockchain, they already seem to mention the phrase “an open, and decentralized ledger” as if that is a simple way to put it. It really isn’t. So what does that mean?

Let’s think of it like a transaction log that is open to public which is managed by everyone. No, let’s go simpler.

When one deposits or withdraws money from a bank, the bank enters a log in their ledger. For example, if I put $500 in my bank account, the bank will write in their ledger “Deposit: $500.00” under the section ‘Account Number: 010030040102’ which is allocated to me. If I return to the bank the next day, and ask to withdraw $250 from my $500 deposit yesterday, the bank goes back to the ledger section ‘Account Number: 010030040102’ and checks my balance to see if there is enough money in there for me to withdraw. If there is $500 from yesterday, they will write “Withdraw: $250; Balance: $250” and give me my $250. However, if there isn’t a log that says I deposited money or if there is a log that says I have withdrawn $500 already, then the bank will refuse to give me money.

Image 1: Who the Bank stores the Ledger, and related Security

Now the problem is that the bank is a central agency that collects and stores all transaction data (money going in and out) for extremely many people. This means that the ledger, once someone gets their hands on it, can be manipulated to create balances or remove them. Since ledgers are the core foundation of any monetary transactions, banks and financial institutions will go out of their way to secure it with any means necessary. After all, it is the foundation of their business. This is where all the security protocols such as biometrics like thumb, pupils and blood DNA validations, ID cards, deep underground servers surrounded by 8 inch titanium walls and 100 security guards on 24-hour patrols (from the movies!) come in. But again, as we already know, despite these over the top security systems from the movies, hackers can and will hack the security to get the grand prize of unforeseeable fortune at their fingertips. Just look at the two Canadian banks hacked in May! 90,000 customers just lost their money!

Image 2: How Blockchain Ledgers are ‘decentralized’, and related security

What blockchain tech does is that it changes the idea of security. Instead of one central agency(such as banks) having all the data, Bitcoin users hold and manage the ledgers together. Every users have a copy of the same ledger, and every 10 minutes, they meet up on the Peer-to-Peer(aka P2P) network to update the ledger with the transactions that occurred in last ten minutes. If there are missing or damaged entries on one ledger, it is fixed by copying other people’s ledgers. All of the transactions during the last 10 minutes are packed as a “block” and is added to the existing transaction logs. This new and updated ledger is now copied and shared. This chain of blocks, which is in other words, all the transaction log history from the creation of the first block, is the ledger we call a “blockchain”.

Image 3: 10 Minute Ledgers form a Block, and the whole Ledger is a chain of “blocks” forming a Blockchain

The Divorce of Blockchain and Bitcoin

There are still many people who remain confused with the Bitcoin and the blockchain, but they are very much different from each other. Sally Davies, the FT Techonology reporter explained the relationship as “Blockchain is to Bitcoin, what the internet is to email.” She goes on to explain that the blockchain is a “big electronic system, on top of which you can build applications. Currency is just one.”

People soon realized blockchain technology can be used for more than just cryptocurrencies and around 2014, many started exploring for ways to apply this technology in various other fields. Once entrepreneurs realized the power of blockchain, large investments and discoveries in application of blockchain in fields such as healthcare, transportation, and insurance followed.

The Rise of Alt Coins

Today we have explored the beginning of blockchain: how it started, what it is, and how Bitcoin is related to it. However, as explained briefly above, Bitcoin is not the alpha and omega of blockchain. In the next posting, I will return with topics such as Ethereum, Smart Contracts, and ICOs, so stay tuned!

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References

Gupta, Vinay. “A Breif History of Blockchain”, Harvard Business Review: Technology. https://hbr.org/2017/02/a-brief-history-of-blockchain

Marr, Bernard. “A Very Brief History Of Blockchain Technology Everyone Should Read”, Forbes, https://www.forbes.com/sites/bernardmarr/2018/02/16/a-very-brief-history-of-blockchain-technology-everyone-should-read/#30be03627bc4

Reiff, Nathan. “Blockchain Technology’s Three Generations”, Investopedia, https://www.investopedia.com/tech/blockchain-technologys-three-generations/

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