Solidity Edu Series
1. Historical Background of Blockchain
Starting for the very beginning, the purpose of the Solidity Edu Series is to provide a full overview of the blockchain ecosystem reaching the most up-to-date situation of the technology.
We are trying to keep it as short as possible so now is a great chance to follow the Series and get to know more about blockchain.
A very brief history of everything that is blockchain
A short walkthrough in blockchain history will help us understand how and why blockchain became such a hype word in recent years. It all started many decades ago…in a galaxy not so far away…
It all started with a chain of blocks
Stuart Haber and W. Scott Stornetta described the first system built upon a cryptographically secured chain of blocks in 1991. Their goal was to implement a system where the timestamps of documents could not be tampered with or be backdated. In 1992, Bayer, Haber and Stornetta further developed the system with the incorporation of Merkle trees to the design, which improved the efficiency by allowing several documents to be collected into one block. The other name of a Merkle tree is hash tree, as every leaf node on the tree is labelled with the hash code of every data block. This method enables an efficient and secure verification process of the contents of large data structures.
Blockchain, in the end, is a subcategory of distributed ledger systems (DLT), there are other types of distributed ledger systems and there are also different types of blockchains. Diverse distributed ledger technologies share a high level of immutability and security, the terms blockchain and distributed or decentralized ledger are often used interchangeably.
The classic blockchain is that of the Bitcoin — it was the very first blockchain to be implemented in practical use described by a person or group of people using the pseudonym Satoshi Nakamoto in 2008 in “Bitcoin: A Peer-to-Peer Electronic Cash System”. The software of the outlined cryptocurrency was released in the following year by Nakamoto and thus Bitcoin was born. Nakamoto has overcome the main issue with electronic, trustless peer-to-peer currencies: the effortless duplication and sharing of digital files. The blockchain technology operating with encryption, hash codes and blocks has enabled developers to overcome the “double spend problem”, that was not possible before without the overlook of third parties: banks, money transfer operators (like Western Union), internet payment companies (PayPal) and mobile network operators — who are accounting for that the money is only spent once in the respective electronic systems.
So, let’s try to define blockchain…
There is no generally approved definition of blockchain. Zhu and Zhou define it based on the work of Walport, Schatsky and Muraskin and Nakamoto as a distributed ledger recording technology that can record transactions in a secure, transparent, decentralized, efficient, and low-cost way originating with Bitcoin as a bottom-level technology.
The founder of the Ethereum Foundation, Vitalik Buterin defines blockchain from a less technical aspect, but including the capabilities, that his innovation with Ethereum has brought on:
“a blockchain is a magic computer that anyone can upload programs to and leave the programs to self-execute, where the current and all previous states of every program are always publicly visible, and which carries a very strong cryptoeconomically secured guarantee that programs running on the chain will continue to execute in exactly the way that the blockchain protocol specifies”.
In this less technical definition, Buterin does not refer to the terms ledger, money or transaction, often used in blockchain terminology. He focuses on the informational aspects and the process behind the technology. He leaves out the monetary and financial perspective; emphasizing that the blockchain is a technology that exists without the need for an underlying token. However, other experts argue, that the token or currency is an integral part of the incentive mechanism of the blockchain to maintain its security and move value; the blockchain and currency have an existential symbiotic relationship.
In Buterin’s definition, there is no linking to any specific consensus algorithm or defines the blockchain by its technical properties. Bitcoin was the first real-life application of the blockchain technology, but it is merely the first use case and application and not a definitional feature. Although 10 years have passed, which in technology is a long time, Bitcoin is still used as a common standard for comparison or as the fundamental unit, that other projects try to improve on. It is still the number one cryptocurrency and has the majority of the crypto market cap.
Okay, then what is distributed ledger technology
Distributed ledger technologies use specific consensus mechanisms to reach agreement in peer-to-peer networks over distributed data. Cryptographic techniques link and prevent changing the data stored on the ledger. Depending on the role of the ledger, they can be private or public. When a data enters the system it is denoted with a code called a hash that acts as identification, these are generated using mathematical formulas and these convert an input of any length into a fixed-sized string of letters and numbers. These hashes look very different from each other but can be verified with a simple process. However, it is practically impossible to find out what the original data input is if someone only has the hash of the data in their possession.
In the next post, we will define and discuss validation on the blockchain, consensus mechanisms — including permissioned and permissionless, such as proof-of-work, proof-of-stake, the voting mechanism and proof-of-importance.
If you are happened to be in Copenhagen at the 24th & 25th of January, we are offering a great opportunity to learn more about blockchain and smart contracts, so hope to see you there!
Sources:
(Merkle, R. C. (1988). “A Digital Signature Based on a Conventional Encryption Function”. Advances in Cryptology — CRYPTO ’87. Lecture Notes in Computer Science. 293. p. 369.)
Swanson, 2015
Allaire, 2015
Byrne, 2015
Zhu and Zhou (2016)
Walport (2016)
Schatsky and Muraskin (2015)
Nakamoto (2008)
Van Valkenburgh, 2017
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