The Brief, Brief History of Blockchain!

Idea from Stuart Haber and W. Scott Stornetta -1991

Photo by Parrish Freeman on Unsplash

Although the concept of a blockchain was first fully actualized in Satoshi Nakamoto’s Bitcoin Whitepaper, the underlying component technologies draw from years of research across cryptography, computing, and economics. In this section, we will uncover some of this history.

We start with the idea of centralization. Centralization, or control by a single authority or entity, is a common and pervasive form of governance. Governance refers to principles of organization and power. We must trust central authorities, like banks, governments, and other institutions to maintain order and structure within the space they operate. This trust is broken when the central authorities can not claim that order and structure. For example, if your credit card information is stolen from the database of a bank you transact with, the centralization of your information in this bank has been used against you. Centralized technology and data allow for the monopolization of power and create a security risk.

The problems with centralization came to a head during the global financial crisis of 2007–2008. On October 31, 2008, in the midst of the financial crisis, Satoshi Nakamoto (an alias for a still unidentified individual or group of individuals) published the Bitcoin Whitepaper, titled Bitcoin: A Peer-to-Peer Electronic Cash System. This paper described a way of exchanging a currency, Bitcoin, that combines cryptography, computer science, and game theory in its design and implementation. Satoshi’s creation enabled a participant to digitally transact directly with another participant without relying on a single, centralized intermediary, such as a bank, to validate the payments. When we say peer-to-peer, we describe a transaction directly from one entity to another. There is no intermediary the transaction has to pass through. For example, if you schedule a payment via a banking app on your phone to a friend of yours, the actual flow of money goes from an account controlled by your bank to an account controlled by your friend’s bank. If your friend does not have a bank account, you could send the money from your bank to a third party, like a money transfer company, where your friend could pick up the payment. Even if you withdrew the money from the bank and mailed it to your friend, you would need to have an address to send it to and rely on the security of your postal service to get the money there safely.

Bitcoin attracted attention for its ability to allow for peer-to-peer transactions without a centralized intermediary. Technologists were drawn to the blockchain, the underlying component technologies on which Bitcoin operates. To introduce you to the concept, a blockchain is a decentralized ledger that records transactions or activity between two participants permanently with verification. This verification comes in the form of reviewing cryptographic functions and timestamps. Transactions can be verified on multiple computers, which are referred to as nodes. This makes the blockchain decentralized and transparent. Blockchain technology can be uncoupled from the Bitcoin protocol and can be used for many other kinds of cryptocurrencies. It can also be applied across industries to a variety of use cases, specifically records of ownership tracking and management (often referred to as provenance), creative rights management, patient records, etc.

With the surge of attention to the Bitcoin codebase and white paper, Vitalik Buterin, a contributor to the community, saw some limitations in the design of Bitcoin and began designing an open-source protocol starting in late 2013, now known as Ethereum. Ethereum also operates on a blockchain, but Ethereum adds features that extend the features of Bitcoin and the bitcoin blockchain.

That’s all for today. Keep learning, keep growing…