Blockchain Technology and How It Has Evolved Over the Past 20 Years
This is the first part of Ambo.io’s educational series. It’s geared toward educating those who are interested in crypto, but are new to the space and maybe don’t own any, about the power of the blockchain technology and cryptocurrencies.
What is blockchain?
We all hear about blockchain this, blockchain that, but what even is a blockchain? Looking back in time, the concept of blockchain was initially introduced in 1991 by researchers who described a ‘cryptographically secure chain of blocks.’ Many large crypto companies were created in the late ’90s but all of these companies died out and went unnoticed by the public. This all changed when Satoshi Nakamoto published his white paper in 2009: “Bitcoin: A Peer-to-Peer Electronic Cash System.”
A blockchain is like a ‘superpowered database.’ Let’s run through an example. Let’s say I, Jack, want to sell Jai one can of Coke for one can of Pepsi. Normally, an exchange like this would be recorded somewhere on paper, like a receipt. However, if this was a transaction occurring on the blockchain, that transaction would be recorded permanently on a digital ledger with a verifiable history — no paper receipts. When a transaction occurs on the blockchain, the record is checked by the entire network (comprised of many computers, also called nodes) to ensure the trade is valid. When the network verifies that the data is valid, these records are added to the block. Each block has an individual hash (an encrypted identifier for each transaction), and a way to recognize all of the other blocks. The block is comprised of the list of transactions for a given time period, the current hash, and the previous hash. This block, when full of transactions, is added to the blockchain, using those same hashes to verify the order. Since every block has each previous hash inside of it, it is nearly impossible to add in fraudulent transactions. The only way to do so would be to control a majority of the network’s nodes (at least 51%) to verify your own fraudulent transactions as real transactions — this is called a 51% attack.
Decentralization
This is another word that we hear so much, usually in conjunction with ‘blockchain.’ With databases, a central entity controls all the data. When you trust AWS (Amazon Web Services) with your data, that is a centralized database. However, the blockchain introduces the idea of a decentralized network. For example, if a horrific event happens in North America that takes the North American nodes offline, nodes on other continents will maintain access to the data through a distributed ledger.
Proof-of-work and Proof-of-stake
Without a singular authority in charge of the database, trust is a big problem. Since anyone can potentially add to these blockchains, there are tests that validate the transactions that want to join and edit the records on the ledger.
PoW, or proof-of-work, is a mechanism that requires a computer to ‘work’ for a reward of cryptocurrency. This ‘work’ takes the form of solving difficult cryptographic puzzles to validate transactions. The process of completing the work for this reward is called mining. This mechanism is currently employed by many cryptocurrencies, such as Ethereum and Bitcoin. However, there are issues with this method:
- Energy bills for miners are high because the hardware uses a lot of electricity to solve the cryptographic puzzles required to mine blocks.
- Miners are coming together in “mining pools” to combine the power of their high-performance computers to solve puzzles together, but this is a form of centralization, which is ironic considering the purpose of cryptocurrencies is decentralization.
These issues will only become more prevalent as blockchain becomes universal. For that reason, cryptographers are looking for an alternative. PoS, also known as proof-of-stake, allows participants to stake, or deposit, their tokens and join the network. The tokens that the miner locks up are a “security deposit.” The more you deposit, the higher the chances you will receive a reward from a validated transaction, as you are staking more money in the system to prove your reliability. This is the consensus algorithm that Ethereum is moving toward with the introduction of Ethereum 2.0.
What is Web 3.0?
With scandals like Facebook’s Cambridge Analytica, the mainstream audiences are finally beginning to see the issues with trusting a centralized authority to hold your data. Specifically, there are two issues with the current web technologies:
- People don’t have custody of their own information, but rely on a central server to store all of their important data.
- Corporations struggle to trade values and must find ways to profit from their services, like advertisements.
To combat these issues, people look to blockchain technology to try and find how they can build out a new web. Ethereum is one of the leading blockchains that is building out what developers are calling “web3.” On top of Ethereum, people are building products called dApps, which stands for decentralized apps. These decentralized apps require a backend on a decentralized network (built by smart contracts — a conversation for another day).
A good example of why we need decentralized applications is Google. Google, one of the biggest data behemoths, built Google Drive. This is a platform that was made to store people’s documents, photos, and tons of other personal information. As a centralized company, we can only predict the damage they can do with this data! A decentralized alternate for Google Drive called IPFS leverages the blockchain to allow people to store their files and remain in complete control of their own data.
What is Ambo?
Ambo’s overarching goal and vision has become ‘making web3 accessible,’ and one of the many paths is to educate our audiences. One of the other paths includes developing Ambo Wallet, which makes decentralized finance easy to access. We will be talking about decentralized finance in a later article. Expect many more of these articles and feel free to reach out if you have any suggestions!
