Blockchain: The Origination Story

Or: What is Bitcoin and Why Should I Care?

Published in

Blockchain2Go

7 min readOct 20, 2018

To answer what is Blockchain, we have to go back to why we’ve heard of it, and why we care in the first place, and that is Bitcoin. If you want to know which was first — the chicken or the egg — the answer is, Bitcoin.

Bitcoin was the first implementation of a Blockchain. To understand what a Blockchain is, and everything that has come about since Bitcoin, you need to first understand Bitcoin. It’ll just take a minute.

SIDEBAR: The Confusion

Since the big Bitcoin boom in late 2017, most people have heard of Bitcoin and equate it with Blockchain. Or maybe a hacker demanded Bitcoin from someone you know to release their files, and you think that’s Blockchain. Blockchain and Bitcoin often get confused or associated with dark money — I’ll address those issues as we go. But for now, FORGET all of the confusing things you’ve heard. IGNORE that stuff. Start with the basics.

The Origination Story.

An unknown entity named Satoshi Nakamoto (could be a woman, a man, or group of people, so I’ll go with group: they-them) wrote a white paper laying out a process for parties to make secure digital payments via the internet without a middle man, AKA Bitcoin. Lots of people had tried to make this work before — maybe you’ve used PayPal? But this was different. It was a blueprint to do this without a bank. No credit cards. No PayPal. I’ll walk through how it works and what made it different in a bit, let’s first walk through some concepts that might be preventing you from learning about Blockchain or Bitcoin.

Digital Money.

You already use it today — you use credit cards, debit cards, and mobile pay. If you’re like me, you use it more often than you use cash. It seems easy enough. You pay the retailer with a card, you get your stuff immediately.

BUT there are actually a number of parties involved, and it takes a while before the retailer gets their money. Think about it: there’s you, your bank, your credit card company, a third-party intermediary, the retailer’s bank, and the retailer. They all run around trying to verify that you are you, you spent the money, you have the money to spend, you received the goods, and the money should go to the retailer.

Security (or lack thereof).

AND our credit card information gets hacked a lot. It’s not really secure. I pay $4.95 a month for a service to alert me when new credit card accounts are opened in my name. My credit card company alerts me when my credit card is used for online purchases, in another city, or over a $ amount. Then I spend a lot of time on the phone to determine if I need to replace a card or close a bogus account. This system is broken. And we spend a lot of our time fixing it.

Bitcoin.

Bitcoin solves for our broken system by allowing two people to securely exchange money over the internet directly. So why is it so confusing? Because once you enter the world of Blockchain, EVERYTHING is different. Different structures, different terms, different ways of doing things. It all started with the white paper by Satoshi Nakamoto.

Following is a brief outline of how it works and why it’s ok to trust it:

I send you Bitcoin from my wallet to your wallet. (exactly how will be covered in another post)

Each wallet has a Public Key and a Private Key. Think of it like a PO Box at the post office.
The Public Key is like a PO Box address that everyone can see.
The Private Key is like your key to the PO Box. Only you have it, in your hand, and only the person holding the key can open the PO Box to get the coin that’s inside.
This transaction is kept on a public ledger (think spreadsheet) that only shows the Public Keys (think public PO Box). So, it’s Transparent — everyone can see it and verify it, and Private — everyone can see the Public Key/PO Box address, but there’s NO name attached to it.
The transaction uses a verified CryptoCoin in your Wallet. If you get change from the transaction, your original CryptoCoin is “destroyed” and a new coin for the change is issued. So, you can only spend the coin once. This ensures that you don’t spend money you don’t have (Double Spending is not an option in Bitcoin).

THIS IS IMPORTANT: The spreadsheet (ledger) CANNOT be edited or changed. You can only ADD transactions. It is, for all intents and purposes, impossible to hack in and change this ledger. (You will hear this referenced as an IMMUTABLR LEDGER, that’s what they’re talking about.)

How is that possible?

Copies of the ledger are kept on several other computers all at once (Nodes), this is why you might hear it described as a Distributed Ledger. The Nodes are owned by Miners (people who “mine for bitcoin”), and they all have to agree (come to Consensus) that they are all showing the same transactions. There are lots of Nodes with lots of owners/Miners making this a Decentralized network — making it even harder for a single transaction to be changed because all of these Miners would have to agree on this change.

But there’s more to the security than a bunch of Miners agreeing to a change.

A group of transactions are gathered every 10 minutes. That group is called a Block (the BLOCK in Blockchain).
The SECURITY is in the magic of a cryptographic Hash. Each Miner is trying to solve a puzzle every 10 minutes. The puzzle answer is called a Nonce and it produces a unique Cryptographic Hash. The puzzle problem includes information like the address of who sent the bitcoin and the address that received it, the amount of bitcoin in the transaction, and the timestamp. If you change any one of those inputs — sender, receiver, bitcoin amount, timestamp — it changes the puzzle answer.
More SECURITY — the CHAIN in Blockchain. There is a new Block every 10 minutes, 6 every hour. Makes sense, right? The puzzle answer (the Nonce) doesn’t just include the inputs of the senders, receivers, bitcoin amounts, and timestamp of this block, it also includes the answer/Nonce from the previous 10-minute block as an input. If you change any of the inputs, that changes the answer/Nonce. So, you can’t change anything in any previous Block without changing everything after that. That makes each BLOCK in the CHAIN dependent on the previous BLOCK.
Now, let’s say Miner #1 decides to go ahead and change a transaction in a Block. One of the many Miners in this Decentralized network now has a different set of answers to all the puzzles starting with the block where the change was made. Miner #1 is in disagreement with the rest of the Miners, and the Consensus is that Miner #1 is wrong. Miner #1’s blockchain is ignored and not included in the Consensus Blockchain. Thus, you have an Immutable Ledger.

Wow. Satoshi Nakamoto came up with all of this? Nope. None of this is new.

The concepts surrounding cryptology, digital money, smart contracts and secure ledgers all existed before Satoshi Nakamoto wrote a white paper. (Smart Contracts comes later, after Bitcoin, and will be covered in another post, but the concept has been around since 1994.)

This is what was new:

COMBINING all these concepts into a working Decentralized Immutable Ledger over a Decentralized network using Dependent Cryptographic Hashes that create a Blockchain of Transparent transactions that cannot be Double Spent.

There are still some kinks to work out:

If you send your bitcoin to an incorrect address, the coin is gone.
If you lose your Private Key, your access to the coin is gone.
Or, if someone else gets your Private Key, they can open up your “PO Box”/Wallet and take your coin.

Blockchain isn’t user friendly yet. And, schemers are around trying to get into your Crypto Wallet just like they’re trying to get into your credit cards and bank accounts. This new system isn’t foolproof…yet.

BUT, the possibilities of this new system of transactions is transformative. And the developments that have already come from expanding and improving Blockchain technology are leading to efficiencies in lots of different industries, not just money transactions/FinTech. AND that’s why you’ll keep hearing about it.