Technology Security Analyst
A blockchain is a distributed database that is shared among the nodes of a computer network. As a database, a blockchain stores information electronically in digital format. Blockchains are best known for their crucial role in cryptocurrency systems, such as Bitcoin, for maintaining a secure and decentralized record of transactions. The innovation with a blockchain is that it guarantees the fidelity and security of a record of data and generates trust without the need for a trusted third party.
One key difference between a typical database and a blockchain is how the data is structured. A blockchain collects information together in groups, known as blocks, that hold sets of information. Blocks have certain storage capacities and, when filled, are closed and linked to the previously filled block, forming a chain of data known as the blockchain. All new information that follows that freshly added block is compiled into a newly formed block that will then also be added to the chain once filled.
A database usually structures its data into tables, whereas a blockchain, like its name implies, structures its data into chunks (blocks) that are strung together. This data structure inherently makes an irreversible timeline of data when implemented in a decentralized nature. When a block is filled, it is set in stone and becomes a part of this timeline. Each block in the chain is given an exact time stamp when it is added to the chain.
Stuart Haber and W. Scott Stornetta introduced the earliest example of a cryptographically secured and time-stamped ledger in 1991. Although it received minimal fanfare, the creation of a digital ledger with time-stamped entries that you couldn’t backdate was revolutionary at the time.
The following year, Haber and Stornetta incorporated Merkle trees, a hierarchical system that improves efficiency by collating several hundred documents into a single block. Although the term blockchain didn't exist yet, its name would eventually derive from this design.
In 1997, British cryptographer Adam Back proposed Hashcash, a proof-of-work system designed to tackle email spam and Denial-of-Service (DoS) attacks.2 Developers later incorporated it into early blockchains as a consensus method.
In 1998, American computer scientist and cryptographer Nick Szabo began work on a digital currency project called 'Bit gold'. The design involved a network of computers, each with their own unique digital identity competing to solve a complex cryptographic puzzle. The solution would create a time-stamped digital entry assigned to the winner and added to a public ledger.
Each entry required validation from all participants before they could attempt the next puzzle.
In this way, Szabo created an autonomous and secure method of attributing digitized value in the form of a ledger entry that you couldn’t copy or alter without backward engineering the entire chain. Although never implemented, we could consider ‘bit gold’ as the first iteration of Bitcoin since the design is almost identical. For this reason, many people believe that Nick Szabo created Bitcoin under the pseudonym Satoshi Nakamoto, although he has always denied the claim.3
In the year 2000, German software developer Stefan Konst published a theory that improved upon the early foundations of blockchain, detailing a method of implementing cryptographically secured chains.4
In 2004, British computer scientist Hal Finney introduced a consensus method called Reusable Proof of Work (RPoW) that exchanges a non-fungible Hashcash token for an RSA-signed token.5 RPoW made token distribution possible while solving the double-spend problem and laid the groundwork for modern cryptocurrencies.6
A pseudonymous person (or group) by the name Satoshi Nakamoto releases the whitepaper "Bitcoin: A peer-to-peer electronic cash system."7 Similar to Szabo's 'bit gold' and utilizing Finney's Hashcash design, it describes a method of creating and transferring digital 'cash' with no third-party intermediary.
The paper outlines the use of a decentralized network of nodes to verify transactions with a PoW consensus method. 'Miners' provide computing power to secure the network, receiving Bitcoin rewards for their contribution. Security comes in the form of hashing power created by pitting miners against each other in a race to solve a cryptographic puzzle and receive a 'block reward'.
On January 3, 2009, Bitcoin went live when Satoshi Nakamoto mined the first Bitcoin block, creating a 50 Bitcoin (BTC) reward. Within the code of the block, Nakamoto hid a newspaper headline from that day: "The Times 03/Jan/2009 Chancellor on the brink of second bailout for banks." The message references the controversial bailouts intended to save banks from the 2008 financial crisis, suggesting Bitcoin may be a solution to a broken global economy.
On January 12, Nakamoto sent 10 BTC to Hal Finney in the first-ever Bitcoin transaction. Evidence suggests that Hal Finney may have been the real Satoshi, but we may never know since he died in 2014.8
In 2013, Canadian programmer Vitalik Buterin created Ethereum, a blockchain with the added functionality of Smart Contracts that can be programmed to execute only if specific criteria are met. Smart Contracts were first envisioned by Nick Szabo back in 1998 but were never put into practice. Their inclusion led to the development of decentralized applications (dApps) and the birth of Blockchain 2.0.
From 2014, developers from large corporations like IBM began experimenting with blockchain in other applications besides cryptocurrencies, like supply chain, identity management and automation.9 More and more companies started using Smart Contracts to secure, track and execute a range of financial instruments, from property rights to automated trades.
In 2015, several major financial institutions created the R3 Consortium to further investigate the benefits of blockchain.10
From 2016, companies began implementing private, permissioned blockchains to facilitate office and administrative tasks.
We are right now moving into the third period of blockchain's development, where versatility enhancements will ideally result in blockchain networks that can more readily uphold mass reception.
In spite of striking development, blockchain stays in its early stages, practically identical to the Internet of the mid 90s. We will likely see tremendous upgrades throughout the next few years that will predominate our present comprehension of what this extraordinary innovation can offer. A few potential applications previously becoming exposed include:
Blockchain can offer considerable benefits to artists, musicians and producers by redirecting profits back to the content creators and cutting out costly intermediaries. The tokenization of content on a blockchain makes it easy for users to directly support their favorite artists with no need for centralized management.
The decentralized and autonomous nature of blockchain makes it possible for owners of independent and renewable energy sources to sell excess energy back to a public grid. Rather than rely on a centralized energy supplier or suffer the inefficiency of independent power, a network of users could share renewable energy efficiently without costly third-party administration.
Current healthcare computer systems are antiquated and ineffective, stifling the ability to share vital information that could save lives. Blockchain provides the perfect solution for a secure, immutable and globally accessible database of healthcare records.
There is a seemingly endless number of industries that blockchain has the potential to transform, from banking and cybersecurity to social media, messaging and even AI.11 Some more popular blockchain-based trends include decentralized finance (DeFi), network interoperability, Blockchain as a Service (BaaS) and the Internet of Things (IoT).12
No longer just a buzzword used by companies to improve their search results, blockchain is unquestionably one of the most important inventions of the early 21st century. One thing is for sure: what we know so far is just the tip of the iceberg and there is much, much more to come.
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