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Mastering BlockchainHistory – where do we start?

Blockchain was introduced with the invention of Bitcoin in 2008. Its practical implementation then occurred in 2009. Of course, both Blockchain and Bitcoin are very different, but you can’t tell the full story behind the history of Blockchain without starting with Bitcoin.

Electronic cash before Blockchain

The concept of electronic cash or digital currency is not new. Since the 1980s, e-cash protocols have existed based on a model proposed by David Chaum.

This is an extract from the new edition of Mastering Blockchain.

Just as you need to understand the concept of distributed systems is to properly understand Blockchain, you also need to understand electronic cash. This concept pre-dates Blockchain and Bitcoin, but without it, we would certainly not be where we are today.

Two fundamental e-cash system issues need to be addressed: accountability and anonymity.

Accountability is required to ensure that cash is spendable only once (double-spend problem) and that it can only be spent by its rightful owner. Double spend problem arises when same money can be spent twice. As it is quite easy to make copies of digital data, this becomes a big issue in digital currencies as you can make many copies of same digital cash.

Anonymity is required to protect users’ privacy. As with physical cash, it is almost impossible to trace back spending to the individual who actually paid the money.

David Chaum solved both of these problems during his work in the 1980s by using two cryptographic operations, namely blind signatures and secret sharing. Blind signatures allow for signing a document without actually seeing it, and secret sharing is a concept that enables the detection of double spending, that is using the same e-cash token twice (double spending).

In 2009, the first practical implementation of an electronic cash (e-cash) system named Bitcoin appeared. The term cryptocurrency emerged later. For the very first time, it solved the problem of distributed consensus in a trustless network. It used public key cryptography with a Proof of Work (PoW) mechanism to provide a secure, controlled, and decentralized method of minting digital currency. The key innovation was the idea of an ordered list of blocks composed of transactions and cryptographically secured by the PoW mechanism.

Other technologies that used something like a precursor to Bitcoin, include Merkle trees, hash functions, and hash chains.

Looking at all the technologies mentioned earlier and their relevant history, it is easy to see how concepts from electronic cash schemes and distributed systems were combined to create Bitcoin and what now is known as Blockchain. This concept can also be visualized with the help of the following diagram:

Blockchain network

Blockchain and Sakoshi Nakamoto

In 2008, a groundbreaking paper entitled Bitcoin: A Peer-to-Peer Electronic Cash System was written on the topic of peer-to-peer electronic cash under the pseudonym Satoshi Nakamoto. It introduced the term chain of blocks.

No one knows the actual identity of Satoshi Nakamoto. After introducing Bitcoin in 2009, he remained active in the Bitcoin developer community until 2011. He then handed over Bitcoin development to its core developers and simply disappeared. Since then, there has been no communication from him whatsoever, and his existence and identity are shrouded in mystery. The term chain of blocks evolved over the years into the word Blockchain.

Since that point, the history of Blockchain is really the history of its application in different industries. The most notable area is unsurprisingly within finance. Blockchain has been shown to improve the speed and security of financial transactions. While it hasn’t yet become embedded in the mainstream of the financial sector, it surely only remains a matter of time before it begins to take hold.

How it has evolved in recent years

In Blockchain: Blueprint for a New Economy, Melanie Swann identifies three different tiers of Blockchain. These three tiers all showcase how Blockchain is currently evolving. It’s worth noting that these various tiers or versions aren’t simple chronological points in the history of Blockchain. The lines between each are blurred, and it ultimately depends on how Blockchain technology is being applied that different features and capabilities will be appear.

  1. Blockchain 1.0: This tier was introduced with the invention of Bitcoin, and it is primarily used for cryptocurrencies. Also, as Bitcoin was the first implementation of cryptocurrencies, it makes sense to categorize this first generation of Blockchain technology to include only cryptographic currencies. All alternative cryptocurrencies, as well as Bitcoin, fall into this category. It includes core applications such as payments and applications. This generation started in 2009 when Bitcoin was released and ended in early 2010.
  2. Blockchain 2.0: This second Blockchain generation is used by financial services and smart contracts. This tier includes various financial assets, such as derivatives, options, swaps, and bonds. Applications that go beyond currency, finance, and markets are incorporated at this tier. Ethereum, Hyperledger, and other newer Blockchain platforms are considered part of Blockchain 2.0. This generation started when ideas related to using blockchain for other purposes started to emerge in 2010.
  3. Blockchain 3.0: This third Blockchain generation is used to implement applications beyond the financial services industry and is used in government, health, media, the arts, and justice. Again, as in Blockchain 2.0, Ethereum, Hyperledger, and newer blockchains with the ability to code smart contracts are considered part of this blockchain technology tier. This generation of Blockchain emerged around 2012 when multiple applications of Blockchain technology in different industries were researched.
  4. Blockchain X.0: This generation represents a vision of Blockchain singularity where one day there will be a public Blockchain service available that anyone can use just like the Google search engine. It will provide services for all realms of society. It will be a public and open distributed ledger with general-purpose rational agents (Machina economicus) running on a Blockchain, making decisions, and interacting with other intelligent autonomous agents on behalf of people, and regulated by code instead of law or paper contracts. This does not mean that law and contracts will disappear, instead, law and contracts will be implementable in code.

Like any history, this history of Blockchain isn’t exhaustive. But it does hopefully give you an idea of how it has developed to where we are today.

Check out this tutorial to write your first Blockchain program.


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