Blockchain 101

CryptoRow

Who & When

(Who & When work best when done together)

There are many ‘Who’s’ and ‘Whens’ that we need to answer. Who designed the blockchain? Who can use it? When did it become available? Who can edit it? While there are many more important ‘who’ and ‘when’ questions, we’re gonna stick to the most basic right now.

(If you’ve already read our cryptocurrency 101’s, you may notice that there’s some of the same information below. That’s because the same person/people who invented cryptocurrency also invented blockchain! Though I still wouldn’t recommend skipping this section.)

Unfortunately, it’s nearly impossible to talk about blockchain technology without mentioning cryptocurrencies. Because of this, you’re going to be receiving a history lesson on a bit of both in the following.

The 90’s; The Need

Way back in the decade of the 90’s, two men named W. Scott Stornetta & Stuart Haber had an idea. They wanted to create a system that secured a digital time-stamp on a document so it couldn’t be altered later. Their paper is entitled ‘How to Time-Stamp a Digital Document’. This paper is considered the first known written evidence regarding the use of using hash functions to secure cryptographic blocks. Specifically, they state in the paper that the blocks created are a ‘family of cryptographically secure collision-free hash functions’. These are known as ‘hash trees’.

Later on in the 90’s, a few software geeks conjured the idea of creating a decentralized electronic banking system. One of these proposed systems was B-money. The problem they came across during the creation is that they couldn’t figure out a way to verify transactions without a central authority, like a bank or server.

Traditionally a central authority (like a bank or server) is responsible for keeping a ledger of all transactions that occur. These central authority ledgers make it possible for traditional banking systems to verify that no double spending is occurring with a transaction.

Unfortunately during the 90’s no one was able to figure out how to decentralize the financial exchange system. Almost everybody deemed the dream of decentralized banking an impossibility and resumed their daily lives. B-money was never finished.

The Creation

In 2008, Satoshi Nakamoto (the name given to mystical unknown inventor or inventors of Bitcoin [some people believe it was one guy, some people think it was a team of people]) posted the white paper for Bitcoin entitled ‘Bitcoin: A Peer-to-Peer Electronic Cash System’ in an online forum. The paper proposed a decentralized banking system that revolved around a verification system called the block chain.

In the original Bitcoin white paper Nakamoto referred to his creation as the ‘block chain’. It wasn’t until 2016 that it became common to refer to it as one word: ‘blockchain’.

What was so revolutionary about this proposed blockchain system, is that it solved the central authority problem. With blockchain technologies we are completely capable of bypassing the need for one server, one bank, or any one central authority to hold a ledger of transactions. Nakamoto managed to do this through the combination of the two 90’s projects. He solved the virtual currency problem with the cryptographic hash function used to verify time-stamps. In essence he created a unhackable ledger, a ledger where no one could change something that’s happened in the past.

Since the blockchain system is verified using math instead of a person or any other hackable authority, statistically you’re more likely to win the lottery 10 times than a blockchain block is to be compromised.

The Installation

In 2009 Satoshi Nakamoto released the first ever cryptocurrency, commonly known as Bitcoin. Shortly after Bitcoins release, Bitcoin’s blockchain software became public and its mining began.

When a Bitcoin transaction occurs, the information is recorded in a cryptographic ‘block’. This ‘block’ is then released into the shared Bitcoin user network so it can be verified by ‘miners’. Miners computers then all simultaneously begin the race to solve the complex mathematical function contained in the block. These complex mathematical functions are the hash functions we’ve been talking about. Once a solution to the hash is found, the solution is then broadcasted across the network. If every node in the network agrees that the solution is correct, the transaction is verified and processed. This process is repeated for every block, hence the name blockchain.

Mining is essential to the blockchain system. Not only does it verify transactions that are taking place, but it is also the way new coins are brought into circulation. Though mining is essential, it’s tough work. It takes a serious amount of power to keep the network computers computing at top speed and it can take a long time for them to solve the hash function; especially back in 2009.

So why does anyone do it? Is it a thankless job?

Not exactly.

Mining is often described as a race because when a miner verifies a ‘block’ they are rewarded with some coins. The amount of coins given to the miner for solving a block gets cut in half every four years. When Bitcoin initially launched, the reward for a block was 50 Bitcoins. Now, each block is worth 12.5 Bitcoins. With each Bitcoin valued at approximately $6500 USD at this time, that’s over a $81,000 paycheck for every block mined!

There is also a fixed number of 21 million Bitcoins that can ever be mined. Bitcoins are a finite resource, hence the term ‘mining’. According to CNBC, 17 million of those have already been mined but it isn’t expected the rest will be for another 122 years. That being true, the reward will continuously get smaller as more and more coins get mined.

The First Purchase

Until May 2010, Bitcoins had only ever been mined, but never sold or traded for monetary value. In May of 2010 a Bitcoin was valued at roughly $0.008. On May 22nd Laszlo Hanyecz made the first Bitcoin transaction ever exchanging 10,000 Bitcoins for 2 pizzas. Imagine if he had held onto those 10,000 coins!

Since then…

Since that first Bitcoin transaction a lot has taken place! to much to cover in one page, but i’ll give you some brief highlights.

As you may know, since 2010 Bitcoins popularity has grown exponentially. The Bitcoin blockchain ledger in 2014 only contained around 20GB of data, which is an average storage size for a smartphone. By 2016 the amount of data had more than doubled from those five initial years creating 50GB of ledger data. At the end of 2017, the Bitcoin blockchain contained over 100GB of data. This is a probable reason why interest in blockchain tech really began to pick up in 2016.

Bitcoins blockchain is what we call a public blockchain. Other public blockchains have been created since then, including the Ethereum blockchain which launched in June 2015. Many private and consortium (semi-decentralized) blockchain projects have been launched in the recent past as well. So it’s important concept to understand that there is more than one blockchain.

Not only is blockchain being utilized for cryptocurrencies, but projects to further utilize other potential aspects of blockchain tech began in early 2016.

 

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