Blockchain Short History and Overview
ICOs and cryptocurrency would not be complete without a quick peek into the underlying blockchain that powers it all. This article intends to touch upon what blockchain is and how it can affect our future.
It all began in 2008 when the enigmatic Satoshi Nakamoto whose true identity still remains unknown, published the whitepaper: Bitcoin: a Peer to Peer Electronic Cash System. Bitcoin is a pure peer to peer version of electronic cash in its essence. It utilizes blockchain technology as the core component to operate the Bitcoin network. The blockchain acts as the public ledger for all transactions on the network, potentially cutting out middlemen or third party authentication for transactions.
THE BLOCKCHAIN AND BITCOIN
The blockchain would not exist without the creation of Bitcoin. To gain an understanding regarding the blockchain, Bitcoin must be first discussed. Upon release of Bitcoin’s whitepaper, Bitcoin was presented to the open source community in 2009. The blockchain is the backbone of the Bitcoin network. It provides the digital trust between parties because it makes important records and information public, transparent, incorruptible, time stamped and decentralized.
What is a blockchain? The blockchain is a list or ledger of records comprised of blocks. These blocks are comprised of packets of data that pass through the blockchain. These blocks are linked and authenticated with the help of cryptography. Every succeeding block contains a cryptographic hash, which contain timestamps, transaction data and validations. The blockchain in its basic form is tasked to record all of the economic transactions in a network. The blockchain is a decentralized system that stores data across its network, effectively eliminating data being held centrally. This lack of centralized points of vulnerability eliminates a weak point that hackers often exploit in centralized systems. The blockchain allows multiple parties to transact with each other without having the need to trust a middleman. It provides transparency, authentication and auditing between all parties involved since it is a public ledger. Common security systems rely on usernames and passwords to access and protect information about the users’ identity, assets and liabilities online. Blockchain on the other hand uses complicated security encryption coupled with cryptography making it very secure and reliable for its users. The blockchain technology utilizes private key cryptography (long randomly generated strings of numbers) which provides a robust incorruptible ownership tool that accomplishes all validation requirements. In addition, it doubles as the user’s address on the blockchain. Possession of a private key is proof ownership. It furthermore saves a user from having to impart more personal information than they would be required to make a transaction, leaving them vulnerable to hackers.
HOW DOES THE BLOCKCHAIN WORK?
A blockchain is as a sequence of blocks containing data ordered in time. Where each block is a group of transactions cryptographically authenticated by mining. Each block in the blockchain contains many data of transactions and a block header which contains a hash of all the information included in the block. This hash of all information included in the current block is called a target hash. Miner’s computers compete with one another to solve an energy intensive mathematical problem to find a number equal to or lesser than the target hash. The process by which they find this hash is SHA-256 for Bitcoin and Ethash for Ethereum. The first computer or miner to find this hash gets the reward. After finding the hash, the blockchain software will add the block of transactions as the next block if the following conditions are met: verification of the correct answer to the target hash, validity of the transactions included and if more than 50% of the network of computers agrees to a consensus; the block will be included. The Bitcoin blockchain gets updated around every 10 minutes with new blocks of transactions, ETH on the other hand has a much faster block time of around 14 seconds.
BLOCKCHAIN AND ETHEREUM
One of the most prominent blockchain advocates, Vitalik Buterin founder of Ethereum became frustrated with the programming limitations of the Bitcoin blockchain and other early blockchains. As a result, Vitalik pushed for a more workable blockchain, though this idea encountered opposition from the Bitcoin community.
The difference between Bitcoin and Ethereum is that Ethereum can record and execute other things such as loans, contracts, execute programs and do many other things that are not just currency. Ethereum, which was launched in 2015 can be used to build “smart contracts” which are contracts programmed to automatically process and execute transactions based on a set of rules coded by the contract creator and run in the Ethereum blockchain.
PROOF OF WORK TO PROOF OF STAKE
As of now, most blockchains like Ethereum and Bitcoin function on proof of work (PoW) where mining is required in order to establish a block (a new set of secure transactions) and to get rewards. Once you commence a transaction, it is broadcasted into the blockchain to be written into a block. As a result, miners must confirm if the transactions are permissible within that block by deciphering a proof-of-work problem—a very complex mathematical problem that requires a remarkable amount of computing power to accomplish. A reward is given to the miner who gets to solve the problem first and then the authenticated transaction is kept on the blockchain. The developers of Ethereum are focused on moving over to a new, more environmentally friendly consensus system called Proof of Stake (PoS). Proof of work and proof of stake have the same goal in mind—to authenticate transactions and make a consensus in the chain. But Proof of Stake utilizes an algorithm with a different process. In the use of proof of stake, the author of a new block “is chosen in a deterministic way, depending on how many coins or tokens are held for in reserve for PoS, also defined as a “stake.” There is no traditional reward in a proof of stake system. The miners also called forgers in this system instead get transaction fees in return for work done.
THE INTEGRATION OF BLOCKCHAIN
In a nutshell, blockchain is a decentralized public ledger that constantly encodes transactions between parties in a lasting unforgeable way. Blockchain also omits the need for third-party authentication or middlemen. This in turn provides an extremely efficient process and should dramatically reduce the cost of transactions. It took some time for businesses to understand the true potential of blockchain. And we are just now seeing a surge of investment in order to see how blockchain could influence supply chains, healthcare, insurance, transportation, voting, contract management and many more.
BLOCKCHAIN AND THE FUTURE
As of now, blockchain can be very slow in comparison to more traditional systems. Blockchain scaling solutions are currently being researched that will increase the number of transactions per second in a way that will not sacrifice security. Currently, Bitcoin and Ethereum is just one of hundreds of applications that employ blockchain technology. It has been a stellar decade of evolution for blockchain technology and it will be fascinating to witness what the future brings us. The ico-check team support the usage of blockchain and we hope that this article has served as a good basis for understand one aspect of the world of cryptocurrency. Watch out for our other articles!