Education

The History of Blockchain Technology

In 1991: Stuart Haber and W Scott Stornetta described a cryptographically secured chain of blocks for the very first time.

In 1998: Nick Szabo, invents a decentralized digital currency he named “bit gold”. He was a computer scientist.

In 2000: The ideas of implementation on the cryptographically secured block of chains are published. Stefan Konst was the one in charge.

In 2008: This was when the guys working under the name Satoshi Nakamoto released a white paper showing the Blockchain architecture. And how these chains of blocks operate.

In 2009: As we all know, this was when Blockchain technology was first implemented. Its sole purpose was for the transaction of Bitcoin.

In 2014: The time when Blockchain technology gets separated from Bitcoin. It’s also the time when Blockchain is discovered to support other applications instead of only finance. This is referred to as the birth of Blockchain 2.0.

Ethereum Blockchain system launches computer programs into the chain of blocks. These programs represent financial instruments like bonds which are now termed, Smart Contracts.

Now let’s look at the definition of Blockchain and how it works. Don’t worry, the explanation won’t be as complex as you’re used to seeing in many articles and books.

What is Blockchain?

From the name “Blockchain” you can decipher what Blockchain is.

That’s right. As the name suggests, Blockchain simply is a chain of blocks. The blocks here act as ledgers that are distributed among the ones involved in the chain or network.

For Example:

Imagine you want to send your friend (John) who lives abroad some cash. You’ve learned that with the normal way of sending some cash, there are possibilities that there will be issues when transacting.

Depending on the amount you want to send John, you’ll incur some transaction charges (and the charges are often high). There’s also a possibility of a hacker intercepting your transactions and running off with your money.

There’s also a chance where the transaction will take more than a day before it’s completed. Because you know all the repercussions involved in using a decentralized banking system, you decided to use a Blockchain-based banking system.

You know all the perks that come with using Blockchain technology in transactions… You know it’s fast, more secure, and almost impossible to hack. But now you want to know how it works since this disruptive technology intrigues you.

How does Blockchain work?

When you send John some cash, your transaction details are inscribed in a block. This includes the total amount you have in your account. For the transaction to happen you’ll need John’s public key (take this as his email address).

So here’s how the transaction process happens:

During the transaction process, let’s just say you’re sending $1,000 to John. And you’ll need his public key (the account address) to initiate the transaction. This amount gets hashed or encrypted using a hashing algorithm, and also from the digital signature of your private key.

For the transaction to be marked as valid, you must have an amount that’s more than or equal to what you want to send. Anything less than what you want to send John will be flagged and marked as invalid.

The hashing and the encryption of your transaction details are done to make sure that no hacker deciphers this information and steals the money. This hashing function makes Blockchain secure and almost hack-proof.

For John to receive the $1000, the transaction has to undergo a verification process known as mining. Mining is a process whereby computers called miners solve complex mathematical problems to add a verified block in a chain of blocks.

And for the transaction to be marked as complete and verified there’s a set of predefined conditions measured by what is called a Nonce value.

Using his private key, John decrypts your hashed data and finally receives the $1,000 in his wallet account. After this transaction has been verified and marked complete on the Blockchain, both you and John each receive a copy of the transaction details.

These details also include the amount both of you currently have in your accounts, and here’s how Blockchain shows its transparency. The name given to the copy that you two receive is known as a decentralized ledger. Anyone and everyone who joins your transaction network will also receive copies of everyone’s transaction details in this Blockchain network.

What is Bitcoin?

Bitcoin as the name suggests is an electric currency and unlike the government-issued currencies, there’s no single entity that issues it or is in charge of processing its transactions. Before Bitcoin, it was impossible to make electronic payments without the help of a third party like a bank or payment processor.

Payments were often slow, expensive, and not available to everyone. To solve this problem Bitcoin operates without a trusted third party. Instead, it works as a purely peer-to-peer electronic currency meaning that payments are sent directly from one person to another.

How does that work?

Simply put, computers all over the world use mathematical functions to independently verify Bitcoin transactions, which are then added to a public permanent list of transactions called the blockchain. The blockchain is stored on all those computers and works as a secure universal record of who owns what.

Early on in Bitcoin’s history, there were very few transactions being processed by the network, but as time went on, more and more people started using Bitcoin and so the number of transactions to be processed went up too. Eventually, the Bitcoin network needed to be updated to keep transactions fast, cheap, and reliable.

But because there was a consensus on how this update should be performed or whether it should be implemented at all, Bitcoin ultimately had to split into two separate currencies for that update to happen.

The version that implemented the originally planned update is called Bitcoin cash which is listed on exchanges using the ticker symbol BCH. Bitcoin cash can currently process over 100 transactions per second with fees reliably less than a penny per transaction.

The other version which made different updates to the network kept the name Bitcoin and the original ticker symbol BTC.

Bitcoin can only process between three and seven transactions per second and is now considered by many to be digital gold instead of digital cash. Its fees can range anywhere from several cents to tens of dollars per transaction depending on the number of people trying to use the network at once.

What is Ethereum?

Bitcoin was written in what is called a “Turing incomplete” language which makes it only understand a small set of orders, like who sent how much money to whom. If you want to create a more complex system, you’ll need a different programming language which means a different network of computers.

Imagine for a second you wanted to build your decentralized program, just like Bitcoin at home. You’d need to understand how Bitcoin’s decentralization works, write code that mimics the same behavior, get a huge network of computers to run this code, and so on… and that is a lot of work; enter Ethereum.

Ethereum was first proposed in late 2013 and then brought to life in 2014 by Vitalik Buterin, who at the time was the co-founder of Bitcoin Magazine. Ethereum is the do-it-yourself platform for decentralized programs, also known as Dapps – decentralized applications.

If you want to create a decentralized application that no single person controls; not even you even though you wrote it, all you have to do is learn the Ethereum programming language called Solidity and begin coding.

The Ethereum platform has thousands of independent computers running it, meaning it’s fully decentralized. Once a program is deployed to the Ethereum network; these computers, also known as nodes, will make sure it executes as written.

Ethereum is the infrastructure for running Dapps worldwide. It’s not a currency, it’s a platform. The currency used to incentivize the network is called Ether. Ethereum’s goal is to truly decentralize the internet.

Ethereum allows people to connect directly with each other without a central authority to take care of things. It’s a network of computers that together combine into one powerful decentralized supercomputer.

Check out Ethereum's price prediction here.

How does Ethereum work?

Ethereum’s coding language, Solidity, is used to write smart contracts that are the logic that runs Dapps. Here’s a clear explanation: In real life, all a contract is, is a set of “Ifs” and “Thens”. Meaning a set of conditions and actions.

For example: If you pay your landlord $1,500 per month then he’ll let you use your apartment. That’s exactly how a smart contract works on Ethereum. Ethereum developers write the conditions for their program or Dapp and then the Ethereum network executes it.

They are called smart contracts because they deal with all the aspects of the contract – enforcement, management, performance, and payment.

For example, if you have a smart contract that is used for paying rent, the landlord won't need to actively collect the payment. The contract itself “knows” if the money has been sent. If you indeed sent the money, then you’ll be able to open your apartment’s door. If you missed your payment, you’ll be locked out.

However, smart contracts also have their downsides. Going back to the earlier example, instead of kicking out a renter that isn’t paying, a smart contract would lock the non-paying renter out of their apartment.

A truly intelligent contract, on the other hand, would take into account other factors as well, such as extenuating circumstances, the spirit with which the contract was written, and it would also be able to make exceptions if warranted. In other words, it would act like a really good judge.

Instead, a smart contract in the context of Ethereum isn’t intelligent at all. It’s uncompromisingly lettering strict; it follows the rules down to a T, and can’t take any secondary considerations or the “spirit” of the law into account like what commonly happens with real-world contracts.

Once a smart contract is deployed on the Ethereum network, it cannot be edited or corrected, even by its original author. In other words, it’s immutable. The only way to change this contract would be to convince the entire Ethereum network that a change should be made, and that’s virtually impossible.

This creates a very serious problem since, unlike Bitcoin, Ethereum was built with the ability to create complex contracts, and complex contracts are very difficult to secure. With any contract, the more complicated it is, the harder it is to enforce as more room is left for interpretations, or more clauses must be written to deal with contingencies.

With smart contracts, security means handling with perfect accuracy every possible way in which a contract could be executed to make sure that the contract only does what the author intended. Ethereum launched with the idea that “code is law”.

That is, a contract on Ethereum is the ultimate authority and nobody could overrule the contract.

Well, that all came to a crashing halt when the DAO event happened. “Dow” or DAO stands for “Decentralized Autonomous Organization” which allows users to deposit money and get returns based on the investments that the DAO made.

The decisions themselves would be crowd-sourced and decentralized. The DAO raised $150 M in Ethereum currency, Ether, when it was trading around $20. While this all sounded very good, the code wasn’t secured very well and resulted in someone figuring out a way to drain the DAO out of money.

Now you could say that the person who drained the DAO was a hacker. But someone would argue that this was just someone who was taking advantage of the loopholes he found in the DAO’s smart contract. This isn’t very different than a creative lawyer figuring out a loophole in the current law to effect a positive result for his client. What happened next is the Ethereum community decided code no longer is the law and changed the Ethereum rules to revert all the money that went into the DAO.

In other words, the contract writers and investors did something stupid, and the Ethereum developers decided to bail them out. The small minority that didn’t agree with this move stuck to the original Ethereum blockchain before its protocol was altered. That is how Ethereum Classic (ETC) was born, which was the original Ethereum.

To deploy a smart contract to the Ethereum platform, its author must pay to do so. That payment is made in the form of Ether. This is done so people will write optimized and efficient code, and won’t waste Ethereum’s network computing power or unnecessary tasks.

Ether was first distributed in Ethereum’s original Initial Coin Offering (ICO) back in 2014. Back then, it cost $0.40 to buy one Ether. Today, one Ether is valued in hundreds of dollars since the use of the Ethereum network has immensely grown due to the ICO hype that started in 2017.

What is an NFT

The initial, NFT, stands for, Non-Fungible Token. Fungible means something can be exchanged or substituted and will hold the same value. It’s interchangeable like the dollar, gold, casino chips, Bitcoin, Ethereum, or frequent flyer loyalty points.

If someone lends you $10 cash and you return them two five-dollar banknotes, you’ll be fine with that because even though they are different, they still hold the same total value since they’re fungible.

Non-fungible means it’s an asset that can’t be substituted because it has unique attributes that make it different from something else in the same asset class. For example, a painting, a theatre ticket, a house, a videogame skin, a trademark, or a crypto kitty which was the first real use case to take off on the Ethereum blockchain in 2017.

Some of these assets are physical and tangible, and others are digital and intangible. With that in mind, NFTs are non-fungible tokens. A token refers to a digital certificate stored on a secure distributed database known as the blockchain.

NFTs are digital assets publicly verifiable intellectual property authenticated on a blockchain. A popular place to currently browse a variety of NFTs is on openc.io.

Non-fungible token (NFTs)