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A Brief History of Blockchain
A Brief History of Blockchain
Cryptocurrency
12.09.2021
Updated 24.11.2021
16:41

Blockchain is a distributed technology underlying cryptocurrencies, thanks to which the need to depend on and trust the central node eliminates. This article tells about how blockchain technology appeared and developed and where it found application.

Blockchain: The Beginning

For the first time, the idea of a similar technology was described by a cryptographer and creator of the first digital payment system eCash David Chaum in his dissertation “Computer Systems Established, Maintained, and Trusted by Mutually Suspicious Groups” back in 1982. However, the development of the concept continued only in 1991 by the scientists Stuart Haber and W. Scott Stornetta. Taking the concept as a basis, they created a solution preventing the counterfeit of digital documents with timestamps. The information was added to the chain of blocks protected by cryptographic techniques.

After that, in 1992, together with Dave Bayer scientists improved the solution with the help of a Merkle tree: this allowed adding several documents into one block, which resulted in a more effective mechanism. Haber, Scott Stornetta, and Bayer had patented a technology but didn’t know where it could be applied, so in 2004 the duration of the patent expired, which allowed to use the described technology freely, and that was what developers of the first cryptocurrency did.

In 1998, mathematician and cryptographer Nick Szabo developed a protocol of decentralized digital currency Bit Gold also using timestamps to verify transactions, and the information was added to the chain of blocks through solving mathematical puzzles that all the network participants had to accept. That is how Szabo solved the problem of double-spending, having eliminated the element of trust to the central node. The protocol wasn’t realized but formed the basis for the first cryptocurrency’s architecture, for which it was called “a direct precursor to the Bitcoin architecture”.

The concept of smart contracts that was later implemented in the Ethereum protocol is also suggested by Nick Szabo.

Double-Spending Problem Solution 

The cryptographic method offered by Haber, Scott Stornetta, and Bayer allowed not only prevent data fabrication but also solved the problem of double-spending. This became possible due to the concept of Reusable Proof-of-Work (RPoW) that was suggested by crypto activist Harold Thomas Finney in 2004. The essence of the system was that users received non-fungible tokens PoW (hashcash) signed in RSA that could be transmitted to another user.

The problem was that PoW tokens could be used again, and tokens themselves were registered by a trusted central node. The solution to this problem was introduced in a new Bitcoin protocol, while the RPoW project was closed.

The Emergence of the First Cryptocurrency Bitcoin

In 2008 an anonymous user or a group under the pseudonym Satoshi Nakamoto published the White Paper of the digital P2P cash system called Bitcoin. This event became a starting point of a new era of digital payments.

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The Bitcoin network combined all of the three concepts described before but Nakamoto modified RPoW, having replaced it with a consensus algorithm Proof-of-Work, according to which PoW tokens could be used only once, thus, having completely solved the problem of double-spending. Although the technologies weren’t innovative, Satoshi Nakamoto became the first one to create a payment system based on them.

The personality of Satoshi Nakamoto hasn’t still been identified but there were many attempts to arrogate it.

On 3 January 2009, the creator of Bitcoin mined the first block. Bitcoin remains the most important system for the whole world to date, but its capacities are limited: all you could do was to mine cryptocurrency, store it on special software wallets, and send it to other users in the network.

Creation and Development of an Autonomous Decentralized Environment: Ethereum

2013 became a new stage in the development of the crypto industry: a programmer and one of the founders of Bitcoin Magazine Vitalik Buterin suggested improving the Bitcoin protocol by adding scripts for app creation that might help to enhance the use of cryptocurrency.

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Having received a refusal from a bitcoin community, Buterin began to develop a new system Ethereum. Besides the blockchain technology, the network also used smart contracts that allowed to make safe deals between the parties without any intermediaries. Ethereum became the first autonomous system for trade that had eliminated the need to trust third parties.

The Ethereum blockchain was the basis for a new global ecosystem that is now known as decentralized finances (DeFi). Developers can create their own blockchain applications over Ethereum network and release ERC-20 tokens. Today the largest decentralized platforms, such as Maker, Uniswap, Compound, Aave, 1inch, and many more are using Ethereum.

Ethereum is an absolute leader in the number of created on the platform tokens and decentralized apps (dApp).

Conclusion 

Cryptocurrencies have become the first practical realization of blockchain technology. Nevertheless, the capacities of blockchain go far beyond the crypto industry and allow creating highly efficient decentralized systems in the areas of medicine, banking, logistics, insurance, intellectual rights, and many more.