History of Blockchain

Originally, blockchain was conceived as the underlying technology for Bitcoin by Satoshi Nakamoto (an alias for the unknown inventor(s)?) in October 2008. This was not the first time; however, the idea of cryptographically securing a chain of data blocks had been described. There were multiple publications throughout the 1990s by several authors, sometimes in parallel. In the late 1990s and at beginning of 2000, the first publications arose which talked about a decentralized digital currency and a theory of cryptographically secured chains. Two important names generally acknowledged for inventing the intellectual precursors of the technology are Wei Dai and Nick Szabo.

It wasn't until 2008, however, when these concepts resulted in the creation of the first blockchain. It was accomplished in the publication of the white paper Bitcoin: A Peer-to-Peer Electronics Cash System, by Satoshi Nakamoto, which can still be obtained at http://www.bitcoin.org/bitcoin.pdf. This white paper describes the concept behind the underlying technology that eventually became the blockchain.

Just three months after the publication of the white paper, the code for Bitcoin was released in a freely available, open source format, on January 9, 2009.

The Bitcoin network itself started on January 3, 2009, when Satoshi Nakamoto used the code to "mine" the first Bitcoins. A few days later, the first transaction took place. In the months that followed, the Bitcoin network gained more and more attention and membership, which led to the first official currency rate on October 5, 2009. At that time, one Bitcoin (or BTC) was worth about $ 0.76 (USD), which was based on an equation that included the electricity cost that a computer node required to generate a Bitcoin. At the time of this writing, June 7, 2018, a Bitcoin is worth about 7,693.50 USD, but its all time high has been 19,783.06 USD. Finally, on February 6, 2010, individuals could buy and sell bitcoins using the newly established dollar currency exchange. In that same year, the market cap exceeded $1 M USD because of increased member participation, and within three years' time, the market cap surpassed $ 1B USD. A more detailed history can be found at http://www.historyofbitcoin.org.

Remember, this book is not solely about Bitcoins, but rather about the technology behind it. If we fast forward in time, we will see the rise of many alternative blockchain-based currencies. Because the Bitcoin core code is open source, any knowledgeable individual can start a new coin by changing this code. Thus, you can understand why there are a number of alternative coins, but the one that stands out is Litecoin (https://litecoin.org).

Litecoin is one of the initial cryptocurrencies that followed Bitcoin and was introduced on October 7, 2011. It also is open sourced. It is a fork of the Bitcoin core code, meaning an alteration of the current code (or protocol) to change the rules–released by Charlie Lee, a former Google employee. Litecoin can be viewed as the silver to Bitcoin's gold, as the overall volume is higher and the price is lower. Litecoin is primarily distinguished from Bitcoin by a decreased block generation time (2.5 instead of 10 minutes), an increased maximum number of coins, and a different hashing algorithm. Don't worry if you do not understand these concepts yet, because I will touch on all of them in the upcoming chapters.

Some other honorable mentions include Dash, Zcash, and Ripple. Dash (https://dash.org) defined itself as being the more secretive version of Bitcoin, as it offers greater anonymity by making transactions through its decentralized network almost untraceable. Zcash (z.cash), on the other hand, claims to provide security and/or privacy based on the selective transparency of transactions by making such details as sender, recipient, and amount, private. All of these cryptocurrencies are adaptations of the original Bitcoin core code, or they take the concepts behind this code and create something totally new. Ripple (https://ripple.com), technically a public blockchain, stands out the most as it specifically focuses on banks. It is an interesting example, as though it is a publicly based platform, it is privately controlled through central ownership and the code is closed sourced. This enables banks to settle cross-border payments in real time and at a lower cost.

Once again, we will move forward in time to the year 2015. Starting then, several start-ups appeared that researched the use of the blockchain for very different purposes. One of the most well-known is Ethereum, which is an open source, public blockchain-based platform for distributed computing. One of the distinguishing features of Ethereum are smart contracts. A smart contract is a (scripting) functionality designed to facilitate contractual agreements using a Turing-complete virtual machine. This means that it has conditional branching (for example, "if" and "goto" statements, or a "branch if zero" instruction). Because Ethereum is still a public blockchain, it provides its own cryptocurrency called "Ether" to compensate participants who help perform computations on the platform. In Chapter 5, Blockchain 101 - Security, Privacy, and Smart Contracts, we will go through these agreements in great detail.

Up until this point, I have only discussed public blockchains. After 2015, this changed, as numerous software was made publicly available to run your own private blockchain network. Public blockchains, such as Bitcoin and Ethereum, are terrible when it comes to exchanging information because of the high transaction cost. Private blockchains were introduced to solve the problems related to these costs. Moreover, they are designed to provide more privacy and openness by managing the blockchain user permissions.

There are a couple of private blockchains, some are cloud-based while others run on-premises. There are companies, such as Deloitte's Rubix and Eris Industries' Monax, which sell turnkey solutions for private blockchains directly to businesses. Monax, for example, offers out-of-the-box SDKs for the Finance, Insurance, and Logistics industries. Other companies, such as Microsoft and IBM, offer Blockchain as a Service (BaaS) on their own cloud infrastructure. Both run Hyperledger Fabric (hyperledger.org). Microsoft runs Ethereum as well. Microsoft also offers private blockchain nodes packaged as Azure Quickstart Templates (azure.microsoft.com/en-us/resources/templates/?term=blockchain).

Since 2016, the number of vendors that provide open source software to run your own private blockchain has increased. One that is already mentioned is Hyperledger Fabric. It is part of the umbrella project Hyperledger, which was originally started by the Linux Foundation in early 2016. The project offers multiple open source blockchains and tools from different contributors, each providing different mechanisms and features. The available tools include a composer (package management) and an explorer (analytics). Blockchains within Hyperledger Fabric are built to run on Linux, but they can also run on macOS and Windows, using Docker (docker.com).

A strong competitor of Hyperledger is MultiChain (multichain.com). MultiChain goes the desktop route, deploying a private blockchain on a desktop, even in a Windows environment. It is also open source and allows rapid design, deployment, and operation of private blockchains according to your custom specification. With MultiChain, it is possible to create multiple types of data streams including key-value or identity databases.

For the implementation of our blockchain, we will look more closely at two private blockchains in Chapter 8, Ethereum Versus Hyperledger, and what makes them different from each other.

Major companies such as Visa, Capital One, NASDAQ, and Philips are now investing in the various available blockchain platforms and implementing them in their daily businesses. The following figure shows the highlights in the history of blockchain: