Dr. W. Scott Stornetta first introduced blockchain technology; he would come to win a computer software award in 1991 with his colleague Dr. Stuart Haber for the pioneering of blockchain technology. Usually, when the word blockchain is used, people immediately think of cryptocurrencies like Bitcoin and Ethereum. Still, in truth, a blockchain was first explored for its potential ability to store information securely. It was in 2009 when the elusive Satoshi Nakamoto came to create the first blockchain as a solution to the double spending dilemma of digital currencies. The Bitcoin whitepaper has the works of Dr. Scott Stornetta and Dr. Haber listed a couple of times as reference material. Blockchain is a developing technology and has yet to realize its full potential. Aside from the Bitcoin blockchain, the second most well-known blockchain is the Ethereum network which was introduced in 2013 and launched only two years later. The Ethereum network improved upon the Bitcoin blockchain technology in its creation and widespread use of smart contracts. This enabled the Ethereum blockchain to create applications inside the blockchain. This is all to say that blockchain technology is still being improved. This short article will explain what a blockchain is and what exactly blockchain technology is used for in the world of digital currencies.
Satoshi Nakamoto as explained above, is credited as the father of the blockchain, although his identity and whereabouts are a complete mystery. The Bitcoin blockchain was introduced in 2008 but was not implemented until 2009, with the creator or group of creators being named Satoshi Nakamoto. Nakamoto was credited with combining database technology with a type of security technology. In the “Investopedia” article titled “Who is Satoshi Nakamoto,” it is described that Nakamoto has been previously contacted, but the last transaction that occurred was in 2010. Since then, several attempts have been made to unmask the creator of bitcoin. A handful of candidates have been accused; the most notable supposed creators are Dorian Nakamoto and Hal Finney. No one has been confirmed or has come out as the real Satoshi Nakamoto. It is stated that Nakamoto has a 5% stake in bitcoin, which is roughly one million coins.
The main issue that the bitcoin blockchain was trying to solve was the double spending dilemma. This problem is unique to digital transactions since digital records are easy to replicate and forge; Nakamoto’s solution to this was to use an online ledger that allowed peer-to-peer checking and cryptographic signing of the many copies of this online ledger. Additionally, in the Bitcoin whitepaper, it is explained that every online transaction is passed by financial systems. These financial systems are seen as trusting agents and are an integrated part of verifying any and all digital transactions. The issue that these third-party organizations present is that non-reversible transactions are not one hundred percent possible. Because these financial institutions are not able to turn any disputes down, this makes the entire system sluggish, redundant, and susceptible to fraud. This in turn, means losing companies would lose money over fraudulent claims. The easy solution is to use physical money as this will force buyers and sellers to be absolutely transparent with one another, but for obvious reasons, this is not possible in an online transaction. It is important to note that with the option to do refunds, the need for trust is needed tenfold. The solution presented for double spending and the elimination of a third-party mediator is to use a peer-to-peer completely distributed, meaning anyone and everyone has a copy of a digitally signed and time-stamped record of the list of transactions that occur within a digital ledger. This system is then kept securely safe and checked for any outside digital interference through a system called proof-of-work.
The Bitcoin whitepaper proposes that a coin is simply a long chain of digital signatures. Each previous owner will pass down the “coin” to the next owner by digitally signing a “hash” of the previous transaction and the public key of the next owner. This is then attached to the end of the coin. The problem then arises that receivers of this coin do not know if there was double spending associated with this coin. One solution proposed in the whitepaper is for a third-party authority to check every transaction and, at the end of this check to mint a new coin, but this brings back a third-party mediator, which adds a buffer to the overall process of the transaction. In order for this to be successful without the need for a mediator, the chain of transactions needs to be publicly visible to all accounts, and all must agree on a single chain of transactions. The method of verification used is to time-stamp the hash of a block. Once a hash has been time-stamped, it has a verification that it exists at a specified time, and this is then added to the end of the chain, which is reinforced through time. A proof-of-work system is also used for further verification. The hash each block is given is essentially an identification number that is 64 characters long.
To conclude, the technology we have in place today that is being used by the many digital currencies that have been published is not at a point to be massively used in an open manner. Blockchain technology is continuously evolving. The absolute defining factor of bitcoin was the ability to have it completely independent and transparent to anyone. The ability to speed up these transactions can be seen with the Ethereum instance, and that is a topic I am willing to explore more in another post. As it stands, the future may come to a point where current versions of blockchains could support massive transactions at a moment’s notice.