History

When Satoshi Nakamoto, whose identity is still unknown, published Bitcoin: A Peer to Peer Electronic Cash System, he described it as “purely peer-to-peer version of electronic cash”. It was 2008 and blockchain technology, in the form of Bitcoin was introduced to the world. The development of the technology that runs Bitcoin (Blockchain) has developed at a staggering pace. Not only does it have the potential to impact every industry on the planet, but it is already disrupting the market.

The Early Beginnings

Sally Davies, FT Technology reporter has best described the relationship between blockchain and crypto as “Blockchain is to Bitcoin, what the internet is to email. A big electronic system, on top of which you can build applications. Currency is just one.”

Following the release of Nakamoto’s whitepaper, Bitcoin became available within the open source community. Blockchain quickly became the route forward. This was largely due to digital trust. Namely that records are retained in a public space, unable to be removed.

Therefore giving transparency and a decentralised approach.

Therefore giving transparency and a decentralised approach.

Blockchain and Bitcoin Separate

Initially blockchain and Bitcoin were used interchangeably. Even today some people do not fully understand the difference. However, it wasn’t until late 2013 that people started acknowledging that the application of blockchain could impact various other operations.

The blockchain process (namely a decentralised ledger that permanently documents transactions between two entities without the requirement for any third-party authentication) soon started to realise a reduction in the cost of transactions.

This led to a groundswell of investment and experimentation to understand how blockchain could benefit the supply chains of industries such as financial services, healthcare, education, transportation and many more. Nearly 25% of financial institutions are actively utilising blockchain technology.

Ethereum: The Next Stage of Development

VitalikButerin, was a founding contributor to the codebase of Bitcoin. However, he quickly became dissatisfied with some of the limitations in respect of programming. He was an advocate of a flexible blockchain. However this was met with opposition from the Bitcoin community. Buterin decided to develop his own concept, the second public blockchain, which came to be known as Ethereum. The most pronounced different between Bitcoin and Ethereum us that Ethereum records additional properties such as loans and contracts, not just the currency. Launched in 2015, Ethereum is used to develop “smart contracts” (these contracts can be processed automatically, dependent upon set criteria within the Ethereum blockchain.

Transition to Proof of Stake

Whilst the industry is evolving, blockchain remains operational on the proof of work concept. Mining, or an expensive computer calculation is developed to create a new set of trustless transactions (a block). When a transaction commences, it is bundled into a block. Miners will verify that any transactions are genuine within that block by answering a proof-of-work problem. This exceptionally complex mathematical problem is where vast amounts of development takes place. This is because that the miner who solves the problem first, gets an initial reward as well as being able to be stored on the blockchain. However, there is a move towards a new consensus system referred to as proof of stake.

Whilst the goal of proof of stake is identical to proof of work (namely to authenticate transactions and reach agreement in the chain) it uses an algorithm with a different process. This is that the architect of a new block is selected in a deterministic manner, based on its stake (wealth). There is no reward, but the miners receive the transaction fees. It is believed that there are significant cost savings to this method.

Blockchain Scaling

Solutions are being developed to limit the number of computers in a blockchain network that are required to validate each transaction, so that it doesn’t impact security.

Bitcoin, whilst the pre-eminent crypto currency is one of a growing number of currencies and applications that utilise blockchain technology.

 

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