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The Story of Blockchain: From Small Concept to Global Financial System


A little over a decade ago, an anonymous person or group of people going by the name Satoshi Nakamoto released a white paper entitled “Bitcoin: A Peer-to-Peer Electronic Cash System.” This paper detailed a new way of handling transactions that didn’t require a third party, such as a bank. Rather, it relied on a decentralized network of computers to verify and record transactions. This system was made possible by a new kind of database, which we now know as a blockchain.

 

To understand where this story came from, we have to go back to 1991, when a team of two researchers, Stuart Haber and W. Scott Stornetta, began describing a cryptographically secure chain of blocks as a way to implement a system in which timestamps of documents could not be altered. But the idea at that time had nothing to do with the idea of creating a decentralized currency.


Thus, it was not until 2008 that a man named Satoshi Nakamoto took up the idea of blockchain and improved it with a method to timestamp blocks without requiring them to be signed by a trusted party. This method was called proof-of-work. By introducing this new means of consensus, Satoshi finally put on paper the solution for a decentralized monetary system.


Before bitcoin, the only digital payment solutions were centralized like Paypal or Mondex. This means that there was a central authority that managed and controlled the payment system. This central authority could potentially abuse its power, for example by freezing users' accounts or inflating the prices of goods and services. But now there was the possibility of creating a financial system where participants would no longer need to trust anyone, a bank or the other participants, but only trust the system itself through this new consensus mechanism.


However, this system was limited to one currency for the entire network, so someone with a slightly different vision had to launch their protocol alone and hope that enough people would participate in their competing network. That's where Vitalik Buterin comes in, who in 2013 introduced the idea that a block could not only be a record of transactions in the financial sense, but that those transactions could contain bytecode recorded on the blockchain and executed by participants. This vision translated into the 2014 launch of Ethereum. With this addition, a blockchain network could support the existence of an infinite number of programs stored exclusively on the blockchain and distributed across all nodes in the network, making it immune to any form of censorship and pressure.


Everything was going well in the best of all possible worlds, and many developers embarked on this new eldorado, developing new applications and new standards for tokens for different purposes. The two most famous standards emerged at that time, the ERC-20 for traditional currencies, and the ERC-721 introducing a totally new concept in the digital domain, non-fungibility. One application in particular that used NFTs was the Crypto Kitties project, a game for buying and breeding unique virtual cats. After its launch in 2017, it saturated the entire Ethereum network, which exposed the flaw in the proof-of-work model: it wasn't scalable enough.


The requirement for scalability and the growing concern about the energy consumption of this type of network are driving the search for a new consensus model. Many new projects have emerged from this, all trying to find the mechanism to combine security, scalability and decentralization. Ideas like proof of stake, identity, capacity, authority, activity are emerging. Systems that compare themselves to the market leader and highlight their transaction speed and low energy consumption. Eventually, the question of the best consensus mechanism will be solved and the plurality of consensus that has emerged in recent years will diminish, until then it will be up to each individual to decide for himself in which project he will decide to put his trust.


The history of blockchain is a long and complicated one, full of technological advancement and challenges. Today, blockchain is a powerful tool that can be used to create new applications and solve complex problems. While there are still some challenges that need to be addressed, the future of blockchain is looking bright.