Blockchain
Blockchain technology is most simply defined as a decentralized, distributed ledger
that records the provenance of a digital asset. Our guide will walk you through what
it is, how it's used and its history.
What is Blockchain
Technology?
Blockchain, sometimes referred to as Distributed
Ledger Technology (DLT), makes the history of
any digital asset unalterable and transparent
through the use of decentralization and cryptographic hashing.
A simple analogy for understanding blockchain technology is a Google Doc. When we create a
document and share it with a group of people, the document is distributed instead of copied or
transferred. This creates a decentralized distribution chain that gives everyone access to the
document at the same time. No one is locked out awaiting changes from another party, while all
modifications to the doc are being recorded in real-time, making changes completely
transparent.
Of course, blockchain is more complicated than a Google Doc, but the analogy is apt
because it illustrates three critical ideas of the technology:
BLOCKCHAIN EXPLAINED: A QUICK OVERVIEW
1. Digital assets are distributed instead of copied or transferred.
2. The asset is decentralized, allowing full real-time access.
3. A transparent ledger of changes preserves integrity of the document, which creates trust in the
asset.
Blockchain is an especially promising and revolutionary technology because it helps reduce risk,
stamps out fraud and brings transparency in a scaleable way for myriad uses.
How Does Blockchain Work?
The whole point of using a blockchain is to let people — in
particular, people who don't trust one another — share valuable
data in a secure, tamperproof way.
— MIT Technology Review
Blockchain consists of three important concepts: blocks, nodes and miners.
Blocks
Every chain consists of multiple blocks and each block has three basic elements:
• The data in the block.
• A 32-bit whole number called a nonce. The nonce is randomly
generated when a block is created, which then generates a block
header hash.
• The hash is a 256-bit number wedded to the nonce. It must start with
a huge number of zeroes (i.e., be extremely small).
When the first block of a chain is created, a nonce generates the cryptographic
hash. The data in the block is considered signed and forever tied to the nonce
and hash unless it is mined.
Miners
Miners create new blocks on the chain through a process called mining.
In a blockchain every block has its own unique nonce and hash, but also
references the hash of the previous block in the chain, so mining a block isn't
easy, especially on large chains.
Miners use special software to solve the incredibly complex math problem of
finding a nonce that generates an accepted hash. Because the nonce is only 32
bits and the hash is 256, there are roughly four billion possible nonce-hash
combinations that must be mined before the right one is found. When that
happens miners are said to have found the "golden nonce" and their block is
added to the chain.
Making a change to any block earlier in the
chain requires re-mining not just the block
with the change, but all of the blocks that
come after. This is why it's extremely difficult
to manipulate blockchain technology. Think
of it is as "safety in math" since finding
golden nonces requires an enormous amount of time and computing power.
When a block is successfully mined, the change is accepted by all of the nodes
on the network and the miner is rewarded financially.
Nodes
One of the most important concepts in blockchain technology is
decentralization. No one computer or organization can own the chain. Instead,
it is a distributed ledger via the nodes connected to the chain. Nodes can be any
kind of electronic device that maintains copies of the blockchain and keeps the
network functioning.
Every node has its own copy of the blockchain and the network must
algorithmically approve any newly mined block for the chain to be updated,
trusted and verified. Since blockchains are transparent, every action in the
ledger can be easily checked and viewed. Each participant is given a unique
alphanumeric identification number that shows their transactions.
Combining public information with a system of checks-and-balances helps the
blockchain maintain integrity and creates trust among users. Essentially,
blockchains can be thought of as the scaleability of trust via technology.
USES
Beyond Bitcoin: Ethereum
Blockchain
Originally created as the ultra-transparent
ledger system for Bitcoin to operate on,
blockchain has long been associated with
cryptocurrency, but the technology's transparency and security has seen growing adoption in a
number of areas, much of which can be traced back to the development of the Ethereum
blockchain.
In late 2013, Russian-Canadian developer Vitalik Buterin published a white paper that proposed
a platform combining traditional blockchain functionality with one key difference: the execution
of computer code. Thus, the Ethereum Project was born.
Ethereum blockchain lets developers create sophisticated programs that can communicate with
one another on the blockchain.
Tokens
Ethereum programmers can create tokens to represent any kind of digital asset, track its
ownership and execute its functionality according to a set of programming instructions.
Tokens can be music files, contracts, concert tickets or even a patient's medical records. This
has broadened the potential of blockchain to permeate other sectors like media, government
and identity security. Thousands of companies are currently researching and developing
products and ecosystems that run entirely on the burgeoning technology.
Blockchain is challenging the current status quo of innovation by letting companies experiment
with groundbreaking technology like peer-to-peer energy distribution or decentralized forms for
news media. Much like the definition of blockchain, the uses for the ledger system will only evolve
as technology evolves.
BLOCKCHAIN APPLICATIONS
Blockchain has a nearly endless amount of applications across almost every industry. The
ledger technology can be applied to track fraud in finance, securely share patient medical
records between healthcare professionals and even acts as a better way to track intellectual
property in business and music rights for artists.
HISTORY
History of Blockchain
Although blockchain is a new technology, it
already boasts a rich and interesting history. The
following is a brief timeline of some of the most
important and notable events in the development
of blockchain.
2008
• Satoshi Nakamoto, a pseudonym for a person or group, publishes “Bitcoin: A Peer to Peer
Electronic Cash System."
2009
• The first successful Bitcoin (BTC) transaction occurs between computer scientist Hal Finney
and the mysterious Satoshi Nakamoto.
2010
• Florida-based programmer Laszlo Hanycez completes the first ever purchase using Bitcoin
— two Papa John’s pizzas. Hanycez transferred 10,000 BTC’s, worth about $60 at the time.
Today it's worth $80 million.
• The market cap of Bitcoin officially exceeds $1 million.
2011
• 1 BTC = $1USD, giving the cryptocurrency parity with the US dollar.
• Electronic Frontier Foundation, Wikileaks and other organizations start accepting Bitcoin as
donations.
2012
• Blockchain and cryptocurrency are mentioned in popular television shows like The Good
Wife, injecting blockchain into pop culture.
• Bitcoin Magazine launched by early Bitcoin developer Vitalik Buterin.
2013
• BTC market cap surpassed $1 billion.
• Bitcoin reached $100/BTC for first time.
• Buterin publishes “Ethereum Project" paper suggesting that blockchain has other
possibilities besides Bitcoin (e.g., smart contracts).
2014
• Gaming company Zynga, The D Las Vegas Hotel and Overstock.com all start accepting
Bitcoin as payment.
• Buterin’s Ethereum Project is crowdfunded via an Initial Coin Offering (ICO) raising over $18
million in BTC and opening up new avenues for blockchain.
• R3, a group of over 200 blockchain firms, is formed to discover new ways blockchain can be
implemented in technology.
• PayPal announces Bitcoin integration.
2015
• Number of merchants accepting BTC exceeds 100,000.
• NASDAQ and San-Francisco blockchain company Chain team up to test the technology for
trading shares in private companies.
2016
• Tech giant IBM announces a blockchain strategy for cloud-based business solutions.
• Government of Japan recognizes the legitimacy of blockchain and cryptocurrencies.
2017
• Bitcoin reaches $1,000/BTC for first time.
• Cryptocurrency market cap reaches $150 billion.
• JP Morgan CEO Jamie Dimon says he believes in blockchain as a future technology, giving
the ledger system a vote-of-confidence from Wall Street.
• Bitcoin reaches its all-time high at $19,783.21/BTC.
• Dubai announces its government will be blockchain-powered by 2020.
2018
• Facebook commits to starting a blockchain group and also hints at the possibility of creating
its own cryptocurrency.
• IBM develops a blockchain-based banking platform with large banks like Citi and Barclays
signing on.
