In a few words, a blockchain is a digital ever-growing list of data records. Many blocks of data comprise such a list, organizing them in chronological order and linking and securing them with cryptographic proofs.
Computer scientist Stuart Haber and physicist W. created the first prototype of a blockchain, dating back to the early 1990s. Scott Stornetta applied cryptographic techniques in a chain of blocks as a way to secure digital documents from data tampering. The work of Haber and Stornetta inspired Dave Bayer, Hal Finney, and other computer scientists and cryptography enthusiasts. Their efforts eventually led to the creation of Bitcoin. Bitcoin is widely recognized as the first decentralized electronic cash system and the first cryptocurrency. Satoshi Nakamoto, under the pseudonym, published the Bitcoin whitepaper in 2008.
We start with the idea of centralization. Centralization, or control by a single authority or entity, is a common and pervasive form of governance. Governance refers to principles of organization and power. We must trust central authorities, like banks, governments, and other institutions to maintain order and structure within the space they operate. This trust is broken when the central authorities can not maintain that order and structure. For example, if your credit card information is stolen from the database of a bank you transact with, the centralization of your information in this bank has been used against you. Centralized technology and data allows for both the monopolization of power and creates a security risk.
The problems with centralization came to a head during the global financial crisis of 2007-2008.
On October 31, 2008, in the midst of the financial crisis, Satoshi Nakamoto (an alias for a still unidentified individual or group of individuals) published the Bitcoin Whitepaper, titled Bitcoin: A Peer-to-Peer Electronic Cash System. This paper described a way of exchanging a currency, Bitcoin, that combines cryptography, computer science, and game theory in its design and implementation. Satoshi’s creation enabled a participant to digitally transact directly with another participant without relying on a single, centralized intermediary, such as a bank, to validate the payments. When we say peer-to-peer, we are describing a transaction from one entity to another, directly. There is no intermediary the transaction has to pass through. If you schedule a payment via a banking app on your phone to a friend, the money flows from your bank account to your friend’s bank account. If your friend doesn’t have a bank account, you can send the money to a third-party money transfer company. Your friend can then pick up the payment from there. Alternatively, you can withdraw the money and mail it to your friend, but you’ll need their address and rely on the postal service’s security for safe delivery.
Blockchain transactions occur within a peer-to-peer network of globally distributed computers (nodes). Each node maintains a copy of the blockchain and contributes to the functioning and security of the network. This is what makes Bitcoin a decentralized digital currency that is borderless, censorship-resistant, and that does not require third-party intermediation.
With the Bitcoin codebase gaining attention, Vitalik Buterin, a community contributor, identified limitations in its design. Starting in late 2013, Buterin initiated the development of an open-source protocol, now called Ethereum. Ethereum also operates on a blockchain, but Ethereum adds features that extend the features of Bitcoin and the bitcoin blockchain.
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