The Origins Of Blockchain Technology.
Tags: blockchain, origin, web3
Published: 2023-01-10 01:42:51


![Image description](https://dev-to-uploads.s3.amazonaws.com/uploads/articles/kax2zs34gagjhaldf1ke.png)
The Internet has come a long way in its first four decades. From the humble beginnings of e-mail and the World Wide Web, it has evolved into a complex network of interconnected technologies that have transformed the way we communicate, do business, and live our lives.

The Internet has brought us many benefits, including the ability to search, collaborate, and exchange information quickly and easily. It has also lowered the barriers to entry for new media and entertainment, new forms of retailing and organizing work, and even digital ventures that were unimaginable just a few years ago.

Through the use of sensor technology, the Internet has also infused intelligence into our everyday objects, from our wallets and clothing to our automobiles and buildings. It is becoming so ubiquitous that soon we will no longer need to "log on" to access it, but will simply be immersed in a world of pervasive technology.

However, despite all of these positive changes, the Internet still has its limitations. For businesses and economic activity, it can be a double-edged sword. On the one hand, it has made it easier for companies to reach global markets and connect with customers. On the other hand, it has also given rise to fierce competition and the potential for disruption by new players. The Internet has enabled many positive changes for those with access to it, but it is still a work in progress, with both opportunities and challenges to be addressed in the years ahead.

Even after all these years, the famous New Yorker cartoon of two dogs talking still holds true: "On the Internet, nobody knows you're a dog." Despite the vast advancements in technology, we still struggle to establish reliable identities and trust online. This lack of trust has led to the need for third-party intermediaries like banks and governments to validate transactions and protect our financial information.

Unfortunately, these intermediaries often collect our data and invade our privacy for their own gain, leaving many people feeling vulnerable and unprotected. And for the 2.5 billion people who are excluded from the global financial system due to the high cost of these intermediaries, the promise of a peer-to-peer empowered world remains just that - a promise.

The economic and political benefits of the Internet have proven to be asymmetrical, with power and prosperity continuing to be channeled to those who already have it, regardless of whether they are using it for good. Until we can find a way to establish trust and ensure inclusivity on the Internet, its true potential will remain untapped.

Money is making more money than many people do.

Technology doesn’t create prosperity any more than it destroys privacy.

However, in this digital age, technology is at the heart of just about everything good and bad. It enables humans to value and violate one another’s rights in profound new ways. The explosion in online communication and commerce is creating more opportunities for cybercrime. Moore’s law of the annual doubling of processing power doubles the power of fraudsters and thieves-“Moore’s Outlaws” not to mention spammers, identity thieves, phishers, spies, zombie farmers, hackers, cyberbullies, and data appears criminals who unleash ransomware to hold data hostage the list goes on.

IN SEARCH OF THE TRUST PROTOCOL

Since the earliest days of the Internet, inventors have been striving to find solutions to its most pressing problems, such as privacy, security, and inclusion. One of the tools they have turned to is cryptography, which allows for the secure transmission of information online.

However, despite their best efforts, these attempts have often been thwarted by the involvement of third parties. For example, when it comes to paying with credit cards over the Internet, users are often required to disclose too much personal information, making the transaction insecure. Additionally, the fees associated with these transactions can be prohibitively high for small payments.

The challenges of privacy, security, and inclusion on the Internet remain, even as technology continues to evolve and advance. Until we can find a way to address these issues in a comprehensive and effective manner, the full potential of the Internet will remain unfulfilled.

Bitcoin Predecessors

The internet’s ubiquity has been disruptive and changed many industries. To name just a few examples, over the past few decades Wikipedia has more or less replaced encyclopedias, Craigslist has taken the place of newspaper classified ads, and Google Maps has mostly rendered printed atlases obsolete.

Yet the financial industry was able to resist the internet’s turbulent changes for quite a while. Prior to 2009, when Bitcoin launched, control of money had not changed much outside of the switch for users from analog (physical currency and checkbooks) to digital (electronic banking). Because of this shift, the idea of digital money was a familiar concept, but control was still centralized.

Many pre-Bitcoin concepts were tried before ultimately failing for various reasons, but the ultimate goal was always the same: increased financial sovereignty or better control for users over their money. Looking at a few of the early failures can bring the reasons for Bitcoin’s growing popularity into greater focus.

DigiCash:

In 1993, a brilliant mathematician named David Chaum came up with eCash, a digital payment system that was called DigiCash. DigiCash was a company that facilitated anonymous digital payments online. Chaum is the inventor of blind signature technology, which proposed using cryptography to protect the privacy of payments online. Cryptography uses encryption-based mathematics to obscure sensitive information and has long been used by governments worldwide as a communications tool.

The DigiCash platform had its own currency, known as cyberbucks. Users who signed up for the service would receive $100 in cyberbucks, which were often referred to as tokens or coins. The company pioneered secure microchipped smart cards, similar to the system used in most credit cards today. It was also an early innovator in terms of the concept of a digital wallet for storing value- in this case, cyberbucks.

DigiCash systems were trialed by a few banks, including Deutsche Bank. A handful of merchants also signed up to accept cyberbucks, including the book publisher Encyclopedia Britannica. In the 1990s commerce on the internet was very new, and because of concerns about fraud, most people were hesitant to even use credit cards on the web, much less adopt an entirely new type of payment system. However, many privacy-conscious users did begin using cyberbucks and even developed a mailing-list marketplace that was in operation for some time. It was never able to achieve traction due to lack of merchants, though, and DigiCash ultimately filed for bankruptcy in 1998.

E-Gold:

A digital store of value established in 1996, E-gold was backed by real units of precious metal. Operated by a company called Gold & Silver Reserve, E-gold enabled instant transfers between its users on the internet. Everything on the platform was denominated in units of gold or other precious metals. By 2006 there were over 3.5 million E-gold accounts. At that time, the company was processing $5.9 million in daily volume.

With denominations as small as one ten-thousandth of a gram of gold, the platform was the first to introduce the concept of making micropayments, or transferring tiny amounts of value, on the internet. Innovative for the time, E-gold also offered developers an API that allowed others to create additional services on top of the platform.

Merchants accepted E-gold as a form of payment alongside credit cards in online shopping carts. Support for mobile payments was introduced in 1999.

E-gold was technologically ingenious in the context of its features during the 1990s and early 2000s. However, the system was plagued with problems from the outset, which ultimately led to its demise. A centralized system, it had no mechanism to tie accounts to anyone’s identity. As such, the platform was used for nefarious purposes, facilitating money laundering, online scams, and other illegal activity. The US government shut down E-gold in 2008, seizing its assets and establishing a system of redemption for account holders.

Hashcash:

Invented by Adam Back in 1997, Hashcash introduced the idea of using proof-of-work to verify the validity of digital funds, including the concept of money that exists solely on the internet. Proof-of-work means that computers need to produce some kind of verifiable, computation-intensive output for electronic money to have any value. Hashcash used cryptography to enable proof-of-work, and Back proposed using an algorithm called SHA1 in order to accomplish this.

In his initial proposal for Hashcash, Back referenced DigiCash and raised the idea that adding a fee or “postage” on emails with digitized currency could reduce spam.

By utilizing a hash, or a function requiring computer processing, Hashcash would impose an economic cost, which would limit spam in email systems. For a digital currency, the concept of using hashes would solve what’s called the double spend problem, which enables a digital unit to be copied like a file and thus spent more than once.

Computers, after all, make it easy to duplicate files; anyone can copy an image file and reproduce it over and over. The use of hashing is meant to limit that possibility with digital money by imposing a cost through proof-of-work, or computing power.

Although Hashcash was tested in email systems from Microsoft and the open-source software provider Apache, it never took off. Conceptually, Hashcash was a great example of how to introduce the digital scarcity required for internet-based money, but the technology itself wasn’t really a good form of digital currency.

B-Money:

Proposed by Wei Dai in 1998, B-Money introduced the concept of using computer science to facilitate monetary creation outside of governmental systems. Like Hash-cash, B-Money suggested that digital money could be, produced through computation, or proof-of-work. Similar to Adam Back, Wei proposed that the cost of creating digital money could be calculated from the computer power used to create it. This digital money would be priced based on a basket of real-world assets such as gold and other commodities and limited in its supply to protect it from inflation, or losing value over time.

B-Money advanced the idea of broadcasting transactions to a network. For example, if one party wanted to pay another, a message would be sent to the network saying,

“Person 1 will send $X to Person 2” The system would be enforceable via a system of digital contracts. These contracts would in theory be used to resolve any disputes, similar to how credit card companies deal with problems like a fraud. This system would use cryptography instead of a centralized system for both payments and the enforcement of contractual issues, enabling users of the network to be anonymous; no identity would be required.

The concept of B-Money brought together a number of components of digital cash. It applied the idea of contracts to provide order to an anonymous and distributed system. And it introduced the concept of using proof-of-work to create money. However, B-Money was mostly just a theoretical exercise by Wei. Its purpose was to explore the concept of nongovernmental money that could not be subject to inflation via a controlled money supply.

Bit Gold:

Proposed in 2005 by computer scientist Nick Szabo, the idea behind bit gold was to bring the scarcity of precious metals into the digital realm. Szabo pointed out that materials such as gold while having value, are “unforgeable,” or very difficult to counterfeit due to their rarity and fixed costs such as mining and transportation. He wanted to take the value of gold and make it digital.

Szabo’s idea came after the advent of E-gold, which used gold to back digital value.

However, his design utilized a “client puzzle function” type of proof-of-work. The system proposed using a “challenge string” generated on a user’s computer that is then securely timestamped “in a distributed fashion.” This would then be submitted to a “distributed property title registry” to digitally provide proof of ownership.

As with most of the szabos ideas, bit gold was largely an intellectual exercise. Szabo was clearly conceptualizing a trustless version of E-gold with bit gold.

The Bitcoin Experiment

By 2008, the world was already relying on the internet as a distributed entity for a large number of services. With electronic maps and GPS apps, people looked to the internet to help them get from point A to point B. Email, texting, Skype, WhatsApp. and other communication apps allowed almost instantaneous connections with friends and family near and far.

In addition, people had begun buying more and more goods and services online rather than in-store. Credit and debit cards had become popular payment methods, along with PayPal and other services. However, as mentioned in the previous section, many still desired a tamper-proof, distributed way to transfer value via the internet-and amazingly, that had still not yet been devised.

The 2008 Financial Crisis

At the beginning of 2006, the world economy was humming along. It was a time of economic growth, but cracks were starting to show in the financial system that year, The US housing market for the first time saw a decline in values, as rules in lending had become so loose that many borrowers were unable to pay their obligations.

This led to banks scrambling because they had chopped up mortgages and other types of shaky loans into private securities that were traded and held like stocks or bonds among financial institutions. When many of those assets turned out to be worthless, it brought on a collapse of the financial system that resulted in governments around the world having to inject cash into the system to save the global economy.

In the US, modern housing bubbles had been controllable by the Federal Reserve raising interest rates. However, the 2008 crisis could not be controlled, arguably because of lack of transparency in the financial system.

Why is this bit of financial history relevant to a discussion of Bitcoin? Because although many of the concepts and technologies underlying Bitcoin already existed in 2008, no one had ever put together all the pieces of earlier e-money concepts to create a system that enabled digital trust and transparency.

The Whitepaper

On August 18, 2008, > the domain bitcoin.org was registered. Then, written by someone or a group using the pseudonym Satoshi Nakamoto, a whitepaper was published on October 31, 2008, and shared on numerous software developer mailing lists. Titled “Bitcoin: A Peer-to-Peer Electronic Cash System,” the paper provided a detailed proposal for creating a value system that existed only on the internet. The aim was to create a digital currency that could operate without any connection to a bank or central government and to build a more transparent financial system that could prevent the catastrophic events of the financial crisis from ever happening again.

The Bitcoin proposal featured a number of ideas pulled from systems that preceded it These included:

Secure digital transactions, like the smart contracts outlined by Nick Szabo.

Using cryptography to secure transactions, like in DigiCash.

The theoretical ability to send small amounts of secured value, as E-gold was able to do.

The creation of money outside of governmental systems, as B-Money had proposed.

Using proof-of-work to verify the validity of digital funds, as Hashcash was designed to do.

The whitepaper also introduced several concepts that were new. to many people, including:

Double spending: The risk that a unit of currency is spent more than once via falsified duplication.

Proof-of-work: A mathematical problem that must be solved using computational power.

Hashes: A fixed-length output is produced so that data of different sizes and sequences can be organized.

Nonces: A random number is used to ensure that a particular communication can only be used once.

If you're wondering why this article suddenly shifted from discussing blockchain technology to the eCash system and Bitcoin?

It's because the underlying technology of Bitcoin is the blockchain. To the uninitiated, the term "blockchain" may sound mysterious or even intimidating. But in reality, it's a simple concept: it's a chain of blocks of information.

But why do we need something like the blockchain? To answer that question, we need to look back to the early days of the Internet. The Internet is all about storing and distributing information to large numbers of people. The blockchain has a similar goal, and it builds on previous attempts to improve that distribution.

As the name suggests, a blockchain is a chain of blocks that contain information. This technique was first described in 1991 by Stuart Haber and W. Scott Stornetta in their paper “How to Time-stamp a Digital Document ” It was originally intended to timestamp digital documents so that they couldn't be backdated or tampered with. But it didn't see much use until it was adopted by Satoshi Nakamoto to create the digital cryptocurrency Bitcoin.

I would like to give honorable mention to Don & Alex Tapscott, Lorne Lantz & Daniel Cawrey, and Andreas M. Antonopoulos for their valuable contributions to the world of blockchain technology. You may find some similarities between this blog and the ideas explored in their books.

Connect with me on [LinkedIn;](https://www.linkedin.com/in/0xhriday/)
Subscribe my [Substack Newsletter;](https://0xhriday.substack.com/)
Follow me on [Twitter;](https://twitter.com/0xHriday) [Medium;](https://0xhriday.medium.com/) [Hashnode;](https://codewithkillua.hashnode.dev/)
Find me on [Facebook;](https://www.facebook.com/CodeWithKillua/) [Instagram;](https://www.instagram.com/0xHriday/)