The history of blockchain

Blockchain was introduced with the invention of Bitcoin in 2008. Its practical implementation then occurred in 2009. Bitcoin will be explored in great depth in Chapter 6, Bitcoin Architecture. However, it is essential to refer to Bitcoin here because without it, the history of blockchain is not complete.

Now we will look at the early history of computing and computer networks and will discuss how these technologies evolved and contributed to the development of Bitcoin in 2008:

• 1976 – Diffie–Hellman work on securely exchanging cryptographic keys.
• 1978 – Invention of public key cryptography.
• 1979 – Invention of Merkle trees (hashes in a tree structure) by Ralph C. Merkle.
• 1980s – Development of TCP/IP.
• 1980 – Protocols for public key cryptosystems, Ralph C. Merkle.
• 1982 – Blind signatures proposed by David Chaum.
• 1982 – The Byzantine Generals problem.
• 1985 – Work on elliptic curve cryptography by Neal Koblitz and Victor Miller.
• 1991 – Haber and Stornetta work on tamper-proofing document timestamps. This can be considered the earliest idea of a chain of blocks or hash chains.
• 1992 – Cynthia Dwork and Moni Naor publish Pricing via Processing or Combatting Junk Mail. This is considered the first use of PoW.
• 1993 – Haber, Bayer, and Stornetta upgraded the tamper-proofing of document timestamps system with Merkle trees.
• 1995 – David Chaum’s Digicash system (an anonymous electronic cash system) started to be used in some banks.
• 1998 – Bit Gold, a mechanism for decentralized digital currency, invented by Nick Szabo. It used hash chaining and Byzantine Quorums.
• 1999 – Emergence of a file-sharing application mainly used for music sharing, Napster, which is a P2P network, but was centralized with the use of indexing servers.
• 1999 – Development of a secure timestamping service for the Belgian project TIMESEC.
• 2000 – Gnutella file-sharing network, which introduced decentralization.
• 2001 – Emergence of BitTorrent and Distributed Hash Tables (DHTs).
• 2002 – Hashcash by Adam Back.
• 2004 – Development of B-Money by Wei Dei using Hashcash.
• 2004 – Hal Finney, the invention of the reusable PoW system.
• 2005 – Prevention of Sybil attacks by using computation puzzles, due to James Aspnes et al.
• 2009 – Bitcoin (first blockchain).

These technologies contributed in some way to the development of Bitcoin, even if not directly; the work is relevant to the problem that Bitcoin solved.

Bitcoin

All previous attempts to create anonymous and decentralized digital currency were successful to some extent, but they could not solve the problem of preventing double spending in a completely trustless or permissionless environment. This problem was finally addressed by the Bitcoin blockchain, which introduced the Bitcoin cryptocurrency.

Bitcoin also solves the SMR problem, introduced in 1978 by Leslie Lamport and formalized in 1980 by Fred Schneider. SMR is a scheme that’s used to implement a fault-tolerant service by replicating data (state) between nodes in a distributed system. Bitcoin solves the problem by allowing the replication of blocks at all correct nodes and ensuring consistency via its PoW mechanism. Here, the agreement is reached between nodes (or replicas) repeatedly to append new blocks to the blockchain.

Electronic cash

The concept of electronic cash (e-cash), or digital currency, is not new. Since the 1980s, e-cash protocols have existed that are based on a model proposed by David Chaum.

Just as understanding the concepts of distributed systems is necessary to comprehend blockchain technology, the idea of e-cash is also essential to appreciate the first, and astonishingly successful, application of blockchain, Bitcoin, and more broadly, cryptocurrencies in general. To create an effective e-cash system, two fundamental requirements need to be met: accountability and anonymity.

Accountability is required to ensure that cash is spendable only once (addressing the double-spending problem) and that it can only be spent by its rightful owner. The double-spending problem arises when the same money is spent twice. As it is quite easy to make copies of digital data, this becomes a big issue in digital currencies as you can make many copies of the same digital cash. Spending the same cash twice is known as the double-spending problem.

Anonymity is required to protect users’ privacy. With physical cash, it is almost impossible to trace back spending to the individual who actually paid the money, which provides adequate privacy should the consumer choose to hide their identity. In the digital world, however, providing such a level of privacy is difficult due to inherent personalization, tracing, and logging mechanisms in digital payment systems such as credit card payments. This is a required feature for ensuring the security and safety of the financial network, but it is also often seen as a breach of privacy.

This is because end users do not have any control over who their data might be shared with, even without their consent. Nevertheless, this is a solvable problem, and cryptography is used to address such issues. Especially in blockchain networks, the privacy and anonymity of the participants on the blockchain are sought-after features. David Chaum solved both problems during his work in the 1980s by using two cryptographic operations, namely, blind signatures and secret sharing. These terms and related concepts will be discussed in detail in Chapter 4, Asymmetric Cryptography. For the moment, it is sufficient to say that blind signatures allow the signing of a document without actually seeing it, and a secret sharing scheme enables the detection of double-spending.

In 2009, the first practical implementation of an e-cash system named Bitcoin appeared. The term cryptocurrency emerged later. For the very first time, it solved the problem of distributed consensus in a trustless network. It used public key cryptography with a PoW mechanism to provide a secure and decentralized method of minting digital currency. The key innovation is the idea of an ordered list of blocks composed of transactions that is cryptographically secured by the PoW mechanism to prevent double-spending in a trustless environment. This concept will be explained in greater detail in Chapter 6, Bitcoin Architecture.

Looking at all the technologies mentioned previously and their relevant history, it is easy to see how concepts from e-cash schemes and distributed systems were combined to create Bitcoin and what now is known as blockchain. This concept can also be visualized with the help of the following diagram:

Figure 1.3: The various ideas that supported the invention of Bitcoin and blockchain

With the emergence of e-cash covered, along with the ideas that led to the formation of Bitcoin and blockchain, we can now begin to discuss blockchain itself.