Although the concept of a blockchain was first fully actualized in Satoshi Nakamoto's Bitcoin Whitepaper, the underlying concepts and technologies draws from years of research across cryptography, computing, and economics. In this section we will uncover some of this history:
We start with the idea of centralization. Centralization, or control by a single authority or entity, is a common and pervasive form of governance. We trust (or lack trust of) central authorities, like banks, governments, and other institutions to maintain order and structure within the space they operate. This trust is not universally earned by every central authority, as there are many examples where the trust given to the authority is broken. Sony employees have had their social security numbers stolen from employee databases, Target customers have had their credit card information stolen, banks have compromised user accounts to thieves, and governments have taken away the rights of their citizens. Centralized technology and data allows for the monopolization of power.
The problems in centralization came to a head in the global financial crisis that occurred in 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 peer-to-peer electronic cash system, 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 an intermediary, such as a bank, to process the payments. When we say peer-to-peer, we are essentially describing a transaction from one entity directly to another entity. There is no intermediary the transaction has to pass through. For example, if you schedule a payment via a banking app on your phone to a friend of yours, the actual flow of money goes from an account controlled by your bank to an account controlled by your friend's bank. If your friend does not have a bank account, you could send the money from your bank to a third party, like a money transfer company, where your friend could pick up the money. Even if you withdrew the money from the bank and mailed it to your friend, you would need to have an address to send it to and rely on the speed of your postal service to get the money there safely.
Bitcoin attracted attention for its ability to allow for peer-to-peer transactions without a centralized intermediary. Technologists were drawn to the blockchain, the underlying technology on which Bitcoin operates. To remind you, a blockchain is a decentralized ledger that records transactions or activity between two participants permanently with verification.This verification comes in the form of reviewing cryptographic functions and timestamps. Transactions can be verified on multiple computers, which are referred to as nodes. Blockchain technology can be uncoupled from the Bitcoin protocol and can be used for many other kinds of cryptocurrencies and applications. It can also be applied to many industry wide use cases, specifically provenance tracking and management, creative rights management, patient records, etc.
With the surge of attention to the Bitcoin codebase and white paper, Vitalik Buterin, a contributor to the community, saw some limitations in the design of Bitcoin and began designing an open source protocol starting in late 2013, now known as Ethereum. Ethereum also operates on a blockchain, but it allows for other digital assets to be recorded on the ledger, unlike the Bitcoin blockchain. Released in 2015, the Ethereum protocol allows for programmable instructions, or smart contracts, to be built around a set of transactions, which automates many processes. This ability helps make the Ethereum blockchain more versatile than other blockchains. The Ethereum blockchain operates with Ether (ETH), the digital token that powers functions and is necessary to run decentralized applications.
In his article Here Comes the Epoch of Blockchain, Andrew Keys, Head of Business Development at ConsenSys, lays out the areas of our world that are centralized, why it causes issues, and how blockchain can be a catalyst for change. He emphasizes that the Ethereum blockchain gives users the ability to program interactions with other users - if you do this, I will give you this - opening up new possibilities for people from all over the world to interact with each other. The promise of blockchain that is beginning to be realized is that a blockchain can give anyone the opportunity to interact with anyone else, and not have to trust a central authority in the process. This is incredibly powerful. This seemingly simple adjustment in suppositions of a computer network allows for dramatically new and different applications to be built, such as digital currency like Bitcoin, for example.