Where did it come from?

Paraphrased from wikipedia with common terminology added: A blockchain can be thought of as an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way. Blockchains maintain a list of records (transactions), called blocks, which are linked using cryptography, and by design are resistant to the modification of the data. Blockchains are typically managed by a peer to peer network collectively adhering to a protocol (set of rules), for inter-node communication (nodes are peers/computers on the network) and validating new blocks (new groups of transactions). New blocks (groups of transactions) are committed to the ledger by specific nodes called miners. Miners contribute a scarce resource (computational power) to the network in order to solve a complex math problems, a process which lends security to the network.   Once recorded, the data in any given block cannot be altered retroactively without alteration of all subsequent blocks, which requires consensus of the network majority (majority of nodes) or a tremendous amount of computational power (51% attack). Though blockchain records are not unalterable, blockchains may be considered secure by design and exemplify a distributed computing system with high Byzantine fault tolerance (defendability of distributed compute system to failure/malicious behavior of some nodes). Blockchains therefore claim decentralized consensus.

While the bitcoin white paper, published under the pseudonym Satoshi Nakamoto provides the first specification of blockchain as we know it today, it is noteworthy that it is based on a myriad of research and concepts that date back over 25yrs prior to the Bitcoin whitepaper. The core concepts that blockchain combines include:

  • Public/Private key encryption & digital signatures

  • Proof-of-Work

  • Distributed network consensus

  • Peer-to-peer distributed systems

It combines these methodologies in a way to solve the “double spend” problem of predecessor systems. The double spend protection is provided by a decentralized P2P protocol for tracking transfers of coins (all network participants have a copy of the ledger and observe that rules are being obeyed). Solving the double spend problem enables digital scarcity. Bitcoin has better trustworthiness because it is protected by computation - a scarce resource that network participants are incentivized to contribute because they are rewarded with the native currency. Bitcoins are "mined" using the Hashcash proof-of-work function by individual miners and verified by the decentralized nodes in the P2P bitcoin network. Here is an abridged list of research and individuals who contributed to concepts underpinning the Bitcoin protocol:

  • 1979 - (Merkle) - Hash trees/Merkle trees

  • 1982 - (Lamport, Shostak, Pease) - Malicious,fault tolerant consensus described in the “Byzantine Generals Problem”

  • 1983 - (David Shaum) - DigiCash, an electronic money corporation, and founder of Blind Signature Technology and additional advancements in public/private key encryption.

  • 1992 - (Cynthia Dwork and Moni Naor) - early research serving as the foundation for proof of work -  “Pricing via Processing or Combatting Junk Mail” - “the main idea is to require a user to compute a moderately hard, but not intractable, function in order to gain access to the resource, thus preventing frivolous use”. Expanded on by Adam Back

  • 1985 (Miller,Koblitz) - Elliptic Curve Cryptography

  • 1998 - (Nick Szabo) - Bit Gold - uses proof-of-work and mining to create new BitGold.

  • 1998 - (Wei Dai) - B-Money - protocol outlines aspects of which Bitcoin is based. The concept of proof-of-work, the broadcast and signing of transactions, the decentralized ledger, and the incentivization of currency creators through the mining process.

  • 2001 - (Bram Cohen) - Bit Torrent - Bitcoin shares the peer to peer nature of Bit Torrent and similar to Bit Torrent’s file distribution structure, Bitcoin’s ledger is spread out across many sources (all the full nodes).

  • 2002 - (Adam Back) - “HashCash” used a cost function as an anti-DOS mechanism as it required malicious parties to use the processing power of their devices as a proof-of-work.

  • 2004 - Hal Finney - Reusable Proofs of Work

With blockchain technology now well established having been invented ~10 years ago and battle tested with the release and the success of the Bitcoin protocol, it has set the stage for an incredible amount of innovation - innovations on blockchain design, contemplation of different use cases, which have the ability to create a step function change for many industries.

References:

  1. History of Bitcoin

  2. Wikipedia: Bitcoin