That mania has since calmed down, and now that (most of) the dust has settled, it’s time to look beyond the volatility of the markets, towards the blockchain technology that underpins this quiet revolution. So what is the history of blockchain technology and how will it impact our futures?
A blockchain is an immutable, distributed ledger of all transactions that take place in a network. In this article, we’ll analyse the history of blockchain, from its inception in 2008 until the present day, in the hope that by getting to know its past we can understand its present and project its future.
Bitcoin’s whitepaper emerged in January 2009, the product of Satoshi Nakamoto’s mind. While his or her identity remains a mystery, the paper outlined a “purely peer-to-peer version of electronic cash (allowing) online payments to be sent directly from one party to another without going through a financial institution”.
While the paper can be quite technical, its disruptive potential lies in a simple proposition: to replace trusted institutions with a trustless system. Instead of a central bank backing a currency, Satoshi proposed a decentralised system which records all transactions in that currency which can’t be altered and is validated by the nodes that run its network.
And so blockchain was born. The seed had been planted. The idea that this technology could be applied to other industries soon followed.
Commonly associated with Vitalik Buterin’s Ethereum, smart contracts apply blockchain to other kinds of instruments such as bonds, assets or contracts, instead of just currency or tokens. Buterin launched his project after becoming frustrated with Bitcoin’s technical limitations.
Today, developers are building hundreds of projects on Ethereum’s network. In theory, it can render any trust-based institution obsolete as mediation of transactions becomes redundant. Most likely, the established companies in these industries will adopt or co-opt these solutions themselves to avoid succumbing to innovation.
Even though cryptocurrencies are digital constructs, their concepts are often expressed in gold terminology, such as mining. Mining, or proof-of-work, is the process used by computers to validate transactions in a blockchain by solving increasingly complex mathematical problems which consume a lot of resources.
This method ensures the essence of the blockchain, but it also uses up a lot of electricity and computational power, leading many companies to set up data centres exclusively dedicated to mining. To give you an idea, Bitcoin mining is set to consume as much electricity as Denmark by 2020.
That’s why a lot of projects are currently assessing moving to the more cost-effective but still secure proof-of-stake system. With this new method, an algorithm determines the creator of a new block of transactions by its stake (measured in wealth or number of tokens from that network), doing away with unnecessary energy and power consumption without sacrificing the integrity of the system.
If proof-of-stake proves successful, the inefficiencies of proof of work disappear, and blockchain technology will be set for mass adoption.
Truly disruptive technology is never a finished product. Like other exciting areas of human progress such as the internet, Artificial Intelligence or Internet of Things, blockchain has problems that need to be worked out.
These problems are of a technical nature and, once surpassed, will ensure blockchain can deliver the efficiencies that so many, from established companies to respected experts, recognise in its potential.
The blockchain revolution has been in the making for a decade. In the first ten years, it managed to generate a $420 billion market. What will it have achieved by 2028?
Check out our other Blockchain guides here.