History of Blockchain

When most people think about the blockchain, they typically picture well-known cryptocurrencies like Bitcoin, Ethereum, or decentralized exchanges such as Binance, Coinbase, etc. Blockchain technology isn’t dependent on Bitcoin, but the cryptocurrency market leader has brought it into mainstream and made it widely popular, and Bitcoin nowadays still continues to lead the blockchain movement. However, the blockchain didn’t initially relate to money in any way.

1979–2007: The development of blockchain and its early years

Many of the technology on which blockchain is built were in development long before bitcoin. The Merkle tree, named for computer scientist Ralph Merkle, is one of these technologies. Merkle’s 1979 Ph.D. thesis for Stanford University presented a method for public key distribution and digital signatures known as “tree authentication.” He eventually patented this concept as a way to provide digital signatures. The Merkle tree is a data structure that may be used to validate individual records.

But Merkle was not the only one who helped lay the groundwork for blockchain. In his 1982 Ph.D. dissertation for the University of California, Berkeley, David Chaum presented a vault system for constructing, maintaining, and trusting computer systems by mutually suspicious organizations. This was a system that embodied many of the components of a blockchain. Chaum is also credited with developing digital currency, and he formed the DigiCash firm in 1989.

Stuart Haber and William W. Scott Stornetta wrote an essay regarding digital document timestamping. The article suggested a method to prevent users from backdating or forward dating electronic documents. The objective was to make the document completely private without necessitating record-keeping by a timestamping service. Haber and Stornetta revised the architecture in 1992 to include Merkle trees, which allowed numerous document certifications to reside on a single block.

During these early years, there was plenty of other activity that also helped make blockchain possible. For example, this era saw the rise of the P2P network, a concept popularized in 1999 by the now defunct Napster. Some would argue that Napster was not a true P2P network because it used a centralized server. However, the service still helped breathe life into the P2P network, making it possible to build a distributed system that could benefit from the compute power and storage capacity of thousands of computers.

In this era, the notion of proof-of-work (PoW) was also created to validate computing effort and discourage intrusions. This paved the way for hashcash, a PoW technique that provides denial-of-service protection. Adam Back invented hashcash in 1997 to combat email spam. Then, in 2004, Hal Finney pioneered reusable PoW, a technique for exchanging a non-exchangeable — or non-fungible — hashcash token for an RSA-signed token. The PoW method is critical in bitcoin mining.

2008–2009: Bitcoin and blockchain are born

Satoshi Nakamoto released a white paper outlining the principles of bitcoin and blockchain in 2008. Nakamoto is assumed to be a pseudonym adopted by the person — or group of people — who suggested the technique. According to the white paper, blockchain infrastructure will enable safe, peer-to-peer transactions without the need for trusted third parties such as banks or governments. Although Nakamoto’s exact identity is unknown, there has been no shortage of ideas.

The bitcoin/blockchain architecture, which was presented in 2008, was based on technology and concepts developed over the previous three decades. Nakamoto’s design also introduced the notion of a “chain of blocks,” which allowed for the addition of blocks without the need for them to be signed by a trusted third party. Indeed, Nakamoto characterized an electronic coin as a “chain of digital signatures,” with one owner transferring the coin to the next. This is accomplished by “digitally signing a hash of the previous transaction and the public key of the next owner and adding both to the end of the coin,” according to his white paper.

However, Nakamoto’s white paper was only the beginning. Bitcoin went from concept to reality in 2009.

Nakamoto programmed the protocol to ensure that there will never be more than 21 million bitcoin. Over 18 million have already been extracted. Based on current mining rates, bitcoin should hit the 21-million limit around 2140. In the meanwhile, despite price swings, their worth continues to rise. A bitcoin was valued less than one penny in October 2009. Each bitcoin is now worth more than $35,000 today (USD).

2010–2012: Bitcoin gaining popularity

On May 22, 2010, Laszlo Hanyecz paid 10,000 bitcoin for two Papa John’s pizzas, making bitcoin history. The pizzas were priced at roughly $25, and the deal is now worth more than $350 million.

Not long after, a programmer named Jed McCaleb founded Mt. Gox, a bitcoin exchange located in Tokyo. Mt. Gox was an abbreviation for Magic: The Gathering Online eXchange, a fantasy card game. Mt. Gox processed more than 70% of all bitcoin transactions at its height. However, in August 2010, a hacker exploited a weakness in the blockchain coding to generate over 184 billion bitcoin in block 74,638, damaging bitcoin’s image. Nakamoto released a fresh version of the bitcoin software, but by the end of the year, he had vanished totally from the bitcoin ecosystem.

Despite Nakamoto’s absence, the bitcoin trend remained consistent. One-quarter of the 21 million bitcoin had been mined by the end of January 2011. By early February 2011, the value of a bitcoin had reached parity with the US dollar. Mt. Gox was soon sold to Mark Karpelès by Jed McCaleb. Soon after, bitcoin achieved parity with the Euro and the British Pound Sterling. Wikileaks began taking bitcoin donations later that year. However, Mt. Gox was hacked and bitcoin was taken, producing an artificial decline in value and leading trade to be suspended. Then, in October 2011, Litecoin was released, becoming one of the first bitcoin forks.

By 2012, the cryptocurrency craze had taken hold. For much of the year, the bitcoin price remained around $5, with several up and down changes. Mihai Alisie and Vitalik Buterin founded Bitcoin Magazine in early that year, publishing their debut issue in May. The Bitcoin Foundation was also founded to promote bitcoin and enhance public opinions of it.

Coinbase raised more than $600,000 in a crowd-funded seed round the same year, paving the groundwork for it to become one of the top bitcoin exchanges. Furthermore, OpenCoin was established by Chris Larsen and Jed McCaleb. As a result, the Ripple transaction protocol for currency transfers and real-time payments was created.

2013–2015: The growth of Ethereum and blockchain technology

By 2013, bitcoin had become well-established and had continued to rise. Coinbase reported selling $1 million in bitcoin in a single month at more than $22 per coin in February. With 11 million bitcoin in circulation at the end of March, the currency’s total worth had surpassed $1 billion. In October of that year, the first bitcoin ATM opened in Vancouver, British Columbia.

But it wasn’t all good news for cryptocurrencies. Cryptocurrencies are prohibited in both Thailand and China. Mt. Gox’s money in the United States were confiscated by the United States Federal Court. In addition, the FBI took down Silk Road, seizing 26,000 bitcoin.

Despite these hurdles, one of the most significant occurrences in the history of blockchain occurred. Bitcoin Magazine co-founder Vitalik Buterin issued a white paper proposing a decentralized application platform. This resulted in the establishment of the Ethereum Foundation, which was established in 2014. Ethereum pioneered the use of blockchain technology for applications other than money. It offered smart contracts and gave a platform for developers to construct decentralized apps.

In 2014, financial institutions and other businesses began to understand and investigate the possibilities of blockchain, moving their attention from digital money to the development of blockchain technology.

However, bitcoin remained in the spotlight. Bitcoin was considered as private money by the UK tax authorities. The bitcoin exchange Mt. Gox declared bankruptcy. In addition, the vice chairman of the Bitcoin Foundation was detained for money laundering. Even so, some firms, including the Chicago Sun-Times, Overstock.com, Microsoft, PayPal, and Expedia, accepted bitcoin by the end of the year. The adoption of Bitcoin empowered blockchain popularity.

The Ethereum Frontier network debuted in 2015, allowing developers to create smart contracts and decentralized apps that could be deployed on a live network. Ethereum was on its way to become one of the most important blockchain applications. It garnered a vibrant development community that is still active today.

However, other significant events occurred that year. NASDAQ has begun a blockchain testing. The Hyperledger project was started by the Linux Foundation. In addition, nine large investment banks formed the R3 consortium to investigate how blockchain may help their operations. The collaboration grew to more than 40 financial institutions in six months.

2016-present: Blockchain goes mainstream

Today, a growing number of industries view blockchain as a valuable technology — separate from bitcoin or other cybercurrencies. Despite this trend, however, each year from 2016 to present had its ups and downs.

Although the market has entered the bear season since the start of 2022 after the bull run boosting Bitcoin price close to $70,000. There has been a rising interest in using blockchain for purposes other than cryptocurrency and we expect this trend to continue in the future, as governments and businesses turn to blockchain for many applications. Voting, real estate, fitness monitoring, intellectual property, the internet of things, and vaccine delivery are all examples. Furthermore, numerous cloud providers now provide blockchain as a service, and there is a higher-than-ever demand for competent blockchain developers. The future looks bright and let’s see what future holds for Bitcoin and blockchain in the upcoming years.

Andy Hoang, Fiberblock Head of BD & Author at Blockwealth