Blog manager: Giovanni Capaccioli

Translated by: Lawlinguists

How the Blockchain got started

How the Blockchain got started.

How the blockchain got started is one of the most frequently asked questions, given the popularity that this system has been gaining in recent years. This article will emphasise the fact that the concept itself is ancient, dating back almost 600 years, and how Satoshi Nakamoto, the inventor of today’s blockchain, conceived and thought through this modern technology.

The ancient precursors

The concept of blockchain can be traced back to the fifteenth century with the ledger created by a people of Micronesia, an archipelago in the Pacific Ocean, north of Australia.

During their movements across the islands, the inhabitants of the island of Yap reach the island of Palau: and this is where the story begins. The inhabitants were affected by a particular stone to such an extent that it acquired value and they began to use it as an exchange currency.

The ledger

The value of these stones/coins was directly proportional to their size. The coins were called Rai, and they were round, as big as people and mined by excavating the ground. Their value also increased based on their history: in fact, from the moment of creation, the more difficult the extraction process, the greater the value ; the value would increase even more if someone had died to transport it.

Rai were thus hard to transport or use in exchanges, that is how the blockchain got started, or at least its concept, because the inhabitants felt the need to trace the exchanges they had carried out without moving the stones, and so the ledger got started.

The advantage

This was certainly a chore, but it was also an advantage, economically speaking, because the individual was the first to enjoy the advantage deriving from updating the ledger: if the owner did not do it first, in fact, they would lose the Rai because they were not “accounted for” in the ledger.

Here the concepts of decentralisation, distribution and gamification can be seen taking root through a shared management of value, concepts directly leading to how the blockchain was launched

The 20th Century

At the end of the 20th century the concept evolved with sufficiently overarching force.

The 90s saw the inception of David Chaum, a renowned cryptography professor, and the Cypherpunk movement, a group of computer scientists who believed so much in encryption as to argue that encryption contracts, flanked by digital currency, had the power to bring economic and political freedom to the real world.

The first digital currency systems

David Chaum became famous for having created a digital currency system based on encryption thanks to which digital currency could be sent (blind signatures) with the use of encryption keys. He applied this concept to DigiCash, a company he founded. Perhaps too far ahead of its time, the company failed, not least because it required the centralised approval of the Dutch National Bank.

Later on, Nick Szabo, a prominent member of the Cypherpunks, built the BitGold project on which the concept of Proof Of Work consensus was based, which is what would later become the Bitcoin consensus mechanism: miners mint money by solving a complex encryption problem.

In 2004, cryptography professor Hal Finney, who introduced the RPOW, i.e. “Reusable Proof Of Work”, which was a sort of variant of the Szabo POW.

Satoshi Nakamoto

Finally, we come to how the blockchain really got started and thus to the well-known Satoshi Nakamoto, who published his document in 2008 in the “Cryptography” mailing list: “Bitcoin: A Peer-to-Peer Electronic Cash System”.

It is precisely by reading the official document (White Paper) in question that we are able to fully understand the reasons that led Nakamoto to build such a system. The societal problems he highlighted were the excessive dependence on authorities, called “Reliable Third Parties” and the weaknesses of the system highlighted by the defective and excessive use of the “trust-based model“.

Nakamoto claims that transactions based on these two models entailed that financial institutions have kept their operating costs high, thus placing a burden on users. The problem becomes much more tangible with small transactions.

Computer fraud itself is now being treated as an “unavoidable and accepted levy”.

Uncertainties about payment are curtailed through the use of cash, but the problem remains for digital payments with people whose reliability is uncertain (trust).

That is why Nakamoto felt that a transaction system based on cryptographic evidence, rather than trust, was needed. The same fraud risks could be drastically reduced thanks to the use of a “system of transactions computationally unworkable in terms of being reversed”.

This could not and cannot be applied in a model that is operating securely, like the cloud, but that has certain flaws and high chances of being breached. So what we need is a system that is more secure than the cloud (see the article cloud vs blockchain).

Then Satoshi Nakamoto introduced the very first blockchain: Bitcoin.

Today

That is how the blockchain got started, and in its wake, its “clones”, such as Zcash, Monero and Bitcoin Cash. From this idea and from Nick Szabo’s Smart Contract idea, other blockchains such as Ethereum, Tezos and Ripple arose.

From the first blockchain, the one on which Bitcoin is based, more and more specialised blockchains were created. The introduction of systems such as smart contracts has subsequently greatly expanded the use and potential of the blockchain system in real life: this type of technology is becoming more and more tangible to an increasingly large portfolio of users. It ranges from private institutions, such as banks or insurance companies, to ordinary people, thus making various kinds of transactions (both monetary and information) possible, among various entities and/or private and/or professional and/or companies and so on: quickly and safely, while at the same time reducing the costs and risks of intermediation.