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THE HISTORY OF BLOCKCHAIN, THE SOLUTION TO A PROBLEM

In this past year, there’s been an increasing interest to understand what blockchain is and how it has appeared. In the following posts we will answer all these questions.

By: Wladimiro Navarro, Sales & Marketing Manager in Addalia

Blockchain or Smart Contracts often times are related to Bitcoin or news that involve this cryptocurrency. It makes sense. Bitcoin is born from the need to have a digital coin that is not controlled by any company and which transactions are safe and immune to manipulation.

For this purpose it was developed an operating model that was supported by a series of concepts and technologies that allowed this to happen. But the system that supports Bitcoin and the rest of cryptocurrencies that there are has surpassed its initial goal, and its usage in other fields will be a revolution in the way many daily regular transactions are done.

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The “problem”

When I want to pay something with actual money, or simply give money to someone, the process is simple and quite safe. I give a coin that goes from hand to hand: I pass it to someone so I don’t have it anymore and someone else then has it. There’s no doubt that the transaction has happened, that I had the money and now it’s in the hands of the payee.

This gets complicated when we want to do it on the digital world. How do I know that you have the money you say you have? How do we make sure that the money that you are sending me effectively goes from your hands to mine, and that you are not sending the same money again to third parties? For this, we need to trust someone who will regulate the transactions and manage the ownership of the “electronic” money. That is, we need a main entity that will regulate and assure the transactions.

Banks certify the money that we have in our accounts and guarantee that all transactions are done in a safe way. Above them is the Government, which makes sure that the banks do their job correctly. Can’t we do this without having to depend on the “good will” of the middleman and regulation bodies?

It would be interesting to have a system that was renowned by all, where no one would have to intervene to certify that the transactions are indeed happening and in which these same transactions were irreversible so that no one could undo or alter them… and that no one could forbid or censor the transactions, nor forbid or authorize the participation in the system… and that the management of the money would not depend on any mediator. That’s what Bitcoin was aiming… and it seems they’ve succeeded.

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A little bit of history

Since the arrival of the first personal computers, and later, the Internet, a series of independent technologies were developed which, correctly combined, will create a model that solves the previous problem:

  • Asymmetric key cryptography
  • Blockchain
  • ‘Peer-to-peer’ nets (P2P)
  • Timestamping

During the 90’s were written several essays on independent solutions for electronic payments that do not depend on the intervention of any supervising or regulating central entity.

In 1991 came out the first safe blockchain work that used cryptography and that evolved until in 1998, when Wei Dei gave an independent solution for electronic payments based on asymmetric key cryptography. This first work is continued by other authors until in 2008 is published, under the pseudonym of Satoshi Nakamoto, an article that will define the mechanism needed to implement a digital coin: the Bitcoin. It’s based on the usage of blochains to register the transactions on a peer-to-peer net. Later we will explain how it works.

On the 3rd of January of 2009 Bitcoin is launched with the first open-source software, this is, an OSS which code is accessible to any programmer and therefore its design is verifiable. The first bitcoins are born. From here, the development of networking nodes and the usage of Bitcoin to make a payment without any intermediary nor regulator grows to todays levels, with the Bitcoin being valued more than 4000 €. At the same time, many other cryptocurrencies appear, based on the same concept but with different aims. Nowadays there are more than a 1000 different cryptocurrencies that can be bought and sold.

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Programmers who work on improving it and developing it further develop the Bitcoin network. Since it’s an independent project where no one owns its technology, its evolution happens by community consensus. Each proposal that is approved by the majority is incorporated. In 2013, a programmer involved in the development of Bitcoin named Vitalik Buterin, proposed the possibility of managing not only the transaction of money in bitcoins but also using the model to execute applications in a distribution mode that, again, would not depend on any server or entity to make independent contracts.

The community did not accept his proposal and in 2014 a group of developers decided to start a project called Ethereum to develop a public distribution platform, “open-source”, based on blockchain, to execute Smart Contracts. The concept is finally here!
In order to handle the execution of Smart Contracts, the compensation to networking nodes and the funding of the platform’s development, “Ether”, a token or cryptocoin was issued, and a contagious enthusiasm towards it has skyrocketed its share value in the last few months

In July of 2015, after various prototypes, the first Ethereum platform is launched with the idea of developing it further to supply it with all the planned functions.

At this point we are in front of a pioneer cryptocurrency; the Bitcoin, the star of many news. A technology; the blockchain, which makes it possible to exchange money without any entity intervening. An app; the Smart Contracts, which use the same scheme as the cryptocurrency which allow the execution of contracts without any intermediaries who own them.

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