The History of Blockchain

By the end of this lesson, you should have a basic grasp of the rationale behind modern blockchain platforms and should have an understanding of the direction the blockchain industry is currently moving in.
June 1, 2022

Blockchain 101: The History of Blockchain

Widely praised as a potentially revolutionary technology with applications in most industries, blockchain technology is still a relatively new tool that was first made public in October 2008 with the release of the seminal Bitcoin whitepaper, titled: Bitcoin: A Peer-to-Peer Electronic Cash System.

Produced in response to the then global financial crisis now known as the “Great Recession”, Bitcoin was designed to address the shortcomings of fractional reserve banking — an almost ubiquitous form of banking that allows banks to hold just a small fraction of depositor funds as reserves while using the rest for various business purposes. This arguably leads to greater default risk and has required some banks to be bailed out.  

This crisis fueled a revolution in alternate monetary systems that are 100% backed, globally accessible, and completely decentralized — removing banks, governments, and other centralized intermediaries from the financial equation. 

By the end of this lesson, you should have a basic grasp of the rationale behind modern blockchain platforms and should have an understanding of the direction the blockchain industry is currently moving in. 

The Ideals Behind Blockchain

Contrary to popular belief, the words blockchain and Bitcoin are not synonymous. The former is a type of decentralized network that allows a large number of people to contribute to its operation and security in a peer-to-peer fashion by operating a node or participating in the process of mining. Whereas the latter refers to a decentralized currency system built on a specific blockchain implementation. 

Not coincidentally, the inventor of both blockchain architecture and the Bitcoin payment system is a single anonymous entity, known only as Satoshi Nakamoto. Despite all attempts, the real-world identity of Satoshi has eluded investigators — though some potential candidates have been put forward. 

Blockchain was built around several key ideals:
  • Self-sovereignty: Blockchain-based digital currencies are centered around the concept of ‘self-sovereignty’. This essentially means users have sole control of their funds and do not need to rely on centralized intermediaries like banks or governments to authenticate, dispense or use their assets. 
  • Immutability: Blockchains are a permanent record of all the transactions users conduct over its associated peer-to-peer network. This record is generally freely accessible, providing an immutable ledger that cannot be altered or deleted without completely subverting the blockchain’s security. 
  • Decentralized consensus: Almost anybody can participate in helping to operate and secure a blockchain network by running a node (a computer running the blockchain client) or by mining (generally requiring specialized mining hardware). This ensures the platform is operated by its users while warding off attacks.  
  • Permissionless access: Unlike traditional banks and financial infrastructure, anybody from anywhere can access blockchain-based cryptocurrencies since they are completely free from censorship and individual access requirements. 
  • Absolute transparency: Most blockchains have a public ledger. This means all transactions can be freely browsed by anybody using one of its public block explorers. For example, Blockchair for Bitcoin transactions or Etherscan for transactions on Ethereum.
  • Security: Since blockchains are decentralized and are cryptographically secured, they are incredibly resilient to attacks that could otherwise take down centralized services — such as denial of service (DDoS) and malware attacks.  

That said, these are properties inherent to the Bitcoin blockchain. As we’ll soon see, later blockchain implementations make some trade-offs to better fit their use cases.  

Blockchain is Evolving

Bitcoin is known as a first-generation blockchain. As the first of its kind, it was the proving ground for decentralized ledgers, and its potential was quickly recognized by cryptographers, engineers, and developers the world around — who found that blockchain technology could be applied to a huge number of use cases (besides peer-to-peer payments). 

The evolution of blockchain technology - illustrated are the different generations of blockchain technology
Blockchain evolutionary iterations
First generation blockchains include: Bitcoin, Dogecoin, Litecoin.

One of these use cases is smart contracts, which are blockchain-based programs that run on a decentralized virtual machine. The second generation of blockchains, more broadly known as smart contract platforms, include the ability to run decentralized applications (DApps). These are simply smart contracts that connect with a front-end user interface, which allows users to easily interact with them. 

Second generation blockchains include: Ethereum, Ethereum Classic, NEO.  

But while smart contract platforms have become incredibly successful, they also proved to be extremely resource-intensive and early platforms ended up suffering from a problem known as ‘blockchain bloat’ and congestion — due to a lack of scalability. Indeed, most smart contract platforms can only process around 14 transactions per second (tps). This limited their utility while somewhat stalling the uptake of smart contracts and DApps. 

So-called third-generation blockchains seek to address this issue by incorporating a number of efficiency improvements, including energy efficient consensus mechanisms (e.g. Proof-of-Stake) as well as several scalability solutions — such as sharding and second layers. Nonetheless, some argue that most present Proof-of-Stake blockchains are more centralized than their Proof-of-Work counterparts.  

Third generation blockchains include: Solana, Avalanche, Polygon 

Finally, there are the fourth generation blockchains. These seek to simultaneously tackle all the problems faced by earlier generations, while bolting on additional functionality — such as cross-chain interoperability and support for multiple programming languages. 

Fourth generation blockchains include: Polkadot (Substrate), Cosmos 

The number of fourth generation platforms is currently quite limited but will likely expand in the months and years ahead as third-gen platforms incorporate upgrades to transition to fourth-gen specifications. 

A Timeline of Blockchain Innovations

A timeline of blockchain innovation pre-2008: The prelude to Bitcoin: Asymmetric encryption, Merkle trees, elliptic curve encryption, SHA256, and the first Proof-of-Work algorithm (HashCash) are invented. August 2008: The enigmatic Satoshi Nakamoto publishes the Bitcoin whitepaper. January 2009: The first Bitcoin block was mined and the first transaction was made between Hal Finney and Satoshi Nakamoto. August 2012: Peercoin launched and introduced Proof-of-Stake — a more efficient decentralized consensus system. December 2013: Ethereum Co-Founder Vitalik Buterin introduces the first blockchain-based smart contract platform. July 2015: The Ethereum blockchain mainnet launched. Several months later, the first wave of Ethereum-based tokens were funded and deployed. December 2015: The Linux Foundation unveils the Hyperledger platform, which is designed to provide a standard for enterprise blockchains. The first permissioned blockchains enter development. August 2017: Bitcoin Cash split off from Bitcoin following a hard fork. Shorter after, it briefly held the position of second-largest cryptocurrency by mark capitalization. October 2017: The Polkadot Foundation raises $140 million as part of its ICO for the interoperable Polkadot platform. June 2019: Facebook announced a new cryptocurrency known as Libra (and later Diem). The project would later be scrapped. March 2020: Solana concludes its initial coin offering (ICO), crowdfunding arguably the first third-gen blockchain.May 2020: Polkadot's Relay Chain goes live as the genesis block is launched. December 2020: The Ethereum beacon chain activates, marking a significant step toward resolving Ethereum's energy and scalability challenges.
A timeline of Blockchain innovations from pre - 2008 to 2020

Pre-2008: The prelude to Bitcoin: Asymmetric encryption, Merkle trees, elliptic curve encryption, SHA256, and the first Proof-of-Work algorithm (HashCash) are invented.

August 2008: The enigmatic Satoshi Nakamoto publishes the Bitcoin whitepaper.

January 2009: The first Bitcoin block was mined and the first transaction was made between Hal Finney and Satoshi Nakamoto.

August 2012: Peercoin launched and introduced Proof-of-Stake — a more efficient decentralized consensus system. 

December 2013: Ethereum Co-Founder Vitalik Buterin introduces the first blockchain-based smart contract platform. 

July 2015: The Ethereum blockchain mainnet launched. Several months later, the first wave of Ethereum-based tokens were funded and deployed. 

December 2015: The Linux Foundation unveils the Hyperledger platform, which is designed to provide a standard for enterprise blockchains. The first permissioned blockchains enter development. 

August 2017: Bitcoin Cash split off from Bitcoin following a hard fork. Shorter after, it briefly held the position of second-largest cryptocurrency by mark capitalization. 

October 2017: The Polkadot Foundation raises $140 million as part of its ICO for the interoperable Polkadot platform. 

June 2019: Facebook announced a new cryptocurrency known as Libra (and later Diem). The project would later be scrapped. 

March 2020: Solana concludes its initial coin offering (ICO), crowdfunding arguably the first third-gen blockchain.

May 2020: Polkadot's Relay Chain goes live as the genesis block is launched. 

December 2020: The Ethereum beacon chain activates, marking a significant step toward resolving Ethereum's energy and scalability challenges.

Lesson Recap (TL;DR)
  • Bitcoin was the first blockchain-based digital currency to launch, and clearly demonstrated the viability and utility of blockchain technology. 
  • Since the launch of Bitcoin, hundreds of other blockchains have launched, many of which introduced new innovations, and addressed the challenges faced by their predecessors.
  • There are now four generations of blockchain platforms. The latest generation is designed to be secure, scalable, and interoperable while remaining fully decentralized and permissionless.

Sources:
  1. "Bitcoin: A Peer-to-Peer Electronic Cash System", Satoshi Nakamoto, 2008, https://www.ussc.gov/sites/default/files/pdf/training/annual-national-training-seminar/2018/Emerging_Tech_Bitcoin_Crypto.pdf
  2. "Great Recession." Wikipedia, Wikimedia Foundation, 28 February 2008, https://en.wikipedia.org/wiki/Great_Recession
  3. "Ethereum Whitepaper." Vitalik Buterin, 2014, https://ethereum.org/en/whitepaper/

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