“Here to stay”: How blockchain technology has developed
Bitcoin is repeatedly declared dead - and yet starts a sensational rally again a little later. This is also the case in 2024: While the mother of cryptocurrencies did not make any big leaps last year and cost around 27,000 dollars in October, the exchange rate rose rapidly to over 73,000 dollars by March 2024. One of the main causes of the recent price increase was the huge success of Bitcoin spot ETFs in the US, which were first approved for trading by the SEC in January. But how did the technology behind cryptocurrencies, the blockchain, actually come about, and what else is it used for?
Who invented blockchain?
The finance professor William N. Goetzmann from Yale University He once said that blockchain solves a problem that dates back to one of the first questions in finance. Many would have the false idea that coins represent an archetype of money, but accounting systems and promissory notes had developed long before coinage began in early cities in the Middle East. Historians can still read these book entries today, as the transactions were recorded in clay tablets. As soon as the clay had dried, the deal was definitely settled. The values could then no longer be changed - Götzmann sees parallels with Bitcoin here.
The creation of blockchain was therefore an answer to the problem of double spending in digital payment systems without the need for a central authority. By using cryptography and consensus mechanisms, the blockchain makes it possible that even parties who do not know and/or trust each other can securely make transactions without relying on an intermediary.
But who finally considered the blockchain known today? First of all, it wasn't the “Bitcoin inventor” Satoshi Nakamoto. Rather, the roots of blockchain technology go back to the late 1970s, when computer scientist Ralph Merkle patented the idea of hash trees or merkle trees. These trees represent a data structure that makes it possible to store data efficiently by linking blocks together using cryptographic hash functions.
In the late In the 1990s, Stuart Haber and W. Scott Stornetta used Merkle treesto develop a system that ensures the integrity of document timestamps. They were the first to come up with the idea of encrypting documents in data blocks using hash values and time stamps and chaining them together. By using cryptographic hash functions, they were able to ensure that the time stamps could not be manipulated. This work is regarded as one of the earliest applications of blockchain technology and laid the foundation for concepts that would later play a central role in the development of blockchain systems such as Bitcoin and other cryptocurrencies.
It was not until 2008 that this principle met with widespread interest: In the white paper”Bitcoin: A Peer-to-Peer Electronic Cash System” explained by an anonymous author who is still anonymous today under the pseudonym Satoshi Nakamoto The ideas of blockchain and Bitcoin combined for the first time. Nakamoto uploaded the blockchain source code SourceForge, a file sharing service for software projects, so that software developers around the world could contribute to the project. The first modern blockchain was launched in January 2009 together with the associated cryptocurrency Bitcoin. With the creation of the first 50 Bitcoins and the generation of “Block 0,” the so-called genesis block, the Bitcoin network was created. By the way, back then, the first exchange rate for 1 Bitcoin was 0.07 US dollars...
A few years after the first Bitcoin was created, developers began thinking about blockchain applications that went beyond using them as cryptocurrencies. For example, the inventors of Ethereum recognized the potential of blockchain technology for financial transactions as well as for transferring other digital assets and building decentralized applications (DApps).
A major contribution from Ethereum was the introduction of smart contracts: self-executing contracts on the blockchain that can automatically trigger transactions when certain predefined conditions are met. These “smart contracts” opened up new opportunities for using blockchain technology in various industries and areas of application beyond pure payments. Blockchain-based innovations include digitized real asset shares, which divide real assets, such as real estate, into tokens and thus make them accessible to the broad masses of private investors. Or in the supply chain sector, where smart contracts enable massive increases in efficiency through accelerated processing of all processes. Because value chains can work faster if intermediaries are replaced by smart contracts.
What technology is blockchain based on?
But how does a blockchain actually work? Put simply, it is a decentralized, distributed and public database that stores transactions in the form of blocks. These blocks are linked together and form a chain (“blockchain”). Each block contains a list of transactions and a cryptographic hash of the previous block, creating an immutable and transparent record. This chain continues indefinitely. A blockchain system also sets rules for participants' consent to record transactions. Before a transaction is appended to the previous block, it must be attached by a Miner be verified. In this way, the network can ensure that no fraudulent transactions are included on the blockchain. As a result, transactions are protected from manipulation.
What is blockchain used for today?
Because of its decentralization, security and diverse applicability, blockchain is a “here to stay” technology whose significance goes far beyond cryptocurrencies. There is no question that blockchain is one of the most important technological developments of our time and will continue to expand its influence in the coming years. Because as technology evolves and improves, its acceptance and use cases, including digital identities, decentralized finance (DeFi), trading venues and much more, likely to continue to increase.
