Blockchain is not only cryptocurrency - implementation in bitcoin and ethereum

16.04.2021 |

For an article about blockchain technology 2

After the development of the blockchain idea itself and its first application, further development was put on hold. Everything would have stalled if a Satoshi Nakamoto didn’t offer his idea of blockchain implementation in 2009. That’s how the first cryptocurrency appeared. Although the term is not used anywhere in the original document, the community accepted the definition and it became a classic.

Emergence and Principle of Bitcoin

It is accepted to consider the emergence of the idea of bitcoin as a distributed monetary system, 2007. It took another two years to implement the technology, and bitcoin itself was published and launched on January 3, 2009. Although Satoshi Nakamoto is a Japanese name, most researchers agree that the first “cryptocurrency” was developed by a representative of America or Europe. Many have tried to take credit for the creation of digital gold, but so far only one version has a firm basis – analysts believe that Elon Musk played not the least role in launching bitcoin. The first cryptocurrency combined a number of solutions that are not new, but until then had not been used together. Thus, under one implementation, it earned:

  • decentralization of the currency,

  • the creation of an independent block chain,

  • proof of transaction execution.

Although many still consider bitcoin to be a cryptocurrency, comparing it to digital gold, technology plays a major role here. There is a lot of potential in blockchain, and by buying bitcoin, technology companies are investing in blockchain capabilities.

The second step in development is Ethereum

After bitcoin became popular enough, it had a large number of imitators. But most of the alternative implementations differed only in the use of the proof-of-transaction principle. For example, a different implementation of encryption is used, which requires a different way to perform calculations, or “ownership” technology is used as proof, rather than “work” technology. The latter would hardly please Satoshi, because then a “regulator” appears, albeit in plural, which would gradually lead to the dictation of wallets with more coins.

Vitalik Buterin from Russia came up with a radically new idea. At the age of 21, he proposed a new blockchain-based platform called Ethereum.

This technology has been widely used in many decentralized financial initiatives, and a number of developing countries will issue digital versions of their own currencies on the Ethereum blockchain.

The innovations that have emerged in Ethereum:

  • The creation of contracts with the possibility of automatic execution,

  • ease of implementation of investment and crowdfunding projects,

  • insurance and system of guarantors.

This is by no means a complete list of Vitalik Buterin’s blockchain capabilities, but these implementations have allowed us to talk about the technology from a new perspective. Anyone with a computer, Internet access and minimal programming knowledge can create his or her own contract, a new decentralized currency or a blockchain application. This is what made it possible to implement many quite interesting ideas without having to develop complex in-house projects.

A number of economists compare Ethereum’s capabilities with a classic IPO, only in the world of digital finance and development. Because now there is no need to go through a complicated listing procedure, it is enough to create your own “token” with a clear description. The main requirement for the implemented idea is that it must be clearly described in mathematical language.

Principle of blockchain in cryptocurrencies

The main difference in the implementation of finance on a blockchain is that there is no need to use a third party to conduct transactions. A number of stablcoins are similar in nature for the end user to existing implementations, such as Webmoney, where each transaction goes through a centralized server and the title units, the internal currency, were secured by funds in company accounts, but were not an existing currency in the literal sense, although they were used actively as a means of payment.

When transactions are made on the blockchain, information about them is stored in a separate block, which can be issued every few seconds or minutes. Each block has a well-defined location, depending on the time of release. They are linked to each other by internal information - the hash sum of the past block. Thus, the record in each following block contains the record of the previous one, and so on up to the very first, so called “genesis block”.

The main feature of bitcoin and ethereum is that anyone in the network can check and trace any transfer. Full traceability from issue to current state is available. Theoretically, this makes cryptocurrency not anonymous, but it is easy enough to achieve some sort of privacy, at least in bitcoin. Some researchers still have questions about the first block in the Ethereum network, several hundred thousand coins may have been distributed even before the launch, which could undermine trust in the future. However, no tangible evidence has yet been provided.

Thus, although Satoshi Nakamoto himself did not use the term “cryptocurrencies,” the masses called the new technology exactly that. The new implementation does not allow us to speak about the solution of all problems, but it has significantly pushed the development of the sphere.