Even though cryptocurrencies are just now gaining media attention, the concepts have been around for decades. These concepts have evolved during this time period and have given rise to many cryptocurrencies, each hoping to achieve the most scalable and decentralized system.
1. DLT (Distributed Ledger Technology)
DLT’s have existed for a long time and are already in use by most of the world’s largest companies. Any cloud- based system is a distributed ledger. Over time, technology has evolved from being able to store data on the cloud, to being able to have logic on the cloud. This provided countless benefits to applications such as more uptime and faster communications.
2. Consensus Algorithms
While the blockchain scene was just starting out, consensus algorithms focused on PoW. But as users grew, this became more and more unscalable. The algorithms that are being used today are much more complex and incorporate other factors to find consensus.
3. BFT (Byzantine Fault Tolerance)
BFT has been practice for decades and applies to any distributed system. Even space crafts such as SpaceX Dragon needed to have BFT in the design.
4. Smart Contracts
Smart contracts are the future of the blockchain/cryptocurrency space. Since they were first proposed by Szabo in 1994, they have received widespread implementation and accessibility. Even bitcoin allows for smart contracts but uses a Turing-incomplete language. Ethereum, on the other hand, implements a Turing-complete language which is why it is currently the most used.
Turing- Refers to the ability of a machine to behave indistinguishably from a human.
Timeline
1983– An American named David Chaum had the idea for an anonymous currency called ecash. After receiving funding, he proceeded to implement ecash through a corporation called Digicash. One bank agreed to a trial that would ensure privacy through public key signatures, but ultimately failed because people did not understand the value of privacy. This was the first implementation of a virtual electronic currency.
1998– “B-Money” was published by Wei Dai. In it, he describes a system for distributed anonymous transactions and sets standards for how it should work.
- Proof of work function is used as a way of creating money. The transfer of money is broadcasted to everyone participating, who keep tabs on each other.
- A small number of servers have public accounts. Participants that send transactions have to check the balances and verify that the supply is not being inflated. An entry cost is required to run a server that is subject to forfeit if the server is found to not be truthful.
1998- Nick Szabo designed “Bit gold”. This was the first cryptocurrency to utilize a proof-of-work function with solutions being cryptographically solved. Participants would use processing power to solve these cryptographic problems, and the solved problems would be added to the BZT public registry. They would then be assigned to the public key of the person that solved it. Each previous solution would be part of the next problem. This made it so that previous solutions needed to be agreed upon before a new problem could be solved.
2002- “Shelling-out: The origins of money” was published by Nick Szabo. In it, Szabo theorizes about collectables. Even though this paper is mostly about the history of money, it focuses on some interesting patterns on how wealth is transferred and the value of money.
2004- Hal Finney created a reusable proof-of-work system. The client creates a token and gives it to the person who has the proof-of-work string associated with his private key. The client can transfer the token to another key by signing a transfer order. The server recognizes that the token belongs to the corresponding private key.
2009- Bitcoin, the first decentralized cryptocurrency was created by developer/s going by the pseudonym Satoshi Nakamoto. It uses SHA-256, a cryptographic hash function for proof-of-work. Bitcoin was created by referencing “B-Money” and “Bit gold”.
2011- Namecoin tried to form decentralized DNS which helped to prevent internet censorship. Based on the same proof-of-work algorithm as bitcoin, Namecoin has the added functionality of being able to store data within its blockchain. This marked the beginning of having a shared proof-of-work algorithm that could be used for different cryptocurrencies that had different use cases. The ability to store data, allowed for the expansion and industrialization of blockchain technology.
2011- Litecoin, the first cryptocurrency to use Scrypt as its hash function instead of SHA-256 was created. Scrypt is an algorithm that incorporates SHA-256 along with some extra work. This protects the network from brute force attacks by requiring a larger amount of memory and makes it too expensive for those that try to use ASIC hardware.
2012- Peercoin, the first cryptocurrency to use a proof-of-work/proof-of-stake hybrid was created. It was largely inspired by bitcoin and shares the same code. There was no limit on the number of coins. Instead it allowed for a 1% annual rate of inflation. These new coins were created through 2 processes:
Mining (PoW): Using the SHA-256 algorithm
Minting (PoS): Reward based on number of coins held
2015- IOTA was conceived and it focused on communication in IoT (Internet of Things). It was the first cryptocurrency to use tangle instead of a blockchain. IOTA can handle an unlimited amount of transactions at a time on a system that is scalable. Each transaction on the network verifies two more transactions. This makes a system that speeds up the network as more people use it.
2015- Vitalik Buterin founded Ethereum, a blockchain that focused on the use of smart contracts. Ethereum was developed as more of a utility than a currency and ether is the “gas” used to access the network. Gas allowed the network to thwart spam and allocate resources. Ethereum was further developed to allow for the creation of ERC-20 tokens, which allowed developers to transition distributed applications to a blockchain without having to create their own blockchain. This paved the way to have cryptocurrency platforms that are multifunctioning and are usable for industry solutions.
2017/2018- This period is known for the massive increase in the number of projects that are ERC20 tokens and make use of the Ethereum network. Even projects that want to create their own blockchain create a token to distribute to investors, which can be traded for the real coins at a later date.
- Civic- Secure ID Verification System
- OmiseGO- Enables P2P value exchange and payment services
- EOS- Infrastructure for decentralized applications
- Status- A mobile Ethereum OS
- Icon- Blockchain for a decentralized network
- Kyber network- On chain exchange and payment service
- Request- Decentralized network for payment requests
- Chainlink- Smart contracts using decentralized oracles