Blockchain is one of the most discussed topics now, but what is it, after all? What are people talking about all the time? Blockchain is a technology that appeared at the same time when Bitcoin, the first cryptocurrency, was invented. Blockchain is the basis for Bitcoin, as well as for other cryptocurrencies.

What is blockchain?

Cryptocurrencies are digital coins that represent value. Cryptocurrencies are different from traditional currencies because the former are not issued by banks. There is no central authority that would issue bitcoins.  Bitcoin blockchain exists due to efforts of people called miners. Miners are people who solve complex mathematical problems using specific types of computers. When they solve a problem, a cryptocurrency transaction is completed.

Every cryptocurrency transaction starts from a wallet. Wallets have their private keys — mathematical evidence of the transaction coming from the wallet in a form of a digital signature. Many people from all over the world make transactions every minute. These transactions form blocks based on certain cryptographic principles. Every block is transmitted to the network of miners who use their computers to validate transactions. They do it by solving mathematical puzzles.

Complex cryptography is a crucial part of the blockchain technology, which is a reason why it becomes almost impossible to alter the data stored in a blockchain. Every validated block is added to the previous one, again and again, creating a chain of blocks that are connected to each other with encrypted references. When miners solve mathematical problems, they are also dealing with the data from these references. The process of solving a puzzle involves operations with random numbers, which are combined with the information about the transaction, creating a hash.

Hashes are unique and they should meet certain cryptographic criteria. If somebody wanted to alter the information from a blockchain in any way, they would need to change all the previous blocks as well. Given that there may be more than 500,000 blocks, such a task is virtually impossible and would require a collusion among numerous miners from the network.

Although blockchain turned out to be a great solution for online transactions, the potential of this technology goes far beyond money and finance. The same way as blockchain stores data on transactions, it can store any other information as well.

History of Bitcoin

Bitcoin was first described in a whitepaper called Bitcoin: A Peer-to-Peer Electronic Cash System. This whitepaper was released in 2008 by Satoshi Nakamoto. The identity of Satoshi Nakamoto remains unknown — it may be a person or a group of people. Satoshi created the Original Bitcoin client and implemented the reference system. Satoshi remained involved in the Bitcoin project until 2010, and now most experts agree that Satoshi has gone for good. When communicating with people, Satoshi uses anonymous email services and connects to the internet via Tor.

Infographic: Current stage of Bitcoin

After Nakamoto released the whitepaper, Bitcoin was presented to the open source community. People became interested in the blockchain technology because it offered solutions to many issues of trust. A blockchain is able to store important information in a place accessible for anyone, without allowing anyone to delete it. In addition, this system is decentralized and transparent.

We’ve already mentioned that blockchain has more applications than just cryptocurrency transactions. By 2014, many people had realized the advantages of this technology and started to invest not in Bitcoin, but in blockchain as a technology. Obviously, people also continued to study the advantages of blockchain for financial transactions, as this technology introduced new standards for efficiency and allowed users to significantly decrease the cost of transactions. Today, entrepreneurs study possible applications of blockchain in healthcare, transportation, supply chains, contract management, insurance, voting, etc.

Scalability issue of Bitcoin and its resolving

Creation of Ethereum

A Canadian-Russian programmer, Vitalik Buterin, became interested in Bitcoin in 2011. He is a co-founder of Bitcoin Magazine, where he published hundreds of articles about cryptocurrencies and blockchain. Buterin also came up with an idea of a blockchain that would go beyond applications associated with cryptocurrencies. In 2013, he released a whitepaper where he described a platform that can serve as the basis for various decentralized applications. The main purpose of this platform was to enable people to trade not only cryptocurrencies but other things as well. This system was called Ethereum.

Compared to Bitcoin’s blockchain, Ethereum has a number of differences and improvements. For example, Ethereum has another security protocol. Bitcoin transactions are based on the proof of work protocol. This mechanism of validation involves miners competing in order to offer the first solution to a mathematical problem. When a miner solves a problem for every block, he or she receives a reward. Unlike Bitcoin, Ethereum relies on the proof of stake protocol, where creators of blocks are determined depending on their wealth, or stake. Instead of getting a reward for validation, miners can take a transaction fee. In Ethereum, blocks are created much faster than in the Bitcoin blockchain (12 seconds compared to 10 minutes).

In 2014, the team behind Ethereum started a crowdsourcing campaign and managed to raise over $18 million. Frontier, the first release of Ethereum, was launched one year later. Today, Ethereum is a platform that continues to grow, with thousands of developers using it and creating new applications based on the Ethereum blockchain.

Decentralized applications (dApps) and smart contracts are distinctive features of this blockchain. Smart contracts allow people to exchange not only cryptocurrencies but also property, shares, services, or other valuable assets. Smart contracts determine the terms two parties agreed upon, as well as penalties. They also automatically ensure the fulfillment of the necessary agreement. Users can create their own smart contracts using the Ethereum Virtual Machine (EVM), also creating their own dApps intended for various purposes.

Just like the Bitcoin’s blockchain, Ethereum also has its cryptocurrency — Ether. However, developers who use Ethereum to create their own dApps and other projects, often create their own tokens.

Ripple

Ripple was founded by Chris Larsen and Jed McCaleb. McCaleb had already had a solid background in cryptocurrencies, worked at Mt. Gox  The Ripple team also included many other experts in Bitcoin trading.

The main purpose of the Ripple project was to enable people to trade different currencies cheaper and in the easiest way possible. This applies not only to cryptocurrencies but also to fiat currencies as well, which makes Ripple a great tool for international payments, which are usually associated with high fees and slow processing. When using Ripple, the transaction fee equals $0.00001. In addition, people who have deposits in fiat currencies (e.g. dollars, euros) can trade them in seconds.

What makes Ripple different from other cryptocurrencies is that it doesn’t have a blockchain. Given that blockchain verifies transactions and serves as the basis for the whole system of crypto payments, Ripple needed to come up with its own, alternative solution. It is called the Ripple Protocol Consensus Algorithm (RPCA). Just like blockchain, this consensus is intended to record valid transactions. Transactions come from different tracking nodes and are added to other transactions in validator nodes. When a transaction is approved by 50% of the nodes, the whole group of transactions moves further to get higher approvals. The validation process includes calculating hash signatures. Once 80% of nodes show identical versions of the hash, every node is considered validated by obtaining consensus. After this, the nodes start a new cycle with an updated ledger, including transactions that were rejected in the previous cycle.

Steem

Steem was created in 2016 by Daniel Larimer and Ned Scott. In 2014, Larimer also created a crypto exchange platform BitShares and then introduced his own consensus algorithm which was called the Delegated Proof of Stake. There is a fixed number of block producers who are elected, receiving votes from the users of the network. Every block producer can receive a certain number of votes, based on their stake. In addition, voters can delegate their stakes to each other.

Larimer and Scott started working on the idea of an insurance network, however, they quickly realized all the capabilities of the project. As a result, they created Steemit — a platform where people can post content, vote for content, and receive a reward for it. The platform uses Steem as a cryptocurrency. You can buy Steem just like any other cryptocurrency, or you can earn it by becoming an active Steemit user.

You can get a reward not only by posting content that becomes popular but also by voting for someone else’s content. In this case, the sooner you vote for new content that will become viral in the future, the bigger is your reward. However, a reward for each particular user depends on their amount of Steem Power — a token which is not liquid and is used only within the platform.

Learn more How to earn money with content-related blockchain projects

Tokens are generated at a constant pace. Every three seconds, a new block appears. All the tokens are then distributed among many parties involved, according to the rules of the blockchain. 75% of the tokens go to the “reward pool,” While others are distributed among Steem Power owners.

How to Earn Income via Validating POS Networks including Steem. Learn in article

The creators of Steemit call it a revolutionary type of a social media platform. Indeed, Steemit is in a sense similar to Reddit and Facebook. However, the difference between this platform and traditional social media is that on Steemit, users can decide what content they want or don’t want to see. The algorithm of rewards is called Proof of Brain. According to the Steem team, algorithms of upvoting can be integrated with various websites, providing unique opportunities for incentives between communities and owners of applications.

Steemit solves a big problem of the modern content economy. Content creators cannot monetize their effort directly, which is a reason why content becomes aimed towards advertising. As a result, the overall quality of the content declines, and users need to pay for content in order to see what they are really interested in, or in order to remove advertising.

Hundreds of millions of users around the world use ad blocking software, so this method of monetization also becomes ineffective, which is a problem for both individual creators and big media companies. Steemit allows users to engage with content naturally, directly influencing the quality of content, and rewarding creators.

Soon we will provide more articles about history of creation other blockchain solutions. So stay with us!