Lecture 1: History of Blockchain Technology

[Music] hello and welcome to blockchain fundamentals with bill laboon in this series of lectures we'll talk about what blockchain is how it works and what it's good for in today's lecture we're going to discuss what i think of as the pre-history of modern blockchain technology the different technologies and developments that led up to the first modern cryptocurrency bitcoin so even though blockchain can be used for many things other than just currency i think it behooves us to really spend some time thinking about currency since that definitely was the first use case for blockchain so let's assume i want to create my own digital currency some bill bucks what characteristics does a currency need to have well for anything to be useful as money it needs to be durable it can't be something that just washes away or is very easy to destroy that biodegrades in your pocket etc it needs to be portable i need to be able to take it from one place to another and spend it it's not much use to me if it's only can be stored in one place and it is very very difficult to move it needs to be divisible that is if i have a five thousand dollar bill but i want to buy something that only costs one dollar i need some way to get change for that or somehow divide the money that i have so that i can buy the smaller things that i want it needs to be uniform that is one bill buck should not be different from another bill buck in any meaningful way i shouldn't really care if i got a bill buck with serial number one three seven two one and a bill buck with serial number one seven three two two there has to be a limited supply if it's something that is infinite or practically infinite then there's really no use in using it as as money if i can buy something with leaves from the forest or sand from the beach then people aren't going to want to accept it there needs to be some sort of limitation in supply and finally it must be generally acceptable there may be things that are very rare and meet the other criteria here so for example leaves from a very specific oak tree in my backyard but nobody is going to accept those very specific oak leaves from my backyard as a currency so there are a few different ways to try to create a monetary system you can have a credit based system that's based on debt so that is while the money itself isn't useful for anything it shows that there's been some sort of work done on my behalf and that you then owe me for doing that work whereas what we think of as a cash system is where there's some external medium of exchange so something like you know gold or silver where it's not though somebody owes you some gold or owes you some silver you actually can have gold and silver and keep it in your pocket so while there are no perfect solutions to money lots of different societies have come up with different ways to use money and use different mechanisms for cash-based systems a variety of physical objects were found which met this need so for instance as i've already mentioned silver and gold probably the most popular and well-known but also calorie shells or wampum glass beads federal reserve notes that you get from the government all these act as cash but it turns out that while a debt based system since you're really just keeping track of who owes whom might be relatively easy to manifest in digital form having a cash-based system turned out to be very difficult however this didn't stop people from trying first was first virtual so in here you would give your credit card information to the first virtual company and they would purchase things for you on different sites so this turned out to be rather problematic especially because merchants had to wait 90 days for every transaction to be cleared a broader system called the set architecture would actually allow you individually to encrypt your credit card number and send an encrypted version through an intermediary so the seller would never actually see your credit card information uh the buyer seller and this intermediary would come to an agreement without the actual end user seeing the your actual credit card number however this didn't succeed because getting a certificate a crypto certificate in the 90s was a very boring and technical and difficult process so cash one of the other problems with cash is that it needs to be bootstrapped that is we need some way for people to agree that this silver the shiny particle this particular shiny metal is worth something or gold or calorie shells but cash had a lot of benefits to these credit based systems that were tried at first first cash has no risk of default if i have three ounces of gold in my pocket nobody can say to to me although that gold is now worthless so if i assume that that people are still accepting gold i don't have to worry that while somebody else owes me gold so i i might not actually have the gold that i thought if i have it in my pocket i have it credit by its nature is not anonymous or pseudonymous it's very easy to track anyone using this because you need to know who you owe what to finally with credit you always need to be online you need to check with some authority or be willing to deal with people who may not be a hundred percent on the level whereas with cash if i go to a store i don't have to worry when i buy some gum with my my dollar that uh that i'm not actually going to have the dollar that person is definitely going to get the dollar and nobody needs to know that i'm buying that gum cash is for all intents and purposes anonymous so the first what we might think of as a modern proposal for digital money it was chalman ecash so this all started from a famous cryptographer david chum who came up with this idea of blind signatures so a blind signature allows someone to sign a document prove that they owned that document that they they were the one who wrote it but not reveal any of the knowledge of what is in the document so you could prove cryptographically that you own some money at a bank um by just by signing a transaction but you didn't have to show anything about that particular money so this was anonymous but it's still quite required centralization uh it was commercialized as something called digicash which was tried out but the company later went bankrupt so the here we see the first early starts at using cryptography to secure our money although it was still linked in with the traditional banking system the reason it had to be linked in to this traditional banking system that is having some central authority is due to what we call the double spend issue so let's assume that you or alice has an e cash note so you have some note that says that you own one dollar and its serial number is ox86 whatever alice goes and buys a hot dog from bob so she says here i i own this bill serial number ox86 whatever and bob gives her a hot dog in exchange for it so she gives bob uh the bill but bob does not have access to the internet at this time so he has uh he has just accepted that alice has given the note he can show that alice uh can has permission to send it to him and she sends it to him alice then goes over to carol's ice cream shop she pays with the same note as bob or that that uh she paid to bob how can carol know that this note has already been spent and how can bob know that this bill will never be spent by alice again so this is something called the double spend issue and traditionally we thought that a centralized authority would be necessary to make sure that an individual person did not spend the same bill in multiple places it is very very difficult to do without a centralized source of truth so in the digicash proposal the chomey and ecash that we mentioned earlier this was done after the fact so all of the merchants would get together and would make sure that there was no double spend if there was a double spend thanks to the intricacies of the math uh in the uh child fiat newer scheme uh your identity was always safe it could be entirely you could be entirely anonymous unless you tried to redeem your note multiple times in that case your identity was given to them on the other hand the problem with this is you have already gotten away with your hot dog in ice cream you would have to wait until after the fact to determine if a double spend was taking place and after the fact might be you know days afterwards by which time there's no getting your hot dog and ice cream back the other problem with xiaomi ecash is that while buyers were anonymous merchants were not if you wanted to accept this e-cash then you would have to give your identity away because they would have to check with the centralized bank service to determine the validity of the notes so just because it was called ecash it really was a sort of pseudo debt to get the money you were buying it from the bank it represented a claim on the bank's assets so there are a variety of other systems that use the same basic idea such as liberty reserve and digi gold or if you've read neil stephenson's novel cryptonomicon the cryptocurrency that they were trying to produce it always represented a claim on some other asset the digital uh concept didn't have the the digital representation did not have value in and of itself it represented some claim on some other asset so now let's think how we could do that how could we get something that was not a claim on some other asset but had value in and of itself well remember when we first started talking about what money had to have in order to be considered money we needed scarcity something needed to be of limited supply and what can computers do right well computers can do computational work and if something is of a limited supply it means you have to work to get it gold is worth money because it's rare and it's difficult to get to you don't just see walking around the streets here you know gold on the corner or uh you know gold growing from trees right the old saying money doesn't grow on trees so we can't find physical objects that are rare in the computational world in the digital world why because it's trivial to copy things if i tell you that here is a a movie or an image it's very easy for it to be copied hundreds thousands or millions of times as a lot of different media companies discovered early in the 21st century but could we use computation itself rather than just storing particular values we'd use computation as a backing for our currency so could we use the fact that a computer can do work to find results of an equation or a calculation and use that as an actual backing of our currency instead of a representation of something that exists in the physical world so this was the idea behind a paper in 1992 which later got expanded into a commercial product known as hashcash so while hashcash wasn't useful as a general purpose digital currency it did see some use as a way of spam prevention so while machine learning has made spam prevention much less of a problem than it was in the 90s in the 90s it was a very very big issue so the idea behind hashcash was let's say i want to send an email to somebody right right now and even then it requires minimal computational uh power to to do that but what if we you had to do some extra you know useless computation in order to send an email to somebody so alice let's say alice wants to send bob an email before bob can see it his computer sends a message back to alice that says hey solve this math problem this complicated math problem first you know show that you're doing some work and uh send me the answer and then i'll view it so each of these calculations were specific to the specific email that you sent and to the specific address so this provided rate limiting where it might be very easy for someone to send a million spam messages right what if every time you sent a spam message in order to know that that message was received by the recipient you had to have your computer spend five minutes working on a math problem well now the prospect of sending email gets much more uh expensive right because sending things via email both solving math problems means that you are not going to be able to send emails so fast unless you spend more money on computers and electricity and networks etc so this basic idea of there are math problems and you'll get some reward for solving them is going to be integral to the making of bitcoin and many of the uh modern uh blockchain systems you're going to have to do some work your or your computer will have to do some work in order to get something in return so adam back the creator of hashcash uh made a sort of glib remark uh that i think really sort of hits the mark though is that bitcoin is hashcash extended with inflation control so some additional things came from this but we can already see we're getting to the idea of a modern cryptocurrency so if we imagine that instead of you doing the specific work every time you wanted to send an email if you could offload that work to someone else pay for it just like nowadays we pay to run a server in the cloud and then if you had some currency backing that you're paying for these computational resources so again we're not exactly at a modern cryptocurrency but we're getting very close meanwhile a second problem was trying to be solved in the in the 80s and 90s on the concept of ledgers so how do we determine the order or uh what time a document was created in a decentralized manner that is without checking in uh to uh you know some centralized server now you may have seen this in your old movies about ransom where you know you would say hey put today's newspaper in front of the uh you know take up take a picture but all that really says is this picture was taken sometime after that newspaper newspaper was released it doesn't provide a very easy computationally feasible way of doing this and it certainly can be fooled in a variety of ways but if we can't figure out that document d sub 1 was written before d sub 2. and d sub 2 was written before d sub 3 we can have a good idea of when that document was written so if i know that a document was written sometime after 1776 but it was written before the the after the declaration of independence of the united states but i know that it was written uh before lincoln's getty gettysburg addressed in 1863 then i can have a good idea of when that document was written sometime between 1776 and 1863. and we'll definitely know the order if i know that the declaration of independence was written first and then our document and then lincoln's gettysburg address so how can we enforce that order how can we make sure that we have a list that says that this was created after this document was created after this document and this document was created after this document if we could do that we would have a chain of documents and it turns out using cryptography we can't so we can provide a signature that shows what the last document was we can make a cryptographic signature of each of the documents and have them point to the previous document turns out this is a very inefficient way to store this we and we usually don't need that much granularity so what we could do is get a bunch of documents say created in the same day and then only have the signature link go from block to block so in other words we now have a chain of blocks or as we now call it today a block blockchain so if we think of a blockchain in terms of documents we have a collection of documents here and each group of documents has their own signature and it points back to the previous document list of documents the previous block if we then make sure that these links are very difficult computationally to make and thus they're going to be very difficult for someone else to create a fake version of we can do this with this hash cash style proof of work this is more of a bitcoin style blockchain we just replace the documents with transactions so now we have a blockchain that uses hashcash style proof of work and uses this uh chain of documents idea that was created in a decentralized way and together create something like bitcoin all right so now we've seen two different uh schools of thought or two different technologies that are really sort of coming together in order to create the modern blockchain so can this resolve our major issue of digital currency the double spend issue so if we assume that this computationally difficult blockchain to produce is the ground truth there's no longer a need for a centralized server so if somehow we can get everybody to agree on the rules and the first person to be able to generate one of these links is going to be considered sort of the winner and thus the creator of truth then we don't need any sort of person to decide who is the the arbiter of which is the correct chain of blocks so there were several early proposals using this scheme such as b money and bit gold in both of these schemes you had computational challenges that map to creating money but there was no real way to determine what happens if different users disagreed on blocks bitcoin brought all this together so i one of the things that i hope you can see from this uh this series of lectures especially this lecture is that bitcoin did not spring fully formed uh you know just like athena out of the forehead of zeus but rather there were a lot of different ideas floating around that bitcoin really put together in a way that worked so bitcoin is the first modern cryptocurrency although there are a lot of other cryptocurrencies uh uh out there uh last i looked at coin market cap there were something over 2 500 of them but bitcoin still the most valuable and still the oldest and still the first modern cryptocurrency it's decentralized there is no central arbiter there is no ceo of bitcoin which means that there is no way to censor transactions there is no way for someone to decide that they don't want you sending money to a particular address on the downside of course this means that a lot more power is given to the hands of the users there is also nobody to go and talk to if you accidentally send money to somewhere else or to the wrong person all transactions in bitcoin are signed cryptographically which means they're protected by math blocks get added to the blockchain with proof of work that is this hash cash style idea of you're doing computations and then those who do add new blocks get rewarded every time they add a block with bitcoin so what this means is that you are incentivized to do this work to create new blocks because you will get uh bitcoin if you are the person uh or computer who is able to add a new block to this this has led to a bit of a red queen's race where more and more people are competing for bitcoin uh which means that there are huge uh warehouses that are just full with compute filled with computing equipment that is being used to try to generate these blocks so when you hear about somebody talk about mining bitcoin really what they're doing is they're trying to produce blocks by solving these really being the first to solve these really complex uh difficult uh equations and eventually getting uh getting a producing a new block which is going to give them the ability to accept some bitcoin as a consequence of that so who's behind bitcoin well we're not exactly sure bitcoin is created by someone with a pseudonym satoshi nakamoto so something to note satoshi nakamoto it's a male japanese name but there's no evidence that they're male female some sort of collective that if they're japanese anything we know very very little about satoshi nakamoto despite a few people claiming to be them or know who they uh might be there has been no firm definitive evidence satoshi interacted with people online for a few years then went entirely dark there are many different theories on his true identity but again nobody knows who exactly he she or they are if you're interested in reading more about what satoshi nakamoto shared there's a great book called the book of satoshi edited by phil champagne which collected the most important things that he said online during the few years during the early days of bitcoin that he was online so did we resolve the double spend issue and the answer is yes so with bitcoin remember generating a link to the previous block in a new block is a very very difficult process and creates money but we can come up with a rule that we can figure out which is the correct chain by which has the most proof of work behind it so this was changed from the very early days of bitcoin due to some loopholes uh that were discovered uh but the basic idea is whichever chain whichever link shows that the most work was done in creating these blocks is going to be the one that's considered valid so the only way for you to try to censor a transaction is to spend a lot of money trying to say that there is a new uh uh chain of blocks and since you are competing with everybody else in the world who is trading bitcoin and there are a lot of people doing that and a lot of computational power behind it it turns out to be basically impossible so this is what miners are doing and this concept of adding miners and rewarding them for generating blocks was really the key modification that allowed bitcoin to solve the previous problems uh with with digital money so in our next few lectures we'll discuss how these hashing systems and cryptographic systems work uh and go more into depth on how exactly bitcoin remains secure you

Channel: Web3 Foundation

Views: 14,499

Rating: 5 out of 5

Keywords:

Id: y8YyZELnVaw

Length: 26min 39sec (1599 seconds)

Published: Fri Nov 20 2020