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What is The History of Bitcoin: Super Easy Explanation - YouTube
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- [Narrator] We'll start
at the very beginning
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by understanding the
history of blockchain.
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The very first blockchain
in the world was Bitcoin.
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An anonymous person or group
known as Satoshi Nakamoto
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published a document in an
online cryptography forum
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in November 2008, and
revealed the first details
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of how Bitcoin would work, describing it
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as a peer-to-peer electronic cash system.
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The whitepaper is available today
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at bitcoin.org/bitcoin.pdf.
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It allows any two people
to pseudonymously send
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money to each other no matter
where they are in the world.
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It is a borderless currency.
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The main benefit of Bitcoin
is that it does not require
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any centralized authority
or institution to operate.
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This is in contrast to today's
centralized financial systems
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that depend on the
existence of a central bank
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or government to mint money.
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If for any reason the central
authority were to shut down,
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the money would become worthless.
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In a decentralized system like Bitcoin,
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there is no central authority
and the system can continue
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to operate as long as there are members
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in its peer-to-peer network.
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The goal of the whitepaper was to describe
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how the different parts
of the Bitcoin protocol
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would operate and be kept secure.
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A new type of database called a blockchain
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would keep track of a single history
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of all bitcoin transactions
and it will be maintained
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by everyone in the network.
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The database would be publicly available
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for anyone to view and inspect
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and anyone can download
a copy of this database.
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This provides data
redundancy and makes sure
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the data is never lost
but also provides a way
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for anyone to verify the transactions
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in the database themselves.
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A block in the database just stores
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a sequence of transactions,
and a sequence of blocks
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is called a blockchain.
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Each block is identified
by an incrementing number
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and a unique SHA256 hash.
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The hash for a block is calculated
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using the transactions inside of it
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as well as the previous block's hash,
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which forms a chain of hashes.
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The data in the blocks is secured
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using a cryptographic
algorithm called proof-of-work,
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which also keeps all
members of the network
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and the database in sync
to prevent double-spending.
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In this context, preventing
double-spending means
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preventing anyone from
spending money they don't have.
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Proof-of-work is used
to generate new blocks
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for the database, also known as mining,
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and the reward for mining a new block
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is given to the miner
by creating new Bitcoins
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in the system.
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This is the only way new
Bitcoins can be created.
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Anyone on the network can be a miner
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and a new block is mined
roughly every 10 minutes
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which includes the latest
set of verified transactions.
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The first release for
Bitcoin was version 0.1,
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written in C++ by Satoshi
and published on SourceForge
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in January 2009 under the
open-source MIT license.
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Anyone could download the
source code and run it
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to join the network also
known as becoming a node
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in the network.
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This is the original
version 0.1 source code
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written by Satoshi.
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We can see the hard-coded genesis block
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which is the very first
block in the chain.
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The hash for the block can be verified
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by using any Bitcoin blockchain explorer.
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Let's copy and paste this hash
into the blockchain explorer
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available at blockchain.info.
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We can see that this hash is for Block #0
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and that it has only one transaction in it
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which is the mining reward,
and the reward amount
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of 50 Bitcoin was given
to this Bitcoin address.
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We can also see this 50 Bitcoin reward
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for the genesis block in
the original source code.
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The genesis block is a
special case needed to start
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the blockchain and is the
only block that is hard-coded
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whereas every subsequent
block is calculated
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using proof-of-work.
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Satoshi's motivation for creating Bitcoin
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is revealed in the piece
of data he included
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in the genesis block.
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A newspaper headline
from The Times that read
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Chancellor on the Brink of
Second Bailout for Banks.
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The date of the newspaper is
proof that the genesis block
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was created on or after January 3rd, 2009.
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Satoshi developed the
source code mostly himself
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up until mid-2010 when he handed it off
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to the open-source community.
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It is now maintained under the
project called Bitcoin Core.
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The software is currently
at version 0.15.1
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and is available for
download at Bitcoin.org.
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This is still the most
popular Bitcoin client today
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and is estimated that
there are over 10,000 nodes
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running the Bitcoin network
using various clients.
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Satoshi disappeared from
public view in late 2010,
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his identity still unknown to this day.
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The only way someone could
prove that they're Satoshi
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is by using the same
encryption keys he used
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when posting the original whitepaper
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in the online cryptography forum.
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To send a Bitcoin transaction,
you first need to have
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a Bitcoin account.
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An account can be created very easily
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by generating a cryptographic key pair
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which generates a public
key and a private key.
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A hash of the public key is
used as your account address
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and your private key
is kept secret to prove
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that you have ownership of this account.
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In order to send any Bitcoin,
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you first need to get
some from someone else.
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This could be a friend you know,
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or an online exchange you trust.
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To send a Bitcoin from your account,
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you would broadcast a message
to the Bitcoin network
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that included the amount
and the destination account.
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Before broadcasting, you
would sign the message
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using your private key to
prove that you are authorized
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to make this transaction for the account.
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Your transaction would be broadcasted
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to the Bitcoin network
nodes including the miners
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who verify that it is correctly formatted.
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The nodes distribute all
broadcasted transactions
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and blocks to each other in the network
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creating a shared database
of blocks and transactions.
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When a transaction is first
received by the network,
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it is considered unconfirmed.
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After the transaction is
included in a new block
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by a miner, the transaction
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is considered final and confirmed.
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The more blocks that exists
after your transaction's block,
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the more secure your
transaction is considered to be,
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this is because a certain
amount of computation power
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is required by the network
miners to create each block.
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Miners do this using the
proof-of-work algorithm
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to calculate the next block's hash,
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which is a computationally
expensive problem
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that takes about 10 minutes to solve.
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To modify the transactions
in the blockchain history,
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you would have to control the majority
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of computation power on the network,
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in other words, 51% of
the computation power.
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So as long as honest nodes
control more computation power
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than any other group of attacking nodes,
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the database will remain secure.
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For all of Bitcoin's popularity,
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it still has scaling hurdles to overcome.
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The current throughput
of the Bitcoin network
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is less than seven
transactions per second.
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Contrast this with Visa which processes
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several thousand transactions per second.
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The reason for Bitcoin's scaling problem
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is the block size limit which
is currently one megabyte.
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This puts a limit on the
maximum number of transactions
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that can be included in
a one megabyte block,
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which can drive up transaction fees
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and delay verification times
during peak network activity.
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Issues like this have prevented
mass adoption of Bitcoin
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as a practical currency you
could use for everyday purchases
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but that hasn't stopped
some people from doing so.
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In July 2017, an improvement
proposal called Segwit
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was deployed to the Bitcoin blockchain
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aimed at tackling these scaling issues.
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In a nutshell, Segwit allows
fitting more transactions
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into a block and also
enables another near-future
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scaling solution called
the Lightning Network.
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Other proposals of improving the network
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include doubling the block
size limit to two megabytes
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but changes like these must be agreed upon
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by a majority of miners on the network.
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A miner's computation power
is the amount of weight
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their vote is given
when considering changes
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to the Bitcoin protocol.
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Bitcoin is actually two
experiments combined into one.
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The first part of the
experiment is this new type
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of cryptographically secured
database called a blockchain.
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And the second part of the experiment
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is a money application built on top
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of the blockchain called Bitcoin.
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While most people focused
on Bitcoin and its price,
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a few people understood that
the real innovation here
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was the underlying blockchain database.
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They began to wonder
what other applications
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aside from Bitcoin could be built on top
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of this new type of database.
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A generalized blockchain can be described
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as a peer-to-peer network that
maintains some shared state.
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In the case of Bitcoin, the shared state
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is the sequence of transactions.
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But the data can be
really anything you want.
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The data is stored in a singly
linked-list data structure.
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A block can only be added
to the end of the list
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and cannot be modified after
being added to the list.
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Each block also points to the
block that came before it.
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The only exception to this
rule is the genesis block
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which does not point to any other block.
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Hashing is used to guarantee
the integrity of the data
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stored in the blocks,
meaning that once data
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is added to the blockchain,
it can never be modified,
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if the data is modified,
the hash of the block
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would change, as well as the
hash of any subsequent block
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so tampering can be caught easily.
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The rules for creating
a new block are called
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a consensus protocol and
usually defines a reward
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for creating blocks to
incentivize people to do so.
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For Bitcoin, the consensus
protocol is called proof-of-work.
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Following Bitcoin's release,
several spin-off projects
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were created that took
the Bitcoin source code
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and modified it for their own use cases
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like Namecoin and Litecoin.
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The question they were
trying to answer was
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if a digital token could
be used to represent
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some monetary value like Bitcoin,
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what else could a digital
token be used to represent?
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Could it be used to represent
other things of value
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like property or domain names?
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All of the spinoff projects
had one major problem,
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they had to start their own blockchain
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for their particular use case.
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This is no easy task as
a blockchain requires
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a fairly large community
of peers to maintain
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and be useful.
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The existing Bitcoin
blockchain couldn't be used
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because it was not designed to support
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a variety of different use cases.
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If there's somehow were to
exist a single blockchain
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that was designed to be generalized enough
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for anyone's use case, it
would help a lot more people
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start blockchain projects.
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This was the key insight that led
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to one of the biggest
blockchain innovation
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since Bitcoin, which is Ethereum.
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To learn more about building
blockchain applications,
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check out our online guides and courses
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available at Blockgeeks.com.
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