Bitcoin And The Blockchain - Simply Decoded
Peace Be Upon You All. Welcome to the Seventh Edition of "Decoded with Khalifa MBA", a newsletter focused on discussing and decoding technical concepts and topics down to the principles. My name is Khalifa MBA, and I will be your guide through the fascinating world of blockchain, Web3, cloud, AI, tech, and more.
In this newsletter, we will explore and break down complex technical concepts into simple, digestible terms, so everyone can understand and appreciate the world of technology. Our goal is to bridge the gap between technical jargon and everyday language, making it easier for everyone to understand the fundamental principles of these technologies.
Enjoy this piece, this one is about?DeFi and everything you need to know about DeFi. In this article, we will delve into 50 essential Crypto terms that will help you navigate the exciting realm of decentralised technologies and digital assets. and understand their inner meanings.
Let's Get Started - The History
It all started in 1976, cryptographers Whitfield Diffie & Martin E. Hellman published their paper “New directions in cryptography”.
David Chaum first proposed a? protocol similar to Bitcoin in his thesis "Computer Systems Established, Maintained, and Trusted by Mutually Suspicious Groups.” in the year 1982.
Then S. Even, O. Goldreich, and Y. Yacobi published “Electronic wallet” later in 1983.
Furthermore, since then we’ve seen inventions in this field being introduced by some of the most brilliant minds around, this gradually builds up and leads to what we know today as the “Blockchain” In 1998 yet again, Nick Szabo introduced the design of a mechanism for a decentralised digital currency he called "Bit Gold".
Though Bit Gold was never implemented, it has however been dubbed "the direct precursor to the Bitcoin architecture.” In Nick Szabo’s Bit Gold, a participant would dedicate computing power to solve cryptographic challenges (like puzzles). In the Bit Gold network, solved cryptographic hashes would go through a BFT (Byzantine Fault-Tolerant) public registry and be assigned to the public key of the participant/solver. Each solution would become part of the next challenge, creating a growing chain of new challenges. This provided the Bit Gold network with a method to verify and time-stamp new Bit Golds, because unless a majority of the validation participants agree to accept new hash solutions, they couldn’t start on the next challenge.
When attempting to design a digital currency, challenges like the "double-spending" problem arise. Once data has been created, reproducing it would simply be a matter of copy and paste. Most digital currencies would solve the problem by advocating some control over to a central authority, which keeps track of the account balances. This was clearly an unacceptable solution for Nick Szabo, "I was trying to mimic as closely as possible in cyberspace the security and trust characteristics of gold, and chief among those is that it doesn’t depend on a trusted central authority,"said Szabo.
The phrase and concept of "smart contracts" was also developed by Nick Szabo, with the goal of bringing what he calls the "highly evolved" practices of contract law to the design of trustless e-commerce protocols on the Internet.
More papers were published to achieve fairly the same objective, a peer-to-peer trustless and secure electronic monetary equivalent. All these inventions were neglected and almost forgotten until when we needed them the most in the 2007-2008 financial crisis, what a crash, I had wish we saw the black swan coming earlier and took all preventive measures, but we just simply didn’t trust crypto, and now it’s proven us totally wrong, though it hurts to be wrong we have to admit we must transition to a better economic stability strategy.
On the 7th of April 2008, MICHAEL NüSKEN published “WORKSHOP e€ (ELECTRONIC MONEY).” In the same catastrophic 2008, Blockchain was invented by a person under the alias of “Satoshi Nakamoto”, to serve as the public transaction ledger of the cryptocurrency “Bitcoin”.
The identity of Satoshi Nakamoto remains unknown till date. The invention of the blockchain for the bitcoin network, made it the first digital currency to solve the “double-spending” (where one could spend a unit of exchange more than once) problem without the need for a trusted centralised authority.
The bitcoin design has inspired many other applications and blockchains that are public, transparent. And today, we have a lot more than just Bitcoin.
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Understanding The Blockchain
The blockchain is a decentralised, electronic ledger made up of blocks used to record transactions across distributed nodes such that any recorded block cannot be altered retroactively, without the alteration of all the subsequent blocks. This enables the participants to verify and audit transactions independently. A blockchain’s database is managed autonomously using a peer-to-peer network and a distributed timestamping server. They are authenticated collectively by participants with similar self-interests. The blockchain does away with having to trust a central authority or server, making it trustless and it is transparent to support auditing and ensuring readability.
The 1st generation of the blockchain aimed at Cryptocurrency is the first implementation of distributed ledger technology (DLT). This allows financial transactions based on blockchain technology or DLT (for the sake of simplicity often seen as synonyms) to be executed with Bitcoin being the most prominent example in this segment. It is being used as A STORE OF VALUE, a digital payment system and can be seen as the enabler of an “Internet of Money”.
Ethereum blockchain aims to execute ‘Smart Contracts’ to reduce the cost of verification, execution and fraud prevention. They are independent computer programs that automatically execute predefined conditions. A DApp can have frontend code and user interfaces written in any language that can make calls to its backend, like a traditional App. But a Dapp can have its frontend hosted on decentralised storages such as Ethereums Swarm. [DApp = frontend + contracts (running i.e. on Ethereum)]
The first generation of the Blockchain aims at solving the issue of double-spending and providing a decentralised and secure monetary system on the internet, and this is where Bitcoin lands as the first successful implementation of decentralised finance. The Second generation focuses on the programmability of the blockchain layer, to support a diverse range of application development on the blockchain, and that is when Ethereum was introduced that supports an EVM (Ethereum Virtual Machine)? which is a programmable layer on the blockchain that allows the deployment of smart-contracts that can interact with each other on top of the blockchain.
The 3rd generation blockchain revolves around the idea of interoperability and the 3 Ss namely sustainability, scalability, and security. This is where we see Proof of Stake implementations that are environmentally friendly and an alternative to the legacy “Proof of Work” for long-term environmental sustainability with works like Polkadot and Setheum. Here we see decentralised storage like Filecoin, IPFS, and Chia that use Storage Consensus mechanisms. Here we see state upgradability without forking like in Polkadot and Setheum, we see on-chain built-in DeFi systems like in the case of Setheum. We also see layer 0 solutions like Polkadot and layer 2 solutions alongside many innovations in the blockchain and crypto space.
I hope this helps you grasp the fundamental concepts and terminology of Crypto and Blockchain Technology. Stay tuned for more exciting insights in the world of tech, Blockchain, Web3, AI etc. in the next edition of Decoded.
Remember, knowledge is power when shared. So if you find these insights valuable, I encourage you to share this newsletter with your colleagues, friends, family, and anyone else who might be interested in these topics. Let's work together to decode the most complex technical concepts and unlock their potential for real-world applications, and see you next time.
Best and Peace Be Upon You All,
Khalifa MBA (Muhammad-Jibril B.A.)