Blockchain as a History Book

• Imagine blockchain as a History Book where a new page is added to the book in every 10 minutes.

(Source: Pixabay)

• Bitcoin’s History Book started with the first page (Block 0) in 2009 and now it already has 671801 pages (Block 671800).
• The pages of Bitcoin’s History Book contain transactions.
• Each page contains information about the past ~10 minutes.
• A transaction is when someone sends Bitcoin to someone else.
• Identities are hidden behind Bitcoin addresses. Therefore, we don’t know who sent Bitcoins to whom, we only know how much.
• Creating a Bitcoin address is very easy. You can create one here by creating a wallet (that can send and receive Bitcoin).
• Once the first transaction was made to your Bitcoin address (you purchased Bitcoin from Coinbase with your credit card) it will be recorded in the History Book.
• A Bitcoin address looks like this: 15W7zQSiuawYzeF9EzQFGEHBsdeiRYaPTk
• The below picture shows the 100.001th Page (Block #100.000) of Bitcoin’s History Book. For example transaction #2 was a 5.56 Bitcoin transfer from the 1BNwxHGaFbeUBitpjy2AsKpJ29Ybxntqvb address to the 1JqDybm2nWTENrHvMyafbSXXtTk5Uv5QAn address and a 44.44 Bitcoin transfer to the 1EYTGtG4LnFfiMvjJdsU7GMGCQvsRSjYhx address.

Block #100.000 (Source: https://www.blockchain.com)

• Bitcoin’s blockchain has reached the 100.000th block on 2010.12.29
• Today we are at block #671.800
• But you can check the content of any other page from the History Book’s 671.800 pages here: https://www.blockchain.com/btc/blocks?page=1
• Nowadays a new page contains about 2.500 transactions.
• Since the beginning, more than 600 million transactions were recorded in Bitcoin’s History Book.
• By having access to every transaction from Page 1 all the way to Page 671.800 everything is transparent and traceable in the Bitcoin ecosystem.
• It is therefore very easy to check and verify with the use of a Blockchain Explorer which address has how many Bitcoins.
• Because Bitcoins can not magically appear or disappear. The only way Bitcoins can be generated is through:

Mining

Gold mining site (Source: Pixabay)

• Bitcoin mining is similar to gold mining: you are digging until you find gold, but here you can keep the gold that you found.
• Bitcoin mining is like writing a new page of a History Book.
• People can earn money by writing the pages of the book where the reward for writing a page is very lucrative
• If you are selected to be the writer of a page, you will get 6.25 Bitcoins (with today’s currency is about $ 300.000)
• But 1 page of the History Book can have only 1 writer.
• Because of this there is a huge competition among miners to become the writer of the next page.
• It is like a lottery where you have a chance of winning $ 300.000 every 10 minutes

Playing the lottery (Source: Pixabay)

• Bitcoin’s algorithm always awards the next writer role to those who can find a solution to a mathematical equation.
• Finding a solution requires a lot of computational power (hashes per second or h/s).
• Whoever has the best equipment and can perform the most calculations per second has the best chance of finding a solution.
• Individuals have very little chance of winning a lottery since there are huge mining farms that specialize in searching for the solution.

Cryptocurrency mining farm (Source: Wikimedia Commons)

• To win the lottery you need luck, but you can make yourself luckier by buying more lottery tickets.
• Similarly, at the Bitcoin lottery you can increase your chances by buying equipment that can perform more calculations. But you have a far better chance at winning the real lottery, than having a chance of ever mining a block.
• In Bitcoin’s code it was written to have a maximum amount of Bitcoins (21.000.000) ever to be mined.
• Since it’s inception, Bitcoin miners have mined 18.636.000 Bitcoins, so there is a little bit less than 2.5 m Bitcoins to be mined in the future.
• It was programmed into the code that the mining reward is halved in every 4 years. It started from 50 Bitcoin in 2009, then dropped to 25 Bitcoin in 2013, another halving happened in 2017 to 12.5 and now it is 6.25 Bitcoins.
• A new Page of a History Book always starts with the “Coinbase” transaction, which is the miner’s reward for writing the Page — this is the transaction that generates the new Bitcoins with every new block.

• Right now the Bitcoin generation speed is 6.25 Btc / 10 minutes
• In 2025 there will be another reward halving, so from that point onward Bitcoins will be generated at a 3.125 Btc / 10 minutes pace… and so on.
• And that’s how Bitcoins are created.

Blockchain

Bitcoin was the first blockchain based solution, but ever since a whole armada of blockchains have been developed, so let’s look at the main characteristics of blockchains to see their capabilities to be used in other fields, as well:

1. A blockchain stores a verified and constantly growing record of Truth.
2. There are two major type of blockchains: A public blockchain, where all transactions can be viewed by anyone (like Bitcoin or Ethereum), whereas a private blockchain only by it’s users (IBM Hyperledger).
3. The blockchain is made of blocks where each block contains information about historical events that happened since the last accepted block. Records can be any type, ranging from the most obvious, like records of money transfer (like at Bitcoin) all the way to complex smart contracts (like at Ethereum), or any other record where authenticity of the data is important.
4. A block is added to the blockchain in a predefined manner, by performing a certain amount of computation, or waiting a certain amount of time. For example, on Bitcoin’s blockchain a block is generated in about every 10 minutes by solving a mathematical equation (which is called mining).
5. These blocks are connected to each other, thus creating a chain of blocks. Every new block (list of new transactions or recorded data) has an ID number, which is generated by hashing* all the information that is inside that block. Each block contains the ID number (hash) of the previous block, thus blocks are built on top of each other. If one block were to change anywhere in the blockchain, all following blocks would be invalid immediately.
6. A blockchain is run by a program code that has certain rules. Therefore it is very important that the code can be reviewed by its users. Only this way can they be sure that the data recorded on the blockchain is always authentic and secured. In case of storing the rights of valuable assets or properties on the blockchain, there is also a vested interest in the protection of the blockchain. Users themselves become the guardians of the system, because of their skin in the game. If you invest your time and money to write a History Book with your fellow historians, you’ll do anything in your power to protect it. You also wouldn’t contribute to writing a book if you wouldn’t believe in it’s rules and principles.
7. An open source blockchain project (where the code is available for everyone for review) cannot hide secret back doors or Trojan Horses into the code, since it would be revealed by the community sooner than catching a limping dog. (“The lying man is caught sooner than a limping dog” — which is a famous Hungarian saying for “A lie has no legs”) The code of such blockchain only allows the system to create a new block when the last block has been agreed upon by its users. Therefore a new block can only be added to the last accepted block of the blockchain. Immutability is guaranteed with this methodology. You can only add a new page to the History Book when the last page has been accepted and sealed by your fellow historians.
8. The most intriguing questions when it comes to blockchains are: what is the main principle of block generation, who is entitled to generate them and how is the content of the blocks validated. However, it can be stated in general that whatever way blocks are created, a validation mechanism must be in place to confirm the validity of the mined block. Agreeing on the content of the page before it is added and sealed in our History Book.
9. The most useful feature a general blockchain solution can provide is obviating the need for a central authority, organization, service provider to handle, store, manage the data, due to the system’s distributed nature. The code is programmed to constantly harmonize everyone’s datasets following new block validations: adding the same and validated new block to the top of every full node’s (a user who runs the blockchain software and has the complete blockchain downloaded on his/her computer) ever growing chain of blocks. So, everyone who is running a full node (a software to validate blocks and to keep an always up-to-date record of the full blockchain) has the same information. Everyone has a copy of the same History Book.
10. The second most important feature is its resilience against malicious attacks or unintentional errors due to its distributed nature: since there is no owner (if it’s set up that way, like Bitcoin), no central governing body, attacks cannot be directed towards a single entity or a group of people. Thus, human factors are reduced to the minimum in terms of reliability. Changes to the system can only be achieved by the consensus of more than 50% of the participants. However, there have been examples of blockchain splits, where a group of active users had a different view on the direction. Thus, resulting in a so-called “fork” of the blockchain. Making a left turn when the original principle was heading straight forward. (One example was Bitcoin Cash’s “forking” from the original Bitcoin blockchain, as a significant number of people wanted to see a gradual increase in the block size, so the system could handle more transaction per second and to make transactions cheaper) These type of forks could potentially weaken the original blockchain, making them less resistant against attacks. However, all those that had stake in the original system will still keep, watch and protect their stakes on the legacy blockchain, even if they start mining on or promoting the new fork. There are no predetermined historians to write the pages of the History Book, but only a predetermined mechanism that selects the next writer. Followed by everyone checking if it really contains the truth. After verifying the truthfulness of the content, the page will be added to the History Book. There might be times when some want to have smaller font size, or speed up page writing to record more information, then they can start creating their version of the history book (History Book II), but the general principles never differ. The pages of History Book II will still have to be validated by their own accepted principles and mechanisms before adding them to the book.

* (hashing is a computational exercise which generates a unique identifier from a document of any size, but doing it so, that even if one character is changed in the document, it will generate a totally different hash. Therefore a hash works as a seal on a letter. It can be easily detected if the letter was read — the seal is broken, similarly if the content was changed — resulting in a different hash. You can find more information on Hashing in the following Article)

A History Book is only worth something if the content is authentic and verifiable and blockchain technology can provide a solution where only verified content is recorded.