Blockchain is a revolutionary application of computer technologies such as distributed data storage, peer-to-peer communication, consensus mechanisms, and cryptographic algorithms. A consensus mechanism refers to a mathematical algorithm that enables trust and authority among different nodes within a blockchain system. It ensures that all participants agree on the validity of transactions without the need for a central authority.
Blockchain is a foundational concept in Bitcoin, which is closely associated with the Internet Finance Lab at Wudaokou Finance College of Tsinghua University and the "2014-2016 Global Bitcoin Development Research Report" published by Sina Technology. As the underlying technology of Bitcoin, it functions as a decentralized database. Essentially, a blockchain is a sequence of data blocks created using cryptographic methods. Each block contains transaction details from the Bitcoin network, ensuring the integrity of information and enabling the creation of the next block in the chain.
In a narrow sense, a blockchain is a chronological data structure where blocks are linked sequentially and secured through cryptography, forming an immutable and tamper-proof ledger. Broadly speaking, blockchain technology uses these data structures to validate and store information, employs consensus algorithms across distributed nodes to generate and update data, and leverages cryptography to secure data transmission and access. Smart contracts, implemented through automated scripts, allow for programmable manipulation of data, representing a new paradigm in distributed infrastructure and computing.
Blockchain was the core technology behind Bitcoin. Before its rise to fame, many were unaware of its potential. At a blockchain technology forum hosted by Luyun District Chain, Ding Hao, CEO of Luyun District, shared insights into the past and present of blockchain. He studied at Sichuan University and Huazhong University of Science and Technology and worked on Huawei’s core network solutions for user data management.
The year 2008 marked the peak of the global financial crisis, which had spread worldwide. In late 2008, Nakamoto published a nine-page whitepaper introducing his vision for an electronic cash system. In early 2009, he mined the first block of Bitcoin, known as the Genesis Block, on a server in Helsinki, Finland. The block included a news headline from The Times, symbolizing the birth of Bitcoin.
Bitcoin application: Blockchain 1.0
In January 2009, Nakamoto introduced a revolutionary concept: a decentralized peer-to-peer digital currency that holds value without any backing or central issuer. Think of the blockchain as a public ledger for Bitcoin:
1. It is stored on every Bitcoin node across the internet, with each node holding a complete copy.
2. It records all Bitcoin transactions since the inception of Bitcoin.
3. The ledger is divided into blocks, each containing a portion of transaction records. Each block references the previous one, creating a chain, hence the name "blockchain."
4. When initiating a Bitcoin transaction, you broadcast the information to the network. Miners then record your transaction into a new block and link it to the blockchain.
Clarification of three key issues:
1. If you only have ten coins but want to send twenty, what should you do? All transaction records are on the blockchain. You can look back at your account's history to see how much you actually have. Your balance will not be denied due to a transaction.
2. How to ensure your account isn't impersonated? Digital signature technology. Each Bitcoin account has a public and private key. When you initiate a transaction, you sign it with your private key. Miners verify this using your public key.
3. With so many miners, how is the next block decided? Nakamoto designed a complex mathematical problem that requires significant computational power. The first miner to solve it gets to create the next block and broadcast it to the network.
This system is nearly unbreakable. Users cannot create Bitcoin out of thin air; they must mine it. They cannot falsify transactions or control accounts that don’t belong to them. Once confirmed, a transaction is almost impossible to reverse.
It is said "almost" because of the "51% attack," though such conditions are rare and difficult to achieve.
The introduction of smart contracts added autonomous functionality to blockchain technology. In 2010, someone on Bitcointalk expressed concern about the complexity of Bitcoin's scripting system, stating, “The Bitcoin script makes me nervous—it’s too complicated, and complexity is the enemy of security.†This person was Gavin Andresen, later becoming Nakamoto’s successor.
Nakamoto responded: “I hope Bitcoin will have a stable architecture in version 0.1, with no need for future changes. During the design of Bitcoin, I found that only a scripting system could support the various complex transactions I wanted—secured transactions, joint contracts, third-party arbitration, multi-signature, etc.â€
Today, Nakamoto might simply say, “Bitcoin needs scripts, and with scripts, there is a smart contract.â€
This short post became a pivotal moment in blockchain history. On the 8th floor, someone asked, “Does the Bitcoin scripting system mean users can issue custom assets?†That user, bytemaster, later created BitStock, allowing users to issue their own assets.
**The Birth of Blockchain 2.0: Smart Contracts and Ethereum**
While Blockchain 1.0 supported a basic smart contract system, it was limited in non-financial applications. The Bitcoin network’s scripting system was too restrictive, with limited block size and high computational costs. Ethereum improved upon this by:
1. Enhancing the scripting system to support diverse non-financial applications.
2. Introducing more detailed account management.
3. Keeping the underlying protocol simple.
Essentially, the Bitcoin network is a distributed database, while Ethereum is a distributed computer. Blockchain acts like memory, smart contracts like programs, and Ethereum miners like CPUs. Users pay for the use of this distributed computing power.
**Smart Contracts Are Essentially “Contracts†+ “Courtsâ€**
Traditional paper contracts only define terms, relying on judicial systems for enforcement. “Smart contracts + blockchain†encode both the contract content and money into code, making enforcement automatic and eliminating the need for third parties.
**Expansion of Blockchain: Trust in the Value Internet**
Nodes around the world collaborate on smart contract codes, and agreed-upon algorithms (like PoW/PoS) ensure the credibility of results. Blockchain is ideal for scenarios such as:
- Exchange of value
- Automated contract execution
The Value Internet differs from the Information Internet by delivering valuable information, starting with solving trust issues. Blockchain, born from Bitcoin, is fundamentally a value transfer protocol. More similar to the Internet’s TCP/IP protocol than a digital currency, it provides the theoretical basis for the Value Internet.
Trust issues exist everywhere, and blockchain offers solutions. In online value exchanges, three problems must be solved: ensuring the uniqueness of value exchange, establishing trust between parties, and enabling automatic execution of commitments via smart contracts without third-party involvement.
**Simple and Easy-to-Understand Introduction to Blockchain**
Blockchain emerged from Nakamoto’s Bitcoin. It is a new application of computer technologies like distributed data storage, peer-to-peer transmission, consensus mechanisms, and encryption. It is essentially a decentralized distributed ledger. To understand it better, consider a centralized trading model.
In this model, although you deal directly with the seller, the process involves third parties like Alipay, which handles transactions. If Alipay fails, the transaction could fail. A decentralized approach is simpler—you just exchange money and goods directly with the seller.
Decentralization is the disruptive feature of blockchain. It eliminates the need for intermediaries, enabling direct point-to-point interactions. This makes information exchange efficient, large-scale, and free from centralized agents.
Blockchain technology is moving from being a niche player to a mainstream solution. Recent actions by Chinese internet companies include Thunder’s “Chain,†Storm’s “BFC,†Renren’s “RRCoin,†and 360’s launch of the world’s first blockchain-based secure shared cloud platform. These efforts show blockchain’s growing presence in real-world applications.
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