History of the ingredients of the bitcoin blockchain. It didn't just suddenly appear

By mrees999 on Sun, Apr 3, 2016 - 2:11pm

Some think the blockchain was invented spontaneously from nowhere.




The invention was based on DECADES of research from computer scientist. It was the accumulation of many previous discoveries. The last problem to solve was the computer logic problem for digital money called "The Double Spending Problem".  Essentially - how do you prevent somebody from spending the same dollar twice?  With central companies - they keep a ledger of all accounts and when somebody transfers ownership they debit and credit the appropriate accounts - not problem.  Everything else in the digital world can be copied endlessly (see movies, pictures, music, documents).  How can you create a digital token of value that cannot itself be copied endlessly?

Digital cash system that works world-wide and not run by any single entity - how do you do it?  The final invention - or the 'secret sauce' was when bittorrent was invented. There people could share data (usually movies and music) across a network in a swarm of data where the data didn't exist in any one spot but was available to all. Importantly because there is no central organization - it is impossible to shut down.

To date, only  some web servers that contained the 'torrent directory' (which is essentially that instructs for the data to reassemble itself from the swarm) have been shut down for 'aiding the assistance of some illegal file sharing). But new ones are created within minutes and servers are mirrored all over the world so it's 'key stone cops' of governments to play 'whack a mole' and looking silly every time they make a big public announcement that they've shut it down. "The Pirate Bay" for example has 'supposedly' been shut down a dozen times and the owners of the original site have been arrested and they disavowed any connection to it.  But yet doing a search for it will return results in a few seconds - and 50 mirror sites all around the world.

I put together the slide shown below to give an idea some of the main technologies that were developed and about when. They are all incorporated into the current blockchain invention.  These blockchains are being used now by a TON of governments and the biggest Wall Street firms. In addition an EXPLODING amount of new companies are emerging using this technology as the base foundation layer for entire new business models.


Blockchain is now just a foundation layer protocol and many, many layers for applications, companies, and business models are being formed on top.  This in a way is just the beginning and things like Ethereum start from here and get even much more powerful.




Edwardelinski's picture
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Blockchain Success

The results were just announced by the 7 major banks testing the Blockchain in the credit default swaps market and it was a complete success..Where will it go from there?

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Mining coins vs power consumption

Interesting perspective on growing energy requirement to mine a coin



 at the time of Malmo’s piece, he calculated that a single bitcoin transaction requires as much electricity as the daily consumption of 1.6 American households, and that number has increased since then. “Adopting Bitcoin as a major currency anytime in the next few decades,” he wrote, “would just exacerbate anthropogenic climate change by needlessly increasing electricity consumption until it’s too late.”

mrees999's picture
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Power Consumption, time to get real

The author's Linked In page indicates he's an expert in climate change however he declares even in his disclaimers at the end of his article he freely admits essentially he has no idea if his calculations have any basis in reality.  He linked to another articled that only did some 'back of the envelope' math but I can tell you why it's WAAAAAAAYYYY off. After only 8 months you can see how ridiculous his notions have become.

They make a lot of extrapolations based on incomplete or just plain wrong data.

Power vs transaction volume was based on last summer when the average daily transactions was 110,000.  It's already over double that and has hit 250,000. Yet, it doesn't matter to the  bitcoin mining network. The hashing is a competition for the RIGHT to process the transactions of a 10 minute batch to be appended to the global ledger. Actually putting them into the block requires the calculations only complex enough, your smartphone is far more than is necessary.

Problems with logic.

Problem 1

The mining costs  for securing the network, unrelated to the number of transactions.

It's silly if you think about it,  currently the max transactions you can do are about 7 per second. The max in a 10 minute batch would be 4,200 transactions. These transactions  all added together take less than 1 megabyte. With developments such as the "Lighting Network" and "Segregated Witness" indicate the number of transactions per second will go into the tens of thousands before reaching the millions. Yet, this is completely independent from the cost of the security for it. The math suddenly changes by orders of magnitude that weren't even discussed. These concepts were completely missed by the article. This makes me severely question the motives, or respectability of the rest of the arguments.

Problem 2

The cure for high prices - is high prices.

Game theory is why bitcoin is so secure. The hashing power is 1.3 exahashes. This is almost twice as fast as the 800 petahashes quoted in the article. But - it was mentioned the reward is going be lowered by half in July. This means that unless the price of bitcoin doubles, the profit motive will only be half as now. If mining isn't economically feasible, they will drop out. "The Invisible Hand"  will move the power to the most efficient over time. The most efficient might mean that many miners move to Iceland or other countries which gets renewable energy from wasted energy offered through the volcanic thermal sources. The captures it and makes it useful and it's cheep and plentiful. If you look at the current graph of hashing growth rates, we see that hashing power leveling off lately as the miners all know that the incentive is dropping in a few months. The author noted this but made no adjustments in his match extrapolation. The physics of how much processing can be done per chip is reaching the end of Moore's law. The biggest reason of the rise the last few years is because of the efficiency of chips increased that fast.

Problem 3

Electricity used is discharged as heat. Heat can be used to create electricity - or as heating for home.

There are some planning to use these devices as a home heater. When I mine, my electricity cost did go up but my natural gas heating bill went down. You can turn your home eclectic heater into a bitcoin miner. These warehouse size places could use this excess heat to boil water, then the steam can be used to turn turbines that create electricity. This won't likely be more efficient than the cost of electricity going in but much of it can be recycled.

Problem 4

Soon, everybody will have a bitcoin miner on them. Probably several.

The company 21 Inc. has designed a chip smaller than your fingernail that can reside on any kind of device including your smartphone. Read about "the Internet of Things" AKA - IoT.  There is supposed to be 20 billion of these devices by 2020 and they need an identity. They will need to communicate and be prevented from being hacked. Already IBM, Samsung and others planning on putting these blockchain chips into everything to operate them, secure them, and transfer value between them. To help offset the costs of all this, they will be 'mine' small pieces of bitcoin that is intended to at least allow it to cover fees for transactions. Put out 20 billion small pieces of computer devices all doing their small part in keeping the bitcoin network secure we will be adding 20 billion tiny miners.

Problem 5

Compared to what??

While the amount of bitcoin users is tiny compared to the rest of the banking world, when it does scale, it happens without physical banks. What is the combined electric cost of all the servers, phone lines, lights, security experts, IT staff, buildings, fraud protection, auditing, regulation, accountants, bank tellers, loan officers, money transfer fees etc and CEO bonuses.  The efficiency of a bitcoin on a global scale when it starts to service millions of transactions per second through side-chain (See Block-Stream) there is no way the regular banking system of today can compete on any level.


Problem 6

What about Ethereum?

The Ethereum network is gaining support and standardization and plans to move to a "Proof of Stake" system which won't require mining as you understand it. It will be based on having blockchain validations being performed by 'bonded' servers putting up their own 'stake' of Ethereum tokens for the right rather than competing at mathematically intense competition. As ethereum is also open source and world-wide many transactions and companies will likely rely on this network as well so there will be competition  that will act as a cost and efficiency stabilizer.

In all it seams those articles were written by bitcoin amateurs. You want the real answers, as me.




mrees999's picture
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Several competing blockchain technologies\consortiums.

This race has only begun.

Overstock was the first. They created an SEC approved alternative stock market exchange called t0, This is because the clearing time for regular stock exchanged to settle is three days. This is often called "T3". Now it can be done in 10 minutes using the bitcoin blockchain. Hence "t0". They've already issued stock on it.



Nasdaq has also created a secondary exchange using the bitcoin blockchain for trade and settlement. They are BIG on blockchain and bitcoin in particular. It is already live for the last few months.


THE market trade settlement for all stocks exchanged in the USA us the DTCC. Almost nobody has heard of them, but it is through their system that is the clearing house everybody on Wall Street. They are now big into blockchains.


I don't know if they will use bitcoin \ ethereum or something they cook up themselves. Although the open platform of bitcoin requires no permission just as the internet itself is an open platform. The open platforms usually get the most innovation which is why AOL and CompuServe died  as their "private internet" couldn't compete in the long term as the smartest people wanted to develop cool things with freedom.



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