History

Cryptography has been used for thousands of years but cryptology has been functioning as a science for just nearly one hundred years...

The first publication concerning cryptographically secured blockchain was released in 1991 by Stuart Haber and W. S. Stornette at Journal of Cryptology. In “How to time-stamp a digital document” they proposed computationally practical procedures for digital time-stamping of such documents so that it is infeasible for a user either to back-date or to forward-date his document, even with the collusion of a time-stamping service. 

In 1992 D. Bayer, S. Haber and W. S. Stornette developed their conceptions using the hash tree (known as a Merkle tree). It relies on a tree in which every leaf node is labelled with a cryptographic hash of a data block, and every non-leaf node is labelled with a cryptographic hash of the labels of its child nodes. This database contains information about a bigger fragment of data which enables one block to conclude more documents. It majorly improved effectiveness of blockchain. 

In 1998 outstanding scientist and an I.T. Specialist - Nick Szabo designed the mechanism for the decentralized digital currency which he presented as  “Big Gold”.  Users of the net shared computing power to solve tasks cryptographically. Every person joining the process would get prize. Even though this currency has never come on the market, it has been named a “direct precursor of Bitcoin’s architecture”. 

31 October 2008 - presumed pseudonymous person or group of people published a paper regarding the cryptography mailing list at metzdown.com describing a digital cryptocurrency, titled “Bitcoin: A Peer-to-Peer Electronic Cash System”. It was a crucial moment in Bitcoin’s history. 

The event that is considered an announcement of the creation of the Bitcoin network was the registration of the bitcoin.org Internet domain on August 18, 2008. The registration took place through the anonymousspeech.com website, which enables anonymous domain registration, but it is widely recognized that the first domain owner was Satoshi Nakamoto.

9 January 2009 - he released version 0.1 of the Bitcoin software on Sourceforge, and launched the network by mining the genesis block of Bitcoin, which had a reward of 50 bitcoins. 

Blocks

Blocks are files where data pertaining the network are permanently recorded. We could say that block is like a page of a ledger or a record book. When a block is “completed”, it gives way to the next block in the blockchain. We could say that block is a permanent store of records which, once written, cannot be altered or removed. For example, Bitcoin uses a proof-of-work system, where the chain with the most cumulative proof-of-work is considered the valid one by the network.

The important thing is “block time” which means the average time necessary to generate one extra block in the blockchain. Sometimes some blocks create a new block every five seconds. The included data becomes verifiable by the time of block completion. In cryptocurrency, it takes place when you execute a transaction, so a shorter block time means faster transactions. The block time for Bitcoin takes on average 10 minutes, while transaction time for Student Coin it is set to less than one minute and that’s one of the reasons why the future belongs to STUDENT COIN!

Decentralization

Decentralization is the process of distributing and dispersing power away from a central authority. Nowadays, most financial and government systems are centralized. This can lead to abuses and malfunctions which have a negative effect on the entire system. For instance financial crisis of 2007-2008 was caused by centralized banks where it came to risk mismanagement. Cryptocurrency was designed as a decentralized alternative to fiat money and therefore doesn't have any single point of failure, making it more resilient, efficient and democratic.

Peer-to-peer blockchain networks are characterized by the  lack of centralized points of vulnerability that computer crackers can exploit, also they have no central point of failure. Blockchain security methods include the use of public-key cryptography. Public key is something like your account number. Value tokens sent across the network are recorded as belonging to that address. Only if, you have a private key, which means your “password” you gets access to your digital assets, so data stored on blockchain is generally considered incorruptible.

The most important aspects of decentralization are resistance to failures, cyberattacks and resistance against “collusion”, which means that influential users can’t act to make their ideas at the expense of other participants.

Types of blockchain network

The most essential role of the blockchain technology is to provide a secure way of exchanging information or to process vast amounts of transactions. However, different cases demand specific use of distributed ledger technology (DLT).

Firstly, focus on similarities of every type of blockchain share. There are three main characteristics:

•   Every blockchain is based on a peer-to-peer network system, so every node is communicating in a decentralized way.
•   Shared ledger is being periodically updated and every node has a copy.
•   Each node is able to initiate or receive transactions and also create blocks.

Public Blockchain

Let’s start with the example of Bitcoin, a cryptocurrency which implemented blockchain technology into the mainstream. Bitcoin is a digital currency which network type is public, as people from all over the world might trade Bitcoins, become a node or verify other nodes as well. Literally, everyone who has access to the Internet can be a part of public blockchain network. Generally, a node or a user of public blockchain network is authorized to explore past and current records, verify transactions or do mining. More information regarding miners will be attached to next sections. Example: Bitcoin, Ethereum

Disadvantages:

•   Slow – a huge network with a lot of nodes demands a lot of time to verify a transaction
•   Scalability – slower rate of processing transactions creates issues with the scale. The more we try to develop the size of the network, the slower it will get. However, new solutions for that case are being currently created. We shall present more of them in next sections.

Advantages:

•   Secure – the larger the network, the greater the ledger distribution. With size, it gains immunity to cyberattacks
•   Transparency – the ledger is open and the data is visible for every participant of the network
•   Trust – users can trust public blockchain without knowing the individual node

Private Blockchain

A private type of blockchain technology is a blockchain functioning only in a closed network. It may be used by enterprises where only selected participants are part of a blockchain network. In this case, security, permissions and accessibility are controlled by a specific organization. We can say that private blockchains are similar to public blockchains but they are being used by smaller group. Private blockchains are being used for supply chain management, digital identity or asset ownership. Example: Hyperledger

Disadvantages:

•   Limited trust – restricted participants require trust building
•   Low security – the same as in the case of participants, there are less nodes
•   Centralization – need of system for accessing

Advantages:

•   Scalability – enterprise can decide about the size of blockchain network
•   Speed – definitely faster than a public blockchain

Hybrid Blockchain

A hybrid type of blockchain has features of both private and public blockchain. With hybrid network, for example: user can control who gets access to data, however, only a selected part of data can be publicly accessible. This type of blockchain is flexible so there is even a possibility that users can join a private network with multiple public blockchains. In this case, transactions in a private network are verified by that network, nevertheless, users are able to release the transaction in the public blockchain. The public aspect demands more nodes for verification so transparency and security is increased.  Example: Dragonchain

Consortium Blockchain

A consortium blockchain is a semi-decentralized technology where there is more than one organization which manages a blockchain network. So it works exactly like a private type of  blockchain but more than one organization might participate as a node and exchange information. Consortium blockchains are being used by banks or government organizations. Example: Energy Web Foundation

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