Blockchain technology was first outlined in a 1991 research paper titled, "How to Time-Stamp a Digital Document" by Stuart Haber and W. Scott Stornetta.1 As the title suggests, two researchers wanted to implement a system where document timestamps could not be tampered with as the world entered the early stages of the dot-com era. Neither author conceptualized anything like cryptocurrency or Bitcoin. They just wanted to make sure certain electronic documents could not be altered.
For nearly two decades, "blockchain," or electronic/digital document retention system, remained as a concept. Then, in January 2009, blockchain had its first real-world application with the introduction of Bitcoin. The first Bitcoin - "a combination of one million binary characters or bits" (aka "0" and "1", a basic computer language) - was written inside a data structure called a "block" that triggered a chain of even more block data structures; hence the name blockchain.
The very first Bitcoin block recorded, number 0, is called the "Genesis Block." Over time, Bitcoin became increasingly popular and accepted by the public as a viable substitute to the traditional fiat currency. However, the U.S. government, among other nations, refuses to recognize Bitcoin as legal tender (more on this in Part II), likely because Bitcoin does not actually exist. It is a figment of imagination rendered in a series of computer codes, and it is not backed by anything of value.
Blockchain is a free-to-access communal database that differs from a typical database owned or controlled by a single or a group of entities. Blockchain's main purpose is to store information by recording data in blocks that are then linked together via cryptography. The blockchain, in its current practical form, consists of a network of computers across the globe, owned by private individuals or corporations. Each computer is either a node or a miner.
These vast networks of computers serve as a self-sustaining checks-and-balances system that does not rely on a third-party to monitor or enforce each participant to do what it is supposed to do. For an illustration of how Bitcoin transactions are recorded in blockchain, visit "Bitcoin and Blockchain Infographics" on the RMSG website.
When Bitcoin was first introduced in January 2009, the world was in the middle of a historic fiscal crisis. People began to lose faith in their government, and the fragility of trust within the monetary system began to reveal itself. The creator of Bitcoin explained the purpose behind the cryptocurrency3 that started it all. Within the Genesis Block was the creator's true motivation - a secret message within the raw data that read:
It was the headline for an article in the January 3, 2009, London edition of The Times about the British government's failure to stimulate the economy following the budgetary crisis. The creator not only wanted to invent a way for people to send money over the internet at any time and place (unlike a bank transfer or even wire transfer, which is not guaranteed to complete during weekends), he wanted to create a digital currency network that was free from any central control, such as a country's central bank or the U.S. Federal Reserve.
The creator explained that the reason for creating this digital cash system was to remove the "all-powerful" intermediaries that are traditionally required to conduct digital monetary transfers. In the creator's view, these intermediaries incur significant costs for conducting their services (wire transfer fees, account maintenance fees, etc.); these costs are then passed on to end users and can restrict transactions below a certain size.