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History of Cryptocurrencies

If you are an investor, student, or a knowledge seeker, knowing the history of cryptocurrencies is vital. Bur before that let’s know what exactly a cryptocurrency is.

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Cryptocurrency is an emerging alternative to the traditional monetary system. It is combination of two words, Crypto and currency, meaning secret and a system of money in general use, respectively.

In the context of Cryptocurrency, the word crypto resembles higher levels of security that are almost impossible to breach. Such a currency has no physical foundation or existence.

It works only through the digital medium, accessible through the internet. The sale and purchase of goods and services also happen online between two parties mutually agreeing to the use of Cryptocurrency.

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Unlike the traditional trading system that uses stock exchanges, cryptos need not have a dedicated physical building; they are entirely virtual.

The techniques of cryptography make it almost impossible to counterfeit or double-spend cryptocurrencies. However, critics raise several apprehensions against them for being volatile and gradually becoming a potential haven for illegal activities.

But the list of positives like transparency, decentralization, portable, and resistant to inflation, among others, put it back in the limelight. Moreover, the history of cryptocurrencies is both interesting and informative.

Early forays

Though the term cryptocurrency first came into existence somewhere in the late 1990s, its methodology has been evolving since the early 1980s.

David Chaum, an American cryptographer, had come up with a dissertation in 1982. He talked about and explored the possibility of using privacy-preserving technologies, leading to anonymous online transactions.

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He discussed the idea of creating e-cash, an electronic form of money that could be used to facilitate the sale and purchase of goods without the requirement of physical meetings and payments.

Chaum always emphasized the complete privacy of users involved in online transactions. He proposed using Blockchain, the network that cryptocurrencies are based on, to achieve the same.

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He was sure that state authorities’ use of the evolving technology would eventually make privacy safeguards useless.

Chaum believed that the surveillance potential of technology would leave individuals vulnerable to state authority and scrutiny. His focus remained on decentralizing power to smoothen the flow and ease of financial operations.

In the 1990s, he used his idea to create DigiCash, a one of its kind electronic money platform. It used several cryptographic protocols to make the digital transfer of money between two entities untraceable.

Some of the protocols Chaum utilized include blind signature, dining cryptographers protocol, and mix networks. Though DigiCash wasn’t successful in the long run, it brought a novel idea for deliberation.

What Chaum missed in his dissertation of 1982 was one protocol of the blockchain technology. It was later covered with the release of a whitepaper on Bitcoin.

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Chaum is an ardent advocate of individual privacy, which he believes to be under threat from state authorities across the globe. His endeavors are significant while discussing the history of cryptocurrencies.

Isn’t it enthralling to know that the foundations of cryptocurrencies like Bitcoin were laid almost four decades ago?

What is a Blind Signature?

David Chaum was the first to use Blind Signatures on his platform, DigiCash. However, he mooted the idea way back in the early 1980s.

When we talk of cryptography, a Blind Signature refers to a digital signature where the document’s contents are disguised.

You can only access the content through a key after the signature. The benefit of such an arrangement is that you cannot trace the signer.

Therefore, the usage of blind signatures in cryptocurrencies ensures complete privacy of parties involved in a transaction.

B-money

Later, in 1996, the National Security Agency of the US released a paper describing the system of Cryptocurrency, its benefits, and disadvantages. It was later published in The American Law Review.

The discussion about Cryptocurrency was growing day by day, and several tech enthusiasts were researching the same.

In 1998, Wei Dai, an aficionado Chinese computer engineer, revealed the idea of B-money in an essay. He described it to be a distributed electronic cash system having complete anonymity.

Dai included in the paper several mechanisms that are present in today’s cryptocurrencies. B-money, according to him, was a currency that could be used for the online exchange of goods and services between two parties without the need of any third force or mediator.

He suggested ideas like a virtual ledger for transaction verification and cryptographic protocols for transaction authentication. Further, Dai proposed and public keys to seal the security of transactions.

Several things he discussed back then are notable features of the blockchain technology that shields the cryptocurrency network. Though B-Money never saw the light of the day, Wei Dai is widely regarded for his contributions in shedding light on the capability of Cryptocurrency.

The smallest unit of Ethereum’s digital currency, Ether, is named ‘wei’ to acknowledge his hard work.

Bit gold

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Digital currencies were gradually gaining traction, and in the middle of it all, a computer scientist named Nick Szabo presented the idea of Bit Gold in 1998.

He used proof of work and a digital ownership registry to ensure authenticity and ownership. Bit gold was supposed to be a free virtual currency system.

However, like the B-money, it could also not be implemented initially. Apart from this, he is also credited with inventing the term ‘Smart Contract’.

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Nick defined it as a self-executing contract between a buyer and a seller, written directly into lines of code. It drove away the need for a central authority or any other third party.

He strongly felt that removing middlemen from a transaction was necessary to ensure swiftness and individual privacy.

The fact that bitcoin was born exactly after ten years, in 2008, with several of Nick’s propositions shows the depth of his visionary ideas. Also, his contribution is pivotal to the history of cryptocurrencies.

The Birth of Bitcoin

Considering the previous research and attempts at creating a completely virtual currency, independent of third-party access, it was only a matter of time before something material would emerge.

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In 2008, Satoshi Nakamoto, an unidentified person till date, authored a paper named “Bitcoin: A Peer-to-Peer Electronic Cash System”.

He argued that government-free and secure transactions were the need of the hour and proposed the use of digital signatures and digital coins instead of the regular fiat currencies.

Satoshi offered transparency by maintaining a public ledger that was easy to access but almost impossible to infiltrate because of the blockchain protocols.

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The Bitcoin network was supposed to be operated with the help of miners and nodes. Satoshi implemented the software for Bitcoin, a decentralized virtual currency, in 2009 as an open-source code.

For the first time, an alternative to the centralized currency saw the sunrise. Though its architect is Satoshi, it appears that such a complex mechanism could not have been a one-man’s cup of tea.

However, there haven’t been any revelations in that regard. All that is there is speculation, including the one that Nakamoto mined approximately one million bitcoins before he disappeared in 2010. 

Who received the first-ever Bitcoin?

The receiver of the first Bitcoin was Hal Finney, a computer scientist who is credited for developing many computer games.

Finney had helped Satoshi in finding and fixing bugs in Bitcoin. As a test, Nakamoto had sent him ten bitcoins.

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After Bitcoin, a plethora of Cryptocurrencies made it to the market starting 2011 when Litecoin was released by Charlie Lee, an employee at Google.

It had a better processing speed than bitcoin, used a different hashing algorithm, and could produce a higher maximum number of coins. Litecoin is said to be an improved version of Bitcoin.

Conclusion

Cryptocurrencies saw many misses before finally getting a hit in Bitcoin. Blockchain, the primary foundation on which Bitcoins and other cryptos work, provides a solid base for trust despite the currency’s volatile nature.

When studied as a whole, it is easy to observe that the credit for the development of cryptocurrencies cannot be given to one person. Instead, it has been a collective work of several enthusiasts.

I sincerely hope that you found the history of cryptocurrencies informative.

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