The origins of digital currencies date back far before the inception of Bitcoin. The idea of creating a form of money that could be transferred electronically has been a captivating concept for many technologists and futurists.
In the late 1980s and early 1990s, several attempts were made to create digital currencies, such as DigiCash and E-Gold. However, these early forms of digital currencies had significant flaws, mostly related to security and regulation, which ultimately led to their downfall.
The primary issue these early digital currencies failed to solve was the “double-spending” problem. In a digital environment, it’s easy to create a perfect copy of information. This led to a predicament: How could one prevent someone from spending the same digital money more than once, similar to counterfeit in the physical world?
In 2008, an individual or group under the pseudonym Satoshi Nakamoto published the Bitcoin whitepaper, presenting a revolutionary solution to the double-spending problem through a peer-to-peer electronic cash system. In this first part of our journey through the history of cryptocurrencies, it’s crucial to understand that these early attempts laid some of the groundwork and set the stage for Bitcoin and subsequent cryptocurrencies.
The Birth of Bitcoin and Blockchain Technology
In 2008, amidst the global financial crisis, a whitepaper titled “Bitcoin: A Peer-to-Peer Electronic Cash System” was shared by an anonymous entity known as Satoshi Nakamoto. The paper proposed a radically new form of electronic cash that was decentralized, meaning no single institution or government had control over it. This form of money was named Bitcoin.
The real breakthrough of Bitcoin was the underlying technology it introduced: the blockchain. Blockchain is a type of distributed ledger that records all transactions made within a network. It operates on a decentralized system of nodes, with each node storing a copy of the entire blockchain.
In the Bitcoin network, a group of transactions is bundled in a ‘block,’ and miners – special nodes in the network – validate these transactions by solving complex mathematical problems. Once the block is verified, it is added to the chain of previous blocks, hence the term “blockchain.” This blockchain technology eliminated the double-spending problem as each transaction could be tracked and verified, preventing the same Bitcoin from being spent twice.
The first block of the Bitcoin blockchain, known as the ‘genesis block’ or ‘Block 0,’ was mined by Satoshi Nakamoto in January 2009. The block contains the message “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks,” a reference to a newspaper headline of the day and a nod to Bitcoin’s creation in the wake of the financial crisis.
The invention of Bitcoin and its underlying blockchain technology marked a significant milestone in the evolution of digital currencies, creating the first decentralized cryptocurrency. However, it was just the beginning of the cryptocurrency saga. In the final part of this chapter, we will explore the proliferation of cryptocurrencies that followed and the impact they have had on the world.
The Proliferation of Cryptocurrencies
After the creation of Bitcoin, the cryptocurrency space rapidly expanded. As more people started to understand the potential of a decentralized digital currency, numerous new cryptocurrencies, often referred to as “altcoins” (alternative coins), started to emerge.
In 2011, Litecoin was introduced by Charlie Lee, a former Google engineer. Litecoin was designed to offer faster transaction confirmation times and a different hashing algorithm than Bitcoin. That same year, Namecoin was also launched as the first fork of Bitcoin. Its purpose was to decentralize domain-name registration, which makes internet censorship more difficult.
In 2012, Ripple was launched with a focus on facilitating real-time, international payments for banks. Ripple doesn’t rely on the energy-intensive mining process used by Bitcoin, making it a more environmentally friendly alternative.
But the most significant development after Bitcoin came in 2015 with the launch of Ethereum. Developed by a team led by Vitalik Buterin, Ethereum took the blockchain technology that underpinned Bitcoin and extended its capabilities. Ethereum introduced smart contracts—self-executing contracts with the terms of the agreement directly written into lines of code—which allow developers to build decentralized applications (dApps) on top of its blockchain. This opened up a world of possibilities, leading to the development of decentralized finance (DeFi) and the explosion of initial coin offerings (ICOs) as a fundraising method.
Today, there are thousands of cryptocurrencies available, each with its own unique properties and uses. While some have established their place in the market, others have disappeared as quickly as they arrived. Despite the volatility and uncertainty, the overall trajectory of cryptocurrencies has been upward, with growing acceptance from businesses, governments, and individuals worldwide.
- 1980s – The Pre-Bitcoin Era: Several attempts at creating digital currencies, including DigiCash, B-Money, Hashcash, Flooz, and Bit Gold, were made, but these failed to achieve broad support1.
- 1998 – 2009 – Wei Dai and Satoshi Nakamoto: Wei Dai first defined modern cryptocurrencies in 1998. In 2009, a white paper outlining the fundamentals of blockchain and Bitcoin was published by an individual or group using the pseudonym “Satoshi Nakamoto”1.
- 2009 – 2010 – The Beginning of Bitcoin: Bitcoin was launched in 2009, and the first public trade involving Bitcoin occurred in 2010, with someone selling 10,000 Bitcoins for two pizzas1.
- 2011 – The Rise of Alternative Coins: With Bitcoin’s growing popularity, the first rival cryptocurrencies, known as alternative coins or altcoins, began to emerge. Namecoin and Litecoin were among the first altcoins1.
- 2012 – WordPress and Bitcoin: WordPress became the first large retailer to accept Bitcoin as a valid payment method in late 2012. Other major companies like Newegg.com, Expedia, Microsoft, and Tesla followed suit1.
- 2013 – 2014 – Bitcoin’s Years of Dilemma: In 2013, Bitcoin’s price plummeted just after it passed $1,000 for the first time. In 2014, Mt.Gox, the world’s largest Bitcoin exchange, went bankrupt, leading to the loss of 850,000 Bitcoins1.
- 2016 – Ethereum and Smart Contracts: With the rising popularity of blockchain technology, other currencies based on it were introduced. Ethereum, the second-largest currency by market cap in the crypto industry, is one of the most notable Bitcoin alternatives. Ethereum introduced the concept of “smart contracts,” self-executing contracts with the terms of the agreement directly written into lines of code1.
- 2017 – The Growth of Bitcoin and Blockchain Technology: Despite Bitcoin’s value remaining below its previous highs, the currency’s appeal continued to grow due to the expansion of venues where it could be used. Blockchain technology, the foundation of Bitcoin, started to revolutionize various sectors beyond finance1.
- 2018 – The Crypto Market Crash: The aggregate value of the more than 1,400 cryptocurrencies in circulation dropped from over $800 billion at the start of January to about $460 billion by mid-January1.
- 2019 – Libra, The Facebook Coin: Facebook announced the launch of its own cryptocurrency, initially known as “GlobalCoin” or “Facebook Coin,” and officially named “Libra” in July 2019. However, the launch was delayed due to regulatory concerns1.
- 2021 – Present: Bitcoin and Ethereum proved to be quite robust, attracting the interest of both individual and institutional investors. There are now over 4,000 cryptocurrencies, though many of them may be insignificant. Some countries, such as El Salvador, have legalized the use of cryptocurrency, with El Salvador becoming the first country to make Bitcoin legal tender1.