Cryptocurrency existed as a theoretical construct long before the first digital alternative currencies debuted. Early cryptocurrency proponents shared the objective of using innovative mathematical and computer science concepts to resolve what they perceived as political and practical drawbacks of “conventional” fiat currencies.
Cryptocurrency’s technical foundations go back to the early 1980s when an American cryptographer named David Chaum developed a “blinding” algorithm that stays main to modern-day web-based file encryption. The algorithm allowed for safe, unalterable details exchanges between parties, laying the groundwork for future electronic currency transfers. This was called “blinded money.”
By the late 1980s, Chaum got a handful of other cryptocurrency lovers to advertise the concept of blinded cash. After transferring to the Netherlands, he founded DigiCash, a for-profit company that produced currency systems based on the blinding algorithm. Unlike Bitcoin and most other modern cryptocurrencies, they didn’t decentralize DigiCash’s control. Chaum’s business had a monopoly on supply control, similar to reserve banks’ monopoly on fiat currencies.
DigiCash initially dealt straight with people, but the Netherlands’ reserve bank wept nasty and quashed this idea. Faced with a demand, DigiCash accepted an offer just to certified banks, seriously reducing its market capacity. Microsoft, later on, approached DigiCash about a potentially financially rewarding collaboration that allowed early Windows users to make purchases in its currency. Still, the two companies couldn’t settle on terms, and DigiCash went belly-up in the late 1990s.
Around the same time, an accomplished software engineer named Wei Dai released a white paper on b-money. This virtual currency architecture consisted of several vital elements of new cryptocurrencies, such as intricate anonymity security and decentralization. Nevertheless, b-money was never released as a means of exchange.
Shortly after that, a Chaum associate named Nick Szabo developed and released a cryptocurrency called Bit Gold, which was significant for using the blockchain system that underpins most modern cryptocurrencies. Like DigiCash, Bit Gold never gained widespread traction and is no longer utilized as a means of exchange.
Pre-Bitcoin Virtual Currencies
After DigiCash, much of the research and investment in electronic monetary transactions moved to more traditional, though digital, intermediaries, such as PayPal (itself a precursor of mobile payment technologies that have blown up in popularity past ten years). A handful of DigiCash imitators, such as Russia’s WebMoney, sprang up in other parts of the world.
In the United States, the most noteworthy virtual currency of the late 1990s and 2000s was e-gold. E-gold was produced and managed by a Florida-based company of the same name. E-gold, the company, essentially functioned as a digital gold buyer. Its clients, or users, sent their old fashion jewelry, trinkets, and coins to e-gold’s warehouse, getting digital “e-gold”– units of currency denominated in ounces of gold. E-gold users could then trade their holdings with other users, cash out for physical gold, or exchange their e-gold for U.S. dollars.
At its peak in the mid-2000s, e-gold had millions of active accounts and processed billions of dollars in transactions yearly. E-gold’s relatively lax security procedures made it a popular target for hackers and phishing scammers, leaving its users vulnerable to monetary loss. And by the mid-2000s, much of e-gold’s transaction activity was lawfully suspicious– its laid-back legal compliance policies made it attractive to money laundering operations and small-scale Ponzi schemes. The platform dealt with growing legal pressure throughout the mid-and late-2000s and lastly ceased to operate in 2009.
Bitcoin and the Modern Cryptocurrency Boom
Bitcoin is widely considered the first contemporary cryptocurrency— the first publicly used exchange methods to integrate decentralized control, user anonymity, record-keeping through a blockchain, and integrated shortage. Someone first described it in a 2008 white paper published by Satoshi Nakamoto, a pseudonymous person or group.
In early 2009, Nakamoto released Bitcoin to the general public, and a group of passionate fans began exchanging and mining the currency. By late 2010, the first of what would become dozens of similar cryptocurrencies– consisting of popular options like Litecoin– started appearing. The very first public Bitcoin exchanges appeared around this time.
In late 2012, WordPress became the first famous merchant to accept payment in Bitcoin. Others, including Newegg.com (an online electronics retailer), Expedia, and Microsoft, followed. Lots of merchants now see the world’s most popular cryptocurrency as a legitimate payment approach. And new cryptocurrency applications settle with remarkable frequency– Cryptomaniaks has a fantastic take a look at the fast-growing world of cryptocurrency sports wagering sites here, to take simply one example.
A couple of cryptocurrencies other than Bitcoin are commonly accepted for merchant payments. Significantly active exchanges allow holders to exchange them for Bitcoin or fiat currencies– supplying critical liquidity and flexibility given that the late 2010s, big business, and institutional financiers have closely seen what they call the “crypto space,” too. Facebook’s closely secured Libra job could be the first genuine cryptocurrency option to fiat currencies, although its growing pains recommend that true parity remains well in the future.