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A BRIEF HISTORY OF CRYPTOCURRENCY

A walk-through in the first occurrence of cryptocurrency to this day 

by Poker King|September 12/2019|views: 280

It’s a common belief the concept of cryptocurrency was born with Bitcoin, back in 2009. Whilst Bitcoin is the first blockchain-based cryptocurrency, it’s far not the first cryptocurrency to occur.  

BITCOIN IS NOT THE FIRST CRYPTOCURRENCY

The original concept of digital currency was presented by David Chaum in 1983 – then a 28 years old Ph.D. student from the University of Berkeley, California. Today Chaum is appointed head of the cryptographic department of the Mathematical Institute in Amsterdam and named one of our time’s most brilliant mathematicians. Chaum published a scientific paper, describing the key point differentiating his digital money concept from a traditional credit card payment through anonymity. Through anonymous transactions users receive the digital assets from their bank, allowing the bank to see who has exchanged assets, and how much, but not what users use these assets for.

In his work, Chaum describes a cryptographic contrivance to create a digital signature, described also as a blind signature, making money anonymous assets. To explain the concept with a metaphor, we can have a look at the way postal votes work. Electoral authority use cards to vote, allowing them to do so only once, but remaining anonymous. Chaum replaces the voting card with the amount of money, and the voting authority – with a bank. The bank confirms that the user has bought digital money from it, putting every unit of money (digital coin), into a digital wallet and thus the money becomes invisible. Afterwards, the user can carry out transactions. The bank recognizes the signature, allowing the transaction of a digital money unit, but doesn’t see the identity of the user.

6 years later, Chaum founds DigiCash – a company that invents the first virtual currency, enabling secure transactions of goods and services online. Only 10 years later DigiCash is accepted by banks and customers.

A Forbes article summarizes Digi Cash’s experience back then:

“A beautiful idea for a beautiful new world with one problem: nobody wants it. Not the banks, not the dealers and above all, not the customers. E-commerce is flourishing [1999, the author’s note], but as it turns out, the customer’s MasterCard and Visa are his preferred currencies.2”

Just as many altcoins today, DigiCash had the same struggle – offering a solution to a problem that doesn’t yet exist.

EARLY BIRDS AND BAD REPS

David Chaum got a bad reputation because of his brilliance. Dutch magazine Next!3 gave him a negative feedback because of months-prolonged negotiations with Dutch ING Bank, only for Chaum to refuse closing the deal on the day of the joint signing of the documents.

“He was so paranoid that he always thought something was wrong,” says Raymond Stofberg, CFO of DigiCash until 1996: “There were eight ING people including the CEO and David just didn’t want to sign.”

Later on, Bill Gates wants to incorporate DigiCash into every Windows 95 installation, but eventually withdraws. 

DigiCash eventually faces its ending phase. It is because customers do not seek anonymity, but secure online payment transactions. Credit cards are well-familiar, and the demand of alternatives to what has already been acquainted are doomed to fail.

The fall of DigiCash eventually eradicates future projects. Chaum patents his works, so only few years later Bitcoin will pop, entirely open-source. This brings the technology we use today as a day-to-day payment alternative available to the mass user, creating a field for ruthless competition between tech companies.

DIGITAL MONEY IS DEAD. LONG LIVE THE DIGITAL MONEY

Not long after DigiCash has closed operations, a duo based in Florida comes with the brilliant idea to sell shares of gold online.  Douglas Jackson – an oncologist, and his friend lawyer Barry Downey put gold coins in a safe deposit box, later on selling portions of it online. The shares are denominated in what they call e-gold – a new digital currency.

Four years later, E-Gold becomes the first popular digital currency, used by at least one million people worldwide. First come the precious metal traders, then auction houses, online casinos, online traders and non-profit organizations.

Peaking market capitalization of $2 billion, E-Gold eventually becomes popular among hackers. Not long after, the E-Gold central systems are being hacked, leaving many customers lose their deposits.

THE BIRTH OF BITCOIN – THE FIRST BLOCKCHAIN-BASED DIGITAL CURRENCY

Years after David Chaum’s first published a document on electronic currency, there comes a second white paper that explains what Bitcoin is. Author Satoshi Nakamoto pushed the white paper on ac cryptography mailing list, changing the course of history. 

Bitcoin was Nakamoto’s response to the collapsing US economy back in 2008. People first heard of the new cryptocurrency concept two months after iconic US investment bank Lehman Brothers Holdings Inc. filed bankruptcy documents.

In his message, Nakamoto wrote:

“I’ve been working on a new electronic cash system that’s fully peer-to-peer, with no trusted third party. The paper is available at bitcoin.org/bitcoin.pdf.”

Main difference and properties of the newborn cryptocurrency would be peer-to-peer, killing the middleman – usually a financial institution. The concept that eventually became the biggest cryptocurrency as of today, was entirely de-centralized, leaving central authorities such as traditional central banks out of the game. Later on, Nakamoto wrote everything in the system is based on crypto proof.

“The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust,” said Satoshi. 

On January 3, Nakamoto created Bitcoin’s genesis block. The first 50 Bitcoins – the very first transaction on the blockchain which, based on the initial design, cannot be spent or used. This transaction had embedded message with a timestamp with Nakamoto’s attempt to push Bitcoin live.

The now iconic message referred to a news article, published in The Times. This left wanderers to believe Nakamoto lived in the United Kingdom, possibly creating the genesis block on January 3 or shortly afterwards.

“The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”.

The centralized cryptocurrency started gaining popularity short after. In 2011 there appeared another blockchain based currency, called Litecoin. 4 years later Ethereum would appear to take over part of the crypto market.

SATOSHI NAKAMOTO REMAINS UNKNOWN

Is Satoshi Nakamoto a real person? Many believe it’s a group of people which invented Bitcoin. The original domain where the first white paper was published – Bitcoin.org, was registered 2 years prior the document going live. Typically, users can search for domain owners, but this one remains anonymous.

Earlier this year, Australian computer scientist and businessman Craig Wright claimed he is Bitcoin’s father. The claims followed a lawsuit against him.

There have been many speculations throughout the years about Nakamoto’s descent. While the name suggests he is Japanese, PEOPLE have linked the anonymous figure to Hal Finney – pre-bitcoin cryptographer, Nick Szabo and Dorian Nakamoto – a Japanese-American residing in California, named Satoshi Nakamoto at birth.