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What Was The First Cryptocurrency?
Bitcoin, right? Ok, but who created it? Satoshi Nakamoto. Everyone knows that by now, of course. But did you know that several early attempts at a safer, more secure, decentralised currency pre-date Bitcoin by 20+ years? Join us as we take a trip back in time to look at Bitcoin's earliest inspirations.
Earliest Forms of Crypto Technology
By the time the first proper cryptocurrency launched in 2009, the concept had already been posited and attempted numerous times in a variety of forms, with some achieving more success than others.
Here we take a look back at six of the earliest renditions of digital currencies that each bear a striking resemblance to today's top crypto coin and were fundamental in shaping the BTC we know and love.
Electronic Cash Smartcards
Digital cash first found a footing back in the late 1980s in the Netherlands. At the time, local petrol stations were having problems with nighttime robberies due to the amounts of cash that had to be on hand for truck drivers to fuel up at all hours. One proposed solution was to station some guards at these locations to prevent the robberies, but it was deemed unsuitable to put people's lives in danger.
At the time, smartcards were being trialled in the region and a group of developers decided it might be worth coming up with a way of loading money onto those cards as a safer form of payment for truckers wishing to make their nighttime fuel stops. Rather than the truckers having to carry cash and the stations wondering how to keep it safe, these digital money loaded smartcards offered a way for truckers to still pay for their fuel while eliminating the need for petrol stations to keep cash on site, thus putting an end to the robberies.
Around the same time, popular Dutch supermarket chain Albert Heijn was pressuring banks to invent a way for shoppers to pay using their bank accounts at the till which itself was the early beginnings of point-of-sale digital payments. Debit cards made their rise to popularity in this decade as a result.
Meanwhile, or maybe a little earlier, in around 1983, American cryptographer David Chaum had himself been exploring the concept of digital money with the goal of creating a more secure and private method of transferring funds between people. Chaum invented Blind Signature Technology, an extension of the RSA algorithm still used in online encryption today, which effectively enables a number to be passed between people, with that number modified on the receiving side. In this way, transactions can still be recognised as legitimate by the bank but also carry a modification that keeps their details private.
With privacy issues front and centre in the minds of the Dutch population, it was no surprise that David Chaum moved to the Netherlands to further develop his concept, and after working with several other prominent figures at the Centrum Wiskunde & Informatica (CWI), a research institute for maths and computer science in Amsterdam, DigiCash was launched in 1989.
Unfortunately, it seems David Chaum's invention came a little ahead of its time, with only two banks supporting the new DigiCash system and the internet as we know it today still very much in its infancy. Microsoft reportedly offered him $180 million to integrate DigiCash on all Windows PCs, but Chaum rejected the offer as insufficient and DigiCash eventually filed for bankruptcy in 1998.
Chaum's failure provided enough incentive for many others to have a go but from a slightly different approach. In the 1990s, as the internet started making its first real waves and becoming a staple in the homes of a growing proportion of the population, the potential of web-based money was starting to be realised.
The first online payment system came in the form of the aptly named First Virtual, which was launched in 1994. However, within 4 short years, First Virtual had fallen on its face by making a critical mistake in requiring users to be classed as merchants.
Taking the lead from there was PayPal, which originally launched as Confinity in 1998 (which itself merged with X.com, a company created by Elon Musk in 1999) to provide a payment service between the then-popular handheld devices called Palm Pilots. Recognising both the growing demand for everyone, not just merchants, to be able to make payments, and the desire to make and receive those payments online from within web browsers, PayPal quickly adapted.
Their efforts were soon rewarded with perhaps the most pivotal moment in the company's history, its acquisition by eCommerce site eBay in 2002. PayPal quickly became the default payment option on the site, with a variety of online payment service providers also popping up on the net over time.
PayPal's success also inspired the creation of a similar person to person online payment system but using physical value stores such as gold and silver. E-gold was launched in the US in 1999 and offered the opportunity for people to deposit their gold or silver and be credited with the equivalent value in e-gold. Similarly, gold and silver could be purchased using e-gold and held safely.
Since the company itself was located in the Caribbean, it didn't need US approval. However, due to the rise in scams and shady schemes surrounding the cryptocurrency, e-gold was shut down after a raid of its Florida offices in 2005.
Another form of digital currency that was conceptualised long before its time was B-Money. Computer engineer Wei Dai, a graduate of Washington University, published a white paper on the concept of B-Money in 1998 as an anonymous distributed e-cash system. The aim of the cryptocurrency and the platform on which it was proposed to operate was to allow "untraceable digital pseudonyms to pay each other with money and to enforce contracts amongst themselves without outside help".
If this sounds very familiar, it's for several reasons:
- It would need computational work
- Transactions would be verified by a community on a public ledger
- Transactions would be authenticated using cryptography
- Workers would be rewarded for their efforts
These are, of course, elements of today's blockchain technology.
Although B-Money never reached the launch stage, it became a crucial influence in the development of today's cryptocurrencies and the blockchain technology on which they operate. As a tip of the hat to Wei Dai's work, the smallest unit of the cryptocurrency Ether is called a Wei.
One of the original minds behind the DigiCash project, Nick Szabo proposed the precursor to Bitcoin in 1998 with a project called Bit Gold. The aim of Bit Gold was to create a decentralised transaction system by using elements of both cryptography and mining. Szabo described a proof-of-work method that was both secure and transferable. The result was a way of transferring value between users without any middlemen.
Bit Gold transaction verification would involve the solving of puzzles by computers, with the solution of one puzzle forming part of the next one, creating a chain of verifiable details that are then stored in a registry.
Even though it never amounted to much itself, Szabo's creation draws striking parallels with today's Bitcoin blockchain, so much so that many have speculated that the unknown entity and creator of BTC, Satoshi Nakamoto, is actually Nick Szabo, though Szabo has denied these claims.
Described in 1997 by Adam Back, Hashcash was originally intended as a way of preventing email spam and denial-of-service (DDOS) attacks. Hashcash involved the use of a proof-of-work algorithm that required the creation of a hashcash stamp for every email header. Creating hashcash stamps would require a fair amount of computational power, and therefore time, which would be unappealing to the speedy bulk sending needs of a spammer, thereby putting such individuals off altogether.
Hashcash was actually found to be of significant importance in many other areas, most notably in terms of Bitcoin blockchain operation, in which instead of users having to create hashes, they must use brute force to identify them in order to create a block in the chain and receive payment for the mining.
Over time, Hashcash processing became more power-hungry and unfit for purpose, but it left its mark on the early development of cryptocurrencies, with a lot of the same technology appearing in today's blockchains.
The Birth of Bitcoin
By the time Bitcoin was launched in 2009, cryptocurrencies had already undergone several decades of growth and development in various forms. Bitcoin managed to glean the best bits of its successful and failed predecessors, initially launching as a potential decentralised form of currency, today operating as more of a form of value storage similar to gold.
Built into the mix are remnants of the early digital money smartcards, the cryptographic aspect of Digicash, the widespread appeal and usability of PayPal, the initial blockchain technology of B-Money, the decentralised nature and proof-of-work mechanism of Bit Gold and the mining potential of Hashcash.
How Bitcoin Works
Bitcoin is a form of digital money that uses blockchain technology to verify transactions. It's both a cryptocurrency and a decentralised, open-source platform on which transactions in that cryptocurrency are carried out and recorded. Cryptography is used to keep details of transactions secure and private, with chains of transactions within a set period of time formed into blocks, none of which can be changed once they have been created.
There is a limited supply of 21 million Bitcoin in total, which serves several purposes, including stabilising the coin's value and ensuring coins cannot be duplicated or destroyed. Though Bitcoin is accepted by a limited number of online retailers, its volatility makes it unsuitable for its originally intended purpose as a widespread currency.
Part of the driving force behind the Bitcoin blockchain is a process known as mining. Anyone with a computer can use an algorithm to discover the hash of newly created blocks, with a reward in BTC being the incentive for doing so. This propagates the verification process and ensures the continual creation of the blockchain.
Of the 21 million BTC that make up the total supply, not all of it was released at once. To date, around 18 million coins are in circulation, which means another 3 million are still waiting to be mined into existence.
As mentioned, the original idea behind Bitcoin's creation was for the cryptocurrency to grow to become a widespread form of currency, so you could use it to buy and sell things as we use fiat currency today. However, it didn't quite work out that way.
Over the years since its launch, Bitcoin's value has swung sharply from a shade above $0.01 in its earliest days all the way up to just over $61,000 in 2021, with much of this see-sawing happening within very short spans of time. This level of volatility makes it particularly unsuitable for use as a day-to-day currency.
Once fans of the coin recognised this shortcoming, BTC's future was determined by popular vote, with those in favour of promoting the coin as more of an investment opportunity winning out. Those opposed forked off to create Bitcoin Cash, a more stable coin that's better suited for use as a currency.
Bitcoin may well have been the first of today's cryptocurrencies as we currently know them, but the truth is BTC was the result of decades of experimentation, with many successes and failures along the way. The concepts of digital money, cryptography, financial privacy, hashes, mining, blockchains and decentralisation that make up the cryptocurrency and platform that is Bitcoin all have their roots in the late 80s to early 00s.
Bitcoin's success cannot be appreciated without recognising the efforts of those formative pieces of the puzzle that came before and played a vital role in shaping the entire concept of cryptocurrencies for the future.
Want to know more about the first cryptocurrency? Read our FAQs.
When was Bitcoin launched?
Bitcoin was launched in 2009 by an anonymous individual/group called Satoshi Nakamoto.
Were there any forms of cryptocurrency before Bitcoin?
The beginnings of cryptocurrencies were created in the late 80s to early 00s, several decades before the launch of Bitcoin.
What can you use Bitcoin for?
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