Written By | Elvis Kolawole
On the 3rd of January 2009, the first block of bitcoin, the first cryptocurrency, was mined with a special message: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.” Derived from a London Times headline, this quote gives a clue to the purpose of bitcoin’s existence as a response to a broken financial system. Just barely nine days after, the first bitcoin transaction was completed. This transaction was a transfer of 10 Bitcoin that happened between Bitcoin’s creator Satoshi Nakamoto and another cryptographic enthusiast Hal Finney.
Satoshi Nakamoto, the anonymous person or group responsible for the cryptocurrency, went on to announce the release of Bitcoin on a mailing list on July 9th, 2009. He described how Hal Finney would help fix bugs and improve security in those early days. While these steps are widely regarded as the first creation and application of cryptocurrency, it’s important to note that virtual currency had been in existence for over a decade.
Early Cryptographic Breakthroughs
In 1983, American cryptographer and the Grandfather of Bitcoin David Chaum was already experimenting with the idea of electronic cash. He was part of a movement known as the “Cypherpunks”, an activist group who were invested in the idea of using cryptography and computers as powerful tools to protect the privacy of individuals.
David wanted to create a safer and more anonymous transaction system and this led to the creation of the Blind Signature Protocol breaking grounds. This would later become known as the foundation for modern blockchain technology. He went on to work on his idea and in 1989 the company Digicash was born. This company had noted employees such as Nick Szabo, who goes on to become influential in the crypto space.
Stuart Haber and Wakefield Stornetta co-authoured a paper titled “How to Time-Stamp a Digital Document” in 1991. This makrked the first time the system known as a “Blockchain” was described. Both men sought to offering a solution for maintaining the integrity of digital records by create digital time stamps. The study won the 1992 Discover Award for Computer Software and is still considered one of the biggest leaps in the history of cryptocurrencies.
Early Attempts at Digital Money
In 1993, Digicash launched its e-cash system, a product that enabled a safe and anonymous transfer of money over the internet. E-cash was the answer to the unsafe practice of using credit cards online. According to insiders at the time, e-cash was the perfect product that resolved many of the issues that came with credit card payments such as security and fees. Despite the popularity that e-cash got, David eventually lost control of digicash and the company fell into the hands of investors who tried to pitch the product to banks and financial institutions. However, these institutions preferred sticking to the lucrative credit card rather than an experimental product and by 1998 Digicash was bankrupt. By the mid-90s, the market exploded with companies that were based around cryptographic money – seemingly inspired by Digicash.
In 1996, the NSA got in on the action and published a paper titled “How to make a mint? The Cryptography of Anonymous Electronic Cash”. This paper described a fairly impressive version of a cryptocurrency, but it proposed the need for a centralized bank to keep tabs on transactions and this was going directly against the heart of the movement. However, other great ideas kept popping up.
University of Washington graduate Wei Dai designed B-money in 1998. It was designed as a way to enable online economies entirely free from outside regulation. B-money was ultimately theoretical and never gained any traction to become a reality.
There were other less successful ideas, such as Jim Bell’s assassination politics essay. He proposed that an encrypted currency system be used by disgruntled citizens who are unhappy with their political representatives. He recommended that money could be donated in a pool until the money was high enough for someone to accept as a bounty to assassinate a politician. This unsurprisingly led to Bell doing prison time!
Of all of these ideas, the only one that stands most in hindsight is Bitgold proposed by ex digicash employee Nick Szabo in 1998. He had the idea that instead of a digital currency being a token that represents fiat money, the digital currency itself could be a valuable commodity and it would be awarded to miners for completing cryptographic equations. The difference between Bitgold and other past attempts was the complete distancing from any reliance on banks. It was also theoretical and flawed for it has far less concern with privacy and had technical shortcomings when it came to mining.
B-money and Bitgold were never widely accepted despite all their existing progress. By 1999, famous economist Milton Friedman said “electronic cash was necessary for the newly found internet and a logical tool for limiting government overreach”. It would take about a decade for this to practically come to fruition.
In August 2008, the domain name bitcoin.org was anonymously registered. In October of that same year, the launch of Bitcoin was announced via the release of its whitepaper titled “Peer-to-Peer Electronic Cash System”. The whitepaper was published to a cryptographic mailing list and signed by the anonymous Satoshi Nakamoto. As a cryptocurrency, Bitcoin started being used in 2009, when its implementation was released as open-source software.
The Bitcoin network was set up to have a limit of 21 million coins that can ever be minted. Bitcoin first became available to buy, sell and trade on online exchanges in 2010 and crossed the $1 threshold for the first time in April 2021. By May 2010, the first recognized real-world transaction had occurred – a man in Florida paid 10,000 bitcoins (BTC) for two pizzas.
What separated Bitcoin from past attempts was the overcoming of the double-spending problem. Unlike physical stores of value, digital money is simply data and data can be replicated, allowing the potential spending of a single coin multiple times. This problem was solved in the past by involving a trusted third party to oversee transactions. In the case of e-cash, that third party was the bank but Satoshi Nakamoto defeated the point as the intention behind the creation of Bitcoin was to create an electronic system without relying on trust. Bitcoin overcame the double-spending issue by implementing an updated record of who owns what and at what time. This was done by implementing blockchain technology.
The Modern Cryptocurrency Industry
At the time of writing, the entire crypto market is worth over $1 trillion USD. As of September 2022, there were more than 12,000 digital currencies in existence, with many more created daily.
While some of these cryptocurrencies are trustless digital payment systems like bitcoins, some of them help secure blockchains, grant access to platforms, or simply serve as a joke or financial instrument for speculation. The first blockchain used by Bitcoin has inspired many others who now use the technology to manage supply chains, mint funjible or non-funjible tokens, enable better financial transactions, and much more.
It’s safe to say that “crypto” has come a long way from its cryptographic beginnings, and looks set to be a part of mainstream consciousness for the foreseeable future.
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