Where Did Crypto Come From? A Brief History of Cryptocurrency.

Cryptocurrency is a digital currency that uses cryptography to secure transactions and control the creation of new units. Unlike traditional currencies, cryptocurrency does not rely on any central authority, such as a government or a bank, to maintain its value and validity. Instead, cryptocurrency operates on a decentralized network of computers that verify transactions and record them on a public ledger called the blockchain.

But how did cryptocurrency come to be? What were the ideas and innovations that led to its creation and evolution? In this article, we will explore the brief history of cryptocurrency, from its origins in the 1980s to its present state in the 2020s.

The Origins of Cryptocurrency: David Chaum and eCash

The idea for cryptocurrency first emerged in 1983, when American cryptographer David Chaum published a conference paper outlining an early form of anonymous cryptographic electronic money. The concept was for a currency that could be sent untraceable and in a manner that did not require centralized entities (i.e. banks)1

Chaum developed his idea further and implemented it through his company DigiCash in the 1990s. He created a digital currency called eCash, which used a technique called blind signatures to hide the identity of the sender and receiver of payments. eCash required user software to withdraw notes from a bank and designate specific encrypted keys before they could be sent to a recipient2

eCash attracted some attention from companies like Microsoft, but it failed to gain widespread adoption and popularity. DigiCash ran out of funds by 1998 and declared bankruptcy. However, eCash inspired many other attempts to create digital currencies that did not rely on central authorities.

The Precursors of Bitcoin: E-Gold and Bit Gold

One of the challenges of creating a digital currency was to ensure its scarcity and stability. Some developers tried to emulate the properties of gold, which has been used as a store of value for centuries. For instance, in 1996, an American company called Gold & Silver Reserve launched a digital currency called E-Gold, which was backed by physical gold stored in vaults. E-Gold allowed users to transfer gold ownership online without intermediaries2

However, E-Gold faced legal troubles due to its lack of compliance with anti-money laundering and know-your-customer regulations. It also suffered from security breaches and fraud. E-Gold was shut down by the US government in 2009.

Another attempt to create a gold-like digital currency was Bit Gold, proposed by computer scientist Nick Szabo in 1998. Bit Gold was a decentralized system that used proof-of-work puzzles to create new units of currency and timestamp transactions on a public ledger. Bit Gold was never implemented, but it influenced Satoshi Nakamoto, the mysterious inventor of Bitcoin, who cited Szabo’s work in his whitepaper2

The Birth of Bitcoin: Satoshi Nakamoto and Blockchain

Bitcoin is widely regarded as the first decentralized cryptocurrency. It was created in 2008 by an anonymous person or group using the pseudonym Satoshi Nakamoto. Nakamoto published a whitepaper titled “Bitcoin: A Peer-to-Peer Electronic Cash System”, which described the design and implementation of Bitcoin3

Bitcoin combined several ideas and innovations from previous attempts to create digital currencies, such as cryptography, proof-of-work, blockchain, and peer-to-peer networks. Bitcoin used cryptography to secure transactions and control the creation of new units. It used proof-of-work puzzles to verify transactions and prevent double-spending. It used blockchain to store all transactions on a public ledger that was distributed across a network of nodes. And it used peer-to-peer networks to allow users to transact directly without intermediaries.

Bitcoin was launched in January 2009 with the release of the first software client and the mining of the first block, known as the genesis block. The genesis block contained a message that referenced The Times newspaper headline: “Chancellor on brink of second bailout for banks.” This message has been interpreted as a comment on the instability caused by fractional-reserve banking and the need for an alternative system2

The Development of Other Cryptocurrencies: Ethereum and Beyond

Bitcoin sparked a wave of innovation and experimentation in the cryptocurrency space. Many other cryptocurrencies were created, either by modifying Bitcoin’s code or by developing new platforms from scratch. Some of these cryptocurrencies aimed to improve Bitcoin’s features or offer new functionalities.

One of the most influential cryptocurrencies after Bitcoin is Ethereum, which was launched in 2015 by Vitalik Buterin and other developers. Ethereum is not just a currency, but also a platform that enables smart contracts and decentralized applications (DApps). Smart contracts are self-executing agreements that run on Ethereum’s blockchain and can perform various functions without intermediaries. DApps are applications that run on Ethereum’s network and can offer various services such as gaming, gambling, lending, voting, etc.

Ethereum also introduced a new consensus mechanism called proof-of-stake (PoS), which is an alternative to proof-of-work (PoW). PoS does not require miners to solve puzzles to verify transactions but instead relies on validators who stake their coins to secure the network. PoS is considered more energy-efficient and scalable than PoW.

Other cryptocurrencies that emerged after Bitcoin include Litecoin (a faster version of Bitcoin), Ripple (a payment network for cross-border transactions), Monero (a privacy-focused currency), Dogecoin (a meme-inspired currency), Cardano (a research-based platform for smart contracts), Binance Coin (a utility token for the Binance exchange), Polkadot (a platform for interoperability between blockchains), Solana (a high-performance platform for DApps), etc.

The Transformation of the World by Cryptocurrency: DeFi, NFTs, and Metaverse

Cryptocurrency has transformed the world of finance, commerce, and social interaction by creating new opportunities and challenges for individuals, businesses, and governments. Cryptocurrency has enabled people to have more control over their money, access financial services without intermediaries, participate in global markets without barriers, support social causes without censorship, etc.

Cryptocurrency has also spawned innovations and trends in various domains, such as decentralized finance (DeFi), non-fungible tokens (NFTs), and metaverse.

DeFi is an umbrella term for various financial applications that run on blockchain networks and offer services such as lending, borrowing, trading, investing, etc., without intermediaries or centralized entities. DeFi aims to create a more open, transparent