A Brief History of Cryptocurrencies

Cryptocurrencies have amazing potential to revolutionize the ability to securely transact; value, information and even contracts all across the globe, with no third-party involvement.

Cryptocurrency is a type of digital currency and unlike traditional currencies the control of it is decentralized and it has a distributed ledger. The first and most valuable cryptocurrency is Bitcoin, which uses a technology called blockchain. The blockchain eliminates the need for any trusted central authority such as a bank, and allows the verification of the chain of ownership of any and every Bitcoin amount. Instead of the equivalent of a bank accounting for transactions, each network node stores its own copy of the blockchain ensuring the ledger’s accuracy and continued existence even in the event that one node goes down.

In the blockchain, bitcoins are registered to bitcoin wallet addresses. To be able to spend the bitcoins, the owner must know the corresponding private key and digitally sign the transaction. If the private key is lost, the bitcoin network will not recognize any other evidence of ownership; the coins are then unusable, and effectively lost, because of this it is very important that you keep your private key in a secure place where it will remain safe from theft, loss or destruction. I cannot tell you what the best choice is for you but keep in mind things like fires, floods and privacy, also I would not recommend storing them electronically on any machine that has a wi-fi chip or connects to the internet as getting information stolen is a possibility, not likely, but still possible.

Although Bitcoin was the first cryptocurrency to revolutionize the transaction of value online, Ethereum was the first cryptocurrency to implement smart contracts. Instructions embedded in Ethereum contracts are paid for in ether (or more technically “gas”) and can be implemented in a variety of Turing complete scripting languages. Many altcoins now run on the ERC-20 tokens, basically Ethereum wants to create an ecosystem where everything works together seamlessly as part of its vision for a “world computer” and that includes the tokens required to power it, roughly 22 months ago today the ERC-20 token standard was born. There are now hundreds if not thousands of currencies that utilize this technology to be able to offer the same or similar features in different areas utilizing their own unique tokens.

Update:

After posting this here and on Steemit I was contacted and told that this post is not an accurate account of the actual beginnings of digital cash and cryptocurrency. I was aware that Bitcoin was not the first of either but I was not aware that the first attempt at a cryptocurrency was made about 25 years ago, in the late 80s and was due to a wave of theft sweeping Dutch petrol stations across remote locations in the Netherlands. What followed was the idea to give drivers reloadable cards they could carry instead of cash which made robbery much less likely and detrimental. The prevailing retailer at the time, Albert Heijn was pushing the banks to develop a method for consumers to send money directly from a bank account, this is now known as a POS system or point of sale system.

Then in the early 1980s the first attempt at a “Digital Cash” was made by an American cryptographer named David Chaum. Strong feelings on money and privacy prompted the notion that a token money, able to emulate physical coins and/or paper notes was needed in order to ensure safety and privacy during a hand-to-hand payment. This began with his inventing the blinding formula, an extension of the RSA algorithm which is still used in encryption, The RSI algorithm allows the transmission of a number from sender to receiver and said number to be modified by the receiver who would subsequently deposit the “coin “, into the bank bearing the original signature of the mint, yet is not the same number as that which the mint signed. This invention therefore allows untraceable modification of the coin without breaking the signature of the mint, therefore the bank/mint was blind to the transaction. While doing cryptography and mathematics for CWI during the late 80s after deciding to relocate in the Netherlands due to similar fields of interest and a shared passions for privacy. Thus, the birth of DigiCash, the beginning of, “internet money,” and a following wave of media attention. Regrettably, due to some missteps and inability to meet rules set in place by the central bank (De Nederlands Bank or DNB), a private compromise was agreed upon that DigiCash’s e-cash would only be sold to banks going forward. Ultimately having to declare bankruptcy in 1998, after attempting to field a viable digital cash through many banks. Even proposed deals with Microsoft, Deutsche Bank and others, were not able to lift DigiCash to the next level, Microsoft offered Chaum $180 million for DigiCash being a standard on all Windows PCS, Chaum felt that it was inadequate which caused the deal to fall through and the subsequent bankruptcy.

What follows was hundreds of startups in the space which grew as the spotlight shifted from Europe to North America during the 1990s due to regulations imposed on digital cash by Europe. Thus the end of first generation cryptocurrency and the move to web-based moneys such as Virtual, PayPal and eventually e-gold, which allows you to own and spend physical gold (which is stored by the company in the Caribbean. E-gold then faced trouble for allowing anyone to have an account, while great in theory this practice caused all types of scams which attracted legal attention. The offices were raided in 2005 ending the currency’s reign as a compelling force. Then all the competitors and exchange operations were shut down, 9/11 also caused a major shift in focus from a fairly liberal view on alternative currencies to the idea that they were a pipeline for funding to terrorism and drugs and were thus deemed as needing of intervention and control. This was the end of any real successes in the e-money field until the Bitcoin paper was released by Satoshi Nakamoto in 2008, the use of a pseudonym was large in part due to the 2005 raid of the DigiCash offices.