Bitcoin: Just the Tip of the Digital Currency Revolution
Most people have heard of only Bitcoin. But did you know Bitcoin is just one of many digital currencies?
So how did digital currencies come about? To understand where and how we got to where we are now, and possibly to understand how and where we’re headed in the future, it’s helpful to take a look at the history of how the concept of digital money got started.
Bitcoin Was Not the First
In the early 1980s, American computer scientist and cryptographic pioneer David Chaum released a white paper laying the framework for DigiCash, which in many ways was credited with sparking the cypherpunk movement (according to Wikipedia, a cypherpunk is an activist movement “advocating widespread use of strong cryptography and privacy-enhancing technologies as a route to social and political change.”) Chaum invented blind signatures, a foundational technology that makes digital currencies possible. In 1990, Chaum founded DigiCash, an electronic money corporation. While DigiCash was widely considered an entrepreneurial failure, it certainly did succeed in starting the dialogue for what was to come almost 20 years later.
In 1996, oncologist Douglas Jackson and attorney Barry Downey launched e-gold, a company that allowed the digital transfer of gold ownership. E-gold notably held the physical gold bullion in a trust on behalf of its users and maintained a public ledger. The company was shut down as a result of faced regulatory issues in the early 2000s.
In the late 1990s, Charles Cohen attempted to build a purely online currency to be used for online commerce with Beenz, which was lauded as one of worst Internet startup failures of all time. The online currency never gained the traction needed to go mainstream and did not have a sustainable business model.
Flooz was another digital currency experiment and competitor to Beenz that garnered a lot of press, championed by the likes of Whoopi Goldberg. Flooz aimed to service e-commerce as an alternative to credit cards. Unfortunately, Flooz failed due to a lack of customer demand.
By the late 1990s, Wei Dai wrote a paper about “b-money,” which he claimed could be a distributed electronic cash system that also was anonymous. This step, started to further pave the way for the creation of Bitcoin with a shout out to b-money’s concepts in the Bitcoin white paper.
In 1998, computer scientist and early proponent of the digital currency movement Nick Szabo launched Bit gold, which most closely resembles what Bitcoin is today. Unlike Bitcoin which uses “proof of work” to prevent double spending, Bit gold relied on a simple majority of network participants to “vote”, which made it vulnerable to sybil attacks, so the concept never really took off.
Notably by 1999, economist and Nobel laureate Milton Friedman foreshadowed the emergence of a “reliable e-cash.” This prediction came to fruition with Bitcoin.
So why has Bitcoin had an almost 10-year run and success in light of the performance of predecessors? What makes Bitcoin so unique?
Bitcoin is the first decentralized cryptocurrency. Using a proof of work based on the SHA-256 cryptographic hash, Bitcoin’s anonymous founder wanted a system that was unlike predecessors with decentralization at the heart of the Bitcoin protocol.
Bitcoin’s founder is anonymous. So who is Satoshi Nakamoto? We simply do not know. There are certainly and will always be speculation, but to date, the founder of the world’s largest cryptocurrency remains behind the guise of “Satoshi Nakamoto,” presumed to be a man living in Japan in his early 40s. To add to the mystery, Nakamoto is no longer active on the original Bitcoin forums and handed off the project to select core developers. But perhaps the mystery and intrigue has protected Bitcoin from manipulation by centralized governments and blackmail attempts. We may never know.
Bitcoin is fully global in nature. Only a few years after its launch, individuals from around the world were reading Nakamoto’s white paper and working to create methods of exchange for this peer-to- peer cryptocurrency. To date, there are Bitcoin exchanges on each continent.
The use cases for Bitcoin extend far beyond a currency and store of value. With properties similar to gold and cash, Bitcoin can be spent online or held as an investment. But perhaps, the killer feature of Bitcoin is its foundation, the Blockchain. A term that is now commonplace at leading financial institutions and even central banks, “Blockchain Technology,” all came about due to Bitcoin. The Blockchain is the secure public ledger keeping record of each Bitcoin transaction. As Bitcoin is immutable, in that no transaction can be reversed, the Blockchain as a mechanism for record keeping promises accurate and up-to-date information and in some cases even prevents false claims and stolen property. The impact of this technology across industries is far reaching.
About the Author:
bridge21’s mission is to make the future a reality today. Our service lets you send money around the world faster and at lower cost. The banking systems of the world are out of date and incompatible. We are building modern rails between these systems and speeding up the world’s financial connections. www.bridge21.io