Contrary to common assertions, Bitcoin is NOT the first form of cryptocurrency.
Many programmers and cryptographers floated the idea of digital money before the enigmatic Satoshi’s white paper was released in 2009. Although most of these did not gain wide attention, their principles formed the basis for developing Bitcoin and altcoins.
This article describes crypto’s evolution from the days preceding Bitcoin to Bitcoin’s emergence and the altcoins that came after.
Early Cryptocurrencies Before Bitcoin
The following are some of the early cryptocurrencies before Bitcoin.
In a paper titled “Untraceable Electronic Mail, Return Addresses, and Digital Pseudonyms,” American cryptographer David Chaum proposed an anonymous digital payment system in 1983. This system would help individuals send a token currency to each other securely and privately. He alternatively called it “blinded cash.”
To encrypt the information passed between individuals, he created a “blinding formula” that concealed a message’s content using a set of private and public passwords.
The ideas discussed in his paper led to the establishment of his company, Digi Cash, in 1990. Soon after, in 1998, he implemented his ideas by creating the first cryptographic electronic money called e-Cash.
In 1998, computer engineer Wei Dai introduced electronic money for anonymous online transactions, called B-Money. It secured transactions and prevented double spending using cryptography.
Although B-Money’s concept differed from Bitcoin’s, it was an approach to creating an anonymous and secure electronic cash system. One of the protocols included in this proposition was a synchronous and unjammable broadcast channel.
For gold owners to transfer ownership digitally, Dr Douglas Jackson and Barry Downey created another electronic money called e-gold in 1996. This digital currency’s value was tied to the possession of the gold.
However, the idea didn’t reach its full potential as money launderers hijacked it for ill purposes.
Another scientist named Nick Szabo developed something similar to B-Money called Bit Gold. Bit Gold used cryptography to control the creation and transfer of new currency units.
In addition, Bit Gold employed mining, a peer-to-peer network, a ledger, cryptography, and other blockchain techniques similar to the ones utilized by Bitcoin.
Hashcash was one of the most successful cryptocurrency attempts before Bitcoin. It was created by computer scientist Adam Back in 1997. However, Adam didn’t design this digital currency as a form of cryptocurrency per se. Instead, it was developed to combat spam emails and prevent DDoS attacks.
Nonetheless, it shared similarities with modern cryptocurrencies, utilizing a Proof of Work (PoW) algorithm to generate and distribute new coins. And just like new cryptocurrencies, it needed enormous processing power. As a result, it became less effective over time.
The Emergence of Bitcoin in 2009
An anonymous character under the pseudonym Satoshi Nakamoto created Bitcoin. Satoshi released a White Paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System.” in 2009. The White Paper detailed a groundbreaking idea of a peer-to-peer electronic cash system and a decentralized digital currency. This system and currency operated independently of the traditional banks, thus marking a novel step in the financial industry.
The system was built on blockchain technology, which is trustworthy and reliable due to its transparency and immutability. Blockchain technology utilizes cryptography to ensure the security of transactions.
The first Bitcoin was released in 2009, and the first block was mined in the same year.
Evolution of Cryptocurrency: Development and Use Cases
Satoshi’s white paper stated that Bitcoin would serve as a new online payment system that wouldn’t require a central authority. However, as the popularity of Bitcoin and the idea of cryptocurrencies rose, their development and use cases evolved into different purposes.
The evolution of the use cases is detailed below:
Online Casino Gambling
Recently, cryptocurrencies like Bitcoin and Ethereum have been heavily relied on in the gaming industry. This adoption can be traced to the implementation of smart contracts for secure and transparent agreements between online casinos and gamers.
Despite crypto’s evolution, some online casinos don’t have the architecture to support such systems. However, this guide updated recently, shows the best crypto and Bitcoin casinos for gambling at online casinos with cryptocurrencies.
Smart contracts are digital contracts that leverage the absence of a central authority in blockchain technology.
These self-executing programs use blockchain technology to execute, enforce, and automate the terms of an agreement or contract. Nick Szabo’s earlier discussion of Bit Gold shows that they were the earliest cryptocurrencies to implement this ideology.
However, Ethereum’s launch in 2015 fine-tuned and popularized the idea. Ethereum’s success rode on the wave of the cryptocurrency’s core purpose: to serve as a platform for creating decentralized applications (Dapps) using smart contracts. As a result, developers could draft code-based contracts and embed them into the Ethereum blockchain to create sophisticated applications that could execute transactions, record the data, and interact with other smart contract applications.
This project’s success showed promising potential for disrupting traditional finance, legal, and real estate processes. Consequently, this marked a significant step in the evolution of cryptocurrency and its widespread adoption.
The potential for disruption in finance displayed by smart contracts materialized into something tangible as crypto evolved. It led to a new concept known as Decentralized Finance (DeFi).
The evolution of smart contracts led to decentralized applications that gave users access to financial services without relying on centralized banking systems. This emerging financial technology promoted peer-to-peer transactions that made bank fees and waiting periods things of the past. It also makes auditing simple and trustworthy. For instance, the transactions of the lawmakers who violated house trading rules could be easily tracked if they happened on the blockchain. As a result, crypto’s evolution created an open, transparent, and accessible financial system.
Online shopping in recent years demonstrates the evolution of cryptocurrencies as a decentralized and borderless payment method. Instead of relying on traditional banks and financial services, online shoppers can purchase from any location using Bitcoin and other cryptocurrencies.
The advantages of this method range from cheaper fees and faster transactions to payment security and borderless shopping.
The Development of Altcoins
Following Bitcoin’s early success, developers and entrepreneurs wanted to replicate the same with other projects. So, altcoins were created to improve Bitcoin’s groundbreaking protocol, serve niche markets, or solve specific problems. As such, most altcoins had unique features, use cases, and applications.
Some of the earliest Altcoins Released include the following:
This coin was launched in 2011. It was designed as a blockchain, cryptocurrency, and domain name system (DNS), allowing users to protect domain name servers by embedding them into distributed ledgers.
Litecoin was another early alternative cryptocurrency that was developed to serve as an improvement on Bitcoin. It was developed to be a more scalable and faster version of Bitcoin.
Ripple emerged shortly after Bitcoin as a cryptocurrency that specifically facilitated cross-border payments.
Among the thousands of other cryptocurrencies developed after Bitcoin, Ethereum became one of the most successful projects.
Based on its unique features and use cases, Ethereum’s success created a unique ecosystem of decentralized applications and platforms.
This altcoin emerged as a novel project among many other cryptocurrencies whose popularity thrived based on playful branding and community growth.
Cryptocurrencies have come a long way from the early days of e-cash, b-money, and the like. Bitcoin significantly improved its ideologies to become the most dominant crypto asset today. And similarly, altcoins like Ethereum and many others have emerged with some improvements over Bitcoin.
This evolution has led to the application of cryptocurrencies in finance, commerce, law, etc. As new projects are built daily, it is clear that cryptocurrencies will continue to play major roles in our daily lives.