Cryptocurrencies Before Bitcoin
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Cryptocurrencies Before Bitcoin

Electronic Money and Digital currencies before Bitcoin

Many people believe Bitcoin to be the first cryptocurrency to originate. Contrary to that belief, attempts to create digital currencies had begun many years before we even heard about Bitcoin.

A decade ago fuelling stations suffering from night time thefts had taken to electronic cash in the form of plastic cards held by customers. As a result these places were no longer required to have physical money lying around to get stolen!

DigiCash by David Chaum

Around the same time an American cryptographer, David Chaum, conceptualized DigiCash, a tokenized electronic currency that can be safely transferred between individuals with authenticity and validation signatures. The concept was still in early stages and had many complications like difficulty of use, double spending/recording of transactions, central record maintaining etc.

Although DigiCash went bankrupt in 1998 the concepts put forward by the company and some of its formulas and encryption tools gave rise to many electronic currency systems around the world. One that made its mark in the years to come was PayPal. PayPal allowed users to quickly and safely carry out money transfer on a peer to peer level using just a simple web browser, thus, revolutionizing the electronic money industry.

B-Money by Wei Dai

The idea of an anonymous, distributed electronic cash system was put forward by Wei Dai in 1998. B-money worked on a system that used digital pseudonyms in order to transfer currency through a decentralized network. Within the network the system implemented contract enforcement without the dependency of a third party. Wei developed a protocol which relied on a synchronous, unjammable broadcast channel. Even though B-money and Bitcoin differ in nature and operation in many ways, references of B-money can be found in Satoshi’s whitepaper for bitcoin. B-money also, was unsuccessful but, nonetheless, was an attempt to create an anonymous, decentralized, private, electronic cash system.

BitGold by Nick Szabo

BitGold was another digital currency developed by Nick Szabo in the same time period around B-Money. Nick Szabo wanted BitGold to reflect the same properties of real gold which would be its own store of value system. BitGold came with its own Proof-of-work algorithm traces of which we can see in the framework used for bitcoin mining. Through this process data, transactional records and solutions were compiled, encrypted and then published for the public, in many ways similar to how blockchain in todays time functions. BitGold was one of the earliest digital currencies that shows use of decentralization in order to shift the control from any single entity or authority.

HashCash by Adam Back

Hashcash was developed by Adam Back in mid-1990’s and claimed to be one of the most successful digital currencies of the time. However, looking deeper into Hashcash we can see that it was developed primarily as an algorithm that was built to eliminate email spamming and DDOS (Distributed Denial Of Service) attacks on websites and cryptography systems. Hashcash used its own proof of work system which needed the sender of an email to encode a textual hashcash stamp and embed it into the header of the email to prove the sender has expended a modest amount of CPU time calculating the stamp prior to sending the email. In other words, as the sender has taken a certain amount of time to generate the stamp and send the email, it is unlikely that they are a spammer. The receiver can, at negligible computational cost, verify that the stamp is valid. Hashcash opened up a wide array of possibilities brought forward by the proof of work algorithm that many cryptocurrencies implemented into their framework in recent times. Ultimately Hashcash ran into the same problem that many cryptocurrencies are facing today. As the processing power needed kept increasing regularly, hashcash became less effective over time.

Reading about cryptography in the past leads us only to believe that the digital currencies that were created 20 years ago, even though unsuccessful, laid down the roadmap and foundation for the cryptocurrencies we see today.

The decentralized, anonymous digitally encrypted systems have solved a lot of problems in the world today. Taking a look at the sheer number of ICOs out there we can assume there could be a coin/token solving any problem!

What is the future of Cryptocurrencies?

Cryptocurrencies, being decentralized in nature, cannot be owned or controlled by any particular entity. They gain or lose value depending on how widely they are adopted and what function or purpose they serve. As the number of people owning/using cryptocurrencies increases, the dependency on FIAT currency and centralized financial institutions decreases considerably. This must surely be a scary proposition for governments and banks! Since governments and banks do not own these digital assets they can not control them. Neither can they control the people who wish to use and support cryptocurrencies. However, they can, indeed, influence markets by passing laws and making rules that change things for people who wish to invest into crypto.

Bitcoin was the first ever cryptocurrency that made a mark in the eyes of investors and entrepreneurs when its value skyrocketed. Here is a graph that shows bitcoin’s price movement since it was developed and launched.

We have examples in our daily interactions which show us the power of cryptocurrency. Those who invested their money into Bitcoin in early years have seen profits of over 5000%! Owing to these examples many investors have opened up their portfolio to invest not only in Bitcoin, but also, many other alt-coins that have shown potential.

Every new cryptocurrency, when introduced to the market, starts off at a very small amount. Depending on what problem it aims to solve, may it be reduced fees, faster transactions, more secure contracts or a niche specific need, if it gets through the initial uncertainty barrier and gathers momentum through mass adoption, it’s value is bound to shoot up and make some people incredibly wealthy.

But do keep in mind that there is a very risky flipside to it as well. Not all coins/tokens are legitimate projects and many such examples do exist in the recent past where  ICOs have shown and promised investors great things and eventually have disappeared with a lot of money. It is of utmost importance to DO YOUR OWN RESEARCH before selecting cryptocurrencies or ICOs to invest into.

So, in the bigger picture, what is the future of cryptocurrencies?

Cryptocurrencies are here for the long run. Constantly improving, innovating and evolving, at the core, cryptocurrencies have huge potential to change the world for the better. Projects and ICOs that aim to solve important issues of our world look for those who believe in their Mission and give them the support they need.

Cryptocurrencies have evolved and expanded from the original purpose of anonymous digital asset distribution and circulation into a much wider spectrum of possibilities where they have now spread out into each and every vertical of existence from secure and fast transactions throughout the globe to decentralized gambling networks!

coinmag

Cryptocurrency investor, software developer and talented musician, Larry Thrasher has been studying the blockchain industry since 2014 and has some great insights into the workings and functioning of technology.

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