The history of virtual currencies and cryptocurrencies. Virtual currencies and cryptocurrencies are not an entirely new concept, with multiple virtual currencies have come and gone over the past decade. Cryptocurrencies are a type of digital currency that is not centralized and is not regulated by any government. Cryptocurrencies can be traced back to the 1980s, when they were known as cyber currencies. These coins gained popularity after the introduction of Bitcoin in 2008, which was created by an anonymous programmer or group of programmers known as Satoshi Nakamoto.
History Of Virtual Currencies and Cryptocurrencies
Cryptocurrencies have been popular since the launch of Bitcoin in 2009. Their popularity has only grown in recent years, with more and more people investing in them. But what exactly are they? And how did they get there?
One of the first popular virtual currencies was E-Gold. E-Gold was first established in 1961 and allowed users to open an account with a value denominated in grams of gold or other precious metals and the ability to make instant transfers of value to other E-Gold accounts.
In 2005, E-Gold had 2.5 million account holders performing daily transactions with a typical value of 6.3 million US-Dollar. In 2007, E-Gold was indicted by a grand jury in the U.S., accusing the company of money-laundering, conspiracy, and operating an unlicensed money transmitting business, ultimately leading to the shutdown of E-Gold by the U.S. courts. E-Gold also spawned many imitators such as eBullion.com, Pecunix.com, and others.
In 1998, WebMoney was established and continues to experience significant growth, with over 40 million users at the time of shooting this course. The WebMoney system is based on providing its users with the ability to control individual property rights for valuables, or assets, which are stored by other system participants, known as Guarantors.
And then we have Liberty Reserve. Liberty Reserve was established in 2006 and operated until 2013 and allowed users to register and transfer money to other users with only a name, email address, and date of birth. No efforts were made to verify the identities of its users. In 2013 the U.S. Department of Justice charged Liberty Reserve with operating an unregistered money transmitter business and money-laundering for facilitating the movement of more than $6 billion in illicit proceeds.
Now with regards to cryptocurrencies, there have been many attempts at creating a digital currency during the 90s tech boom, with systems like Flooz, Beenz, and DigiCash emerging on the market but inevitably failing. There were many different reasons for their failures, such as fraud, financial problems, and even frictions between companies’ employees and their bosses.
Then, in late 2008, the financial crisis was in full swing. In September of that year, Lehman Brothers Holdings, then the fourth-largest investment bank in the world, filed for Chapter 11 bankruptcy protection. As the world’s financial infrastructure was crumbling, the domain bitcoin.org was registered. Later in 2008, a person or group using the pseudonym Satoshi Nakamoto published a white paper on bitcoin to a cryptography mailing list, explaining how the cryptocurrency would work.
In early 2009, Nakamoto mined the first-ever bitcoin, the “genesis block.” Embedded in the programming of this first bitcoin was the text “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.” The text refers to a headline on that date from the British newspaper The Times and is generally seen as proof of the date bitcoin was first mined. Others also believe it pointed to the crumbling financial infrastructure of the modern world and the need for a new way forward. The first bitcoin transaction soon followed when a bitcoin was sent from Nakamoto to Hal Finney, a cryptography expert and enthusiast.
To this day, Satoshi Nakamoto’s identity remains a mystery. Several people have claimed to be the mysterious programmer or, as often suspected, a group of programmers; numerous attempts have been made to identify the person or group, but none have been satisfactory enough to be viewed as conclusive. The only personal details that Nakamoto gave to others were claims to be living in Japan and to have been born on April 5, 1975. Nakamoto encouraged other cryptographers to assist with the coding. The creator stepped away from bitcoin in 2011 and has not been publicly seen or heard from since.
In May 2010, a Florida programmer named Laszlo Hanyecz offered 10,000 bitcoins in exchange for pizza. A British enthusiast took Hanyecz up on the offer and ordered two pizzas to be delivered from a pizza place near Hanyecz’s residence; the Briton paid for the pizza using a credit card, and Hanyecz reimbursed the purchase with 10,000 bitcoins. This event is believed to be the first time bitcoin was ever used to make a purchase, and May 22 is celebrated in the bitcoin community as Bitcoin Pizza Day. However, what makes the transaction even more memorable is the incredible value the bitcoins used to purchase two pizzas have accrued.
While the pizza purchase is celebrated, in bitcoin’s early days, few places of business accepted bitcoin as payment. However, the black market was one area where bitcoin’s anonymous nature and digital movement were prized. It quickly became apparent that bitcoin filled a massive need in the criminal underworld.
In 2011, an online dark-web marketplace dubbed Silk Road was founded by Ross Ulbricht, who ran the site using the pseudonym Dread Pirate Roberts. The use of Tor routers so users could browse anonymously and untraceable bitcoin payments proved to be a potent combination to avoid detection and arrests by law enforcement. In founding the site, Dread Pirate Roberts claimed libertarian ideals, saying customers would be free to purchase anything without fear of violence or arrest. Later, he wrote that he wanted Silk Road “to grow into a force to be reckoned with that can challenge the powers that be and at last give people the option to choose freedom over tyranny.”
While his intentions might have been noble, the site freely allowed illegal drugs to be bought and sold with impunity. In October 2014, almost 14,000 product listings on Silk Road were found to be illicit drugs, including cannabis, heroin, LSD, MDMA, and methamphetamine. Other illegal items like fake driver’s licenses could also be purchased, though categories like child pornography and weapons were banned from the site.
Before Ulbricht was found and arrested, Silk Road had over a million active user accounts and had accounted for 1.2 million transactions worth 9.5 million bitcoins. While the price of bitcoin fluctuated wildly during the site’s operation, the total was estimated to be worth about 1.2 billion U.S. dollars.
An intensive search was conducted by a joint task force that included agents from the FBI, Internal Revenue Service, Drug Enforcement Administration, and U.S. Marshals. They finally found Ulbricht to be the man behind the site and arrested him at a San Francisco public library in October 2013. While Silk Road was shut down, cryptocurrencies remain popular in black markets, as they offer buyers and sellers a cloak of anonymity without the limitations of using large amounts of cash.
Before that, in April 2011 already, Namecoin was created as an attempt to form a decentralized DNS, which would make internet censorship very difficult. Soon after, in October 2011, Litecoin was released. It was the first successful cryptocurrency to use the script as its hash function instead of the Bitcoin hash function. Another notable cryptocurrency, Peercoin, was the first to use a proof-of-work/proof-of-stake hybrid, which emerged shortly after.
Subsequently, many cryptocurrencies were brought to life. It is estimated that there are currently over 18,000 cryptocurrencies worldwide as of March 2022.
The term cryptocurrency first appeared in 1989, and a few years later, in 1980, American cryptographer David Chaum invented digital money, which used cryptography to secure and verify transactions. However, it was not until the early 1990s that cryptographic protocols and software that would enable the creation of a truly decentralized digital currency were developed.
Satoshi Nakamoto (a pseudonym) published a paper titled Bitcoin: A Peer-to-Peer Electronic Cash System in October 2008, outlining a system for creating a digital currency that did not require trust in any third party. The cryptocurrency revolution was effectively launched by Nakamoto’s paper.