Cryptocurrencies are digital currencies that use cryptography – a technique of encoding data to make it unreadable to anyone without the password. Thanks to cryptography, cryptocurrencies are virtually impossible to falsify, although their security also depends on several other factors.
Modern cryptocurrencies are decentralized systems based on blockchain technology. Blockchain is a distributed database structure first described by a cryptographer named David Chaum in his 1982 doctoral thesis. In the world of cryptocurrency, blockchain serves as a public ledger of encrypted transactions, maintained and updated by thousands of people around the world. Transactions are anonymous but remain publicly available.
Bitcoin is not the first digital currency. Nor is it the first implementation of blockchain technology, nor is it the first use of public key cryptography to secure data. But because all these elements are assembled into one system, it is the first modern cryptocurrency.
Let’s take a look at the history of cryptocurrencies. Before Bitcoin
Before the creation of Bitcoin, there were several examples of digital currencies online, but none managed to arouse great interest or impose themselves on the financial markets. Two examples of these currencies are B-Money and Bit Gold.
2008: Satoshi Nakamoto and Bitcoin
The internet domain bitcoin.org was registered in August 2008. It remains the homepage of the most used cryptocurrency in the world. On October 31 of the same year, a person or organization using the name Satoshi Nakamoto published a scientific paper titled Bitcoin: A Peer-to-Peer Electronic Money System. This document is known in the cryptocurrency world as the “Satoshi White Paper”.
The paper introduces the concept of crypto-secured blockchain technology. Bitcoin was described as a theoretical open-source digital resource. “Open source” means that no one owns it and that anyone can participate in its use and development.
To this day, no one knows who Satoshi Nakamoto is. His identity is the subject of many myths and theories. It is possible that his identity will remain unknown forever.2009: The beginning of Bitcoin mining
In early 2009, Bitcoin software was made available to the public for the first time. Satoshi Nakamoto mined the first 50 bitcoins, launching the practice of cryptocurrency mining. At the time, only a small team of programmers and enthusiasts were involved in the development of what few of them expected would one day be considered a revolutionary technology.
2010: The first transactions
It was not realistic to attribute any real value to bitcoin in its first year of existence. Developer Gavin Andresen bought 10,000 bitcoins for $50 and created a website called Bitcoin Faucet where he literally gave bitcoins for fun.
The most famous story of this era concerns Laszlo Hanyecz, a software developer who bought two pizzas for 10,000 bitcoins. This transaction is widely recognized as the very first cryptocurrency transaction. At the maximum price of bitcoin, these two pizzas would be worth well over $600 million. But Laszlo never regretted his decision. He believes that this was a crucial step in establishing the growth of the cryptocurrency ecosystem.
In December 2010, Satoshi Nakamoto published his last public post on the popular online forum called bitcointalk. He wrote about some minor details regarding the latest version of the software. Subsequently, he kept in touch with some programmers via email, but there is no trace of him after April 2011.2011: The birth of new cryptocurrencies
Following the success of Bitcoin, the idea of decentralized digital currencies slowly began to make its way. As a result, the first alternative cryptocurrencies began to appear. As these currencies were alternatives to the established cryptocurrency, Bitcoin, they were called altcoins.
Most altcoins offer progressive improvements over Bitcoin’s original protocol, such as greater speed, better anonymity, etc. Litecoin was among the first altcoins, which is why it is sometimes presented as the gold silver of Bitcoin. Today there are thousands of cryptocurrencies.
2013: The first big bubble
In January 2013, the price of a single Bitcoin surpassed $1,000 for the first time. This was an important step, although the price fell rapidly afterwards and then stagnated for about two years before it managed to reach the $1,000 mark again.
Some early adopters suffered significant losses during the price lull, which resulted in a lot of negative publicity for bitcoin. The media coverage has been significant and many people have come to know about cryptocurrencies for the first time in the context of these lost fortunes.
The cryptocurrency market has grown slowly. It was not clear how many alternative parts would survive. Many did not survive.2014: Mt. Gox and turbulent times
The largest cryptocurrency exchange on the market was a website called Mt. Gox. In January 2014, it was hacked. The hackers took away 850,000 bitcoins. It is still unclear who is responsible for what remains the biggest theft in the history of cryptocurrencies.
Critics said that since cryptocurrencies are based on anonymity and decentralization, it was no wonder they were hacked and hackers were impossible to locate.
In November 2014, the founder of the cryptographic site Silk Road was sentenced to life in prison after it was found that illegal drugs accounted for about 70% of the products sold through his site, which relied on bitcoin to make sales to anonymous customers.2015: Ethereum and the altcoin boom
The Ethereum project was launched in 2015. Some see it as the first truly useful implementation of the ideas behind Bitcoin. Ethereum introduced smart contracts, a technology that allows the blockchain to host software programs in addition to cryptocurrencies. Smart contracts have enabled the development of complex and useful applications in finance and other fields.
In addition to smart contracts, Ethereum has pioneered the notion of hosting multiple currencies. Although Ethereum has its own cryptocurrency, Ether, countless new token projects have been implemented on top of the Ethereum blockchain. Smart contracts and custom currencies have proven to be a powerful combination for ambitious developers and entrepreneurs.2016: An avalanche of ICOs
Ethereum’s popularity has been marked by the emergence of projects that have acquired seed funds through crowdfunding, specifically through initial coin offerings (ICOs) in which new tokens are offered to investors, just as newly issued shares are offered to investors when a company goes public as part of an IPO. People bought the coins to invest or to support the projects for which they were created.