History of Cryptocurrency
History of Cryptocurrency
Cryptocurrency existed as a theoretical construct long before the first digital alternative currencies debuted. Early cryptocurrency proponents shared the goal of applying cutting-edge mathematical and computer science principles to solve what they perceived as practical and political shortcomings of “traditional” fiat currencies.
Cryptocurrency’s technical foundations date back to the early 1980s, when an American cryptographer named David Chaum invented a “blinding” algorithm that remains central to modern web-based encryption. The algorithm allowed for secure, unalterable information exchanges between parties, laying the groundwork for future electronic currency transfers. This was known as “blinded money.”
By the late 1980s, Chaum enlisted a handful of other cryptocurrency enthusiasts in an attempt to commercialize the concept of blinded money. After relocating to the Netherlands, he founded DigiCash, a for-profit company that produced units of currency based on the blinding algorithm. Unlike Bitcoin and most other modern cryptocurrenncies, DigiCash’s control wasn’t decentralized. Chaum’s company had a monopoly on supply control, similar to central banks’ monopoly on fiat currencies.
DigiCash initially dealt directly with individuals, but the Netherlands’ central bank cried foul and quashed this idea. Faced with an ultimatum, DigiCash agreed to sell only to licensed banks, seriously curtailing its market potential. Microsoft later approached DigiCash about a potentially lucrative partnership that would have permitted early Windows users to make purchases in its currency, but the two companies couldn’t agree on terms, and DigiCash went belly-up in the late 1990s.
Around the same time, an accomplished software engineer named Wei Dai published a white paper on b-money, a virtual currency architecture that included many of the basic components of modern cryptocurrencies, such as complex anonymity protections and decentralization. However, b-money was never deployed as a means of exchange.
Shortly thereafter, a Chaum associate named Nick Szabo developed and released a cryptocurrency called Bit Gold, which was notable for using the blockchain system that underpins most modern cryptocurrencies. Like DigiCash, Bit Gold never gained popular traction and is no longer used as a means of exchange.
