Without a doubt, cryptocurrency is one of the most game-changing innovations in monetary technology in our generation. The widespread adoption of digital currencies can be traced back to the success of Bitcoin and the subsequent proliferation of thousands of other cryptocurrency coins and projects.
Cryptocurrency has recently gained a lot of attention, yet few people can define it or explain its origins or how it grew to be so widespread.
In spite of its initial intention, Bitcoin has expanded well beyond the original plans of its developers. Understanding the origins of cryptocurrencies requires going back further in time than you might assume.
Cryptocurrency History
Cryptocurrency is digital money that operates on a decentralized, peer-to-peer payment system called the blockchain. Although virtual currencies existed long before Bitcoin, the term “cryptocurrency” didn’t enter common use until Bitcoin became a liquid investment.
Since its inception, the value of the cryptocurrency market has increased to over $1 trillion, establishing it as a distinct asset class in the global economy.
Contrary to popular belief, the concept of digital money or cryptocurrency was developed more than 20 years before Bitcoin. Learn about the origins of cryptocurrency, its development, and its potential future in the following paragraphs.
Initial cryptocurrency (1983 – 2009)
You have to go back to the 1980s if you want to know where cryptocurrencies came from and how they got to where it is now. David Chaum, a computer programmer, and cryptographer published a dissertation in 1983 outlining the steps necessary to construct cryptographically secure networks for digital payments.
David’s “blind signatures” and cryptanalysis allow financial firms to send money to one another without being traced. It was the first version of digital money that could be transmitted anonymously with no need for a central authority to certify the transaction, and while it didn’t employ blockchain technology, it was revolutionary nonetheless. In 1990, Chaum developed the digital currency, which he named DigiCash.
A few years later, Nick Szabo introduced Bit Gold, yet another digital money. This system built upon Chaum’s original concept by having users commit computational resources to the validation of transactions and the solution of cryptographic puzzles on a public ledger, much like the blockchain of today.
Even though Szabo’s plan for Bit Gold was never put into action, the principles it contained were crucial in the development of modern cryptocurrencies.
While these efforts didn’t have a worldwide impact, the concept of a digital currency that could be exchanged safely without a central authority (like a bank) would eventually give rise to a more complete and robust digital currency that would actually transform the world.
Blockchain and Bitcoin (2009 – 2011)
Using the alias “Satoshi Nakamoto,” a cryptographer published a white paper on Bitcoin and sent it out to a mailing list in 2008. The paper, titled Bitcoin; A Peer-to-Peer Electronic Cash System, proposed a decentralized digital currency and a public transaction log known as the blockchain.
The blockchain network of Bitcoin is meant to motivate people to run servers that process Bitcoin transactions. Processing and validating transactions are carried out by the network of individual computers and servers using computing power; in exchange for their efforts, they are rewarded with Bitcoins. Early on in Bitcoin’s history, the prize for a single block was 50 Bitcoins.
In 2009, Nakamoto mined the first “block” of the blockchain, establishing the first block of transactions on the blockchain and earning himself the first 50 Bitcoins. BitcoinTalk.org forums became a popular area for developers and consumers to discuss the project when Bitcoin.org was launched to host the Bitcoin software.
The Price of Bitcoin Rises
Because of the increasing number of Bitcoins that have been produced and traded, the value of this decentralized currency has increased over time. Though Bitcoin had no established value at first, two pizzas were purchased for 10,000 Bitcoins (now worth more than $300 million).
Most of the first Bitcoin deals were struck through direct conversation between buyers and sellers, and a single Bitcoin was only worth a few cents at the time. In 2011, however, the value of one Bitcoin had risen to $1.00, making it effectively equal in value to the dollar.
The cost skyrocketed from there. Shortly after Forbes and Gawker published Bitcoin features, the price jumped to a peak of $29 per Bitcoin in 2011. Since then, it has fluctuated between $3.3 and $4.4. Bitcoin’s price increased gradually but steadily during its first few years, despite the fact that it was getting some media attention and transaction volume.
The Emergence of Alternative Cryptocurrencies (2011 – 2021)
A number of initiatives have launched competing for digital currencies to Bitcoin in an effort to enhance the original concept. Since the first new cryptocurrencies appeared by copying Bitcoin’s source code and modifying it, they were nicknamed “Altcoins.”
Namecoin (NMC) and Litecoin (LTC) were the first two major alternative cryptocurrencies (LTC). Both of these initiatives took inspiration from Bitcoin’s blockchain technology, although their goals entailed only minor tweaks to the original program. Namecoin was virtually equivalent to Bitcoin except it prioritized domain names that could not be blocked due to government interference.
While Namecoin is still active, it is not worth very much, Litecoin has continued to expand and execute transactions and is currently one of the most popular cryptocurrencies.
According to a snapshot of the market taken in the past by CoinMarketCap, there were just seven cryptocurrencies being traded in April 2013. Over sixty different cryptocurrencies were available for trading by the year’s conclusion, and more are being introduced every month.
While some of these “forks” remain popular, most have lost their value because they were merely copies of the Bitcoin network and code.
As a matter of fact, Bitcoin and other cryptocurrencies experienced a big bull run in the years 2013 and 2014, with their values skyrocketing. When 2013 began, one bitcoin was worth around $14. Today, one bitcoin is worth over $1,200. Millionaires were made overnight as a result of the increase, and Bitcoin gained even more widespread exposure as a result.
The boom, however, did not endure, and the market fell severely, with Bitcoin reaching a low of roughly $300 by the end of 2014. Traders in Bitcoin and other cryptocurrencies would come to expect this kind of frenzy in the market, but it would drive others away.
Hacking of Exchanges and Illegal Activity
When the value of Bitcoin began to soar and cryptocurrency exchanges began springing up everywhere, high-profile hacks became increasingly common. One of the most publicized breaches occurred on the Mt. Gox exchange, where more than 850,000 Bitcoins, worth over $470 million at the time, were stolen from users and the exchange itself.
Bitcoin’s notoriety stems not only from thefts of Bitcoin and hacks of huge exchanges but also from its use in illegal transactions. The most well-known example is Silk Road, an online marketplace for illegal goods that accepts only Bitcoin as payment. Blockchain’s anonymity and security made it a haven for criminals, drawing attention from governments and law enforcement agencies.
The fact that the Bitcoin blockchain is a public ledger does not render it completely anonymous, even though illegal conduct is very certainly still going on to this day.
ICOs (Initial Coin Offerings) (2015 – Present)
Ethereum was launched in 2015 by a team of developers led by Vitalik Buterin to serve as a platform over which other cryptocurrencies might be built. Ethereum pioneered the concept of decentralized applications and smart contracts, which are self-executing computer programs that follow predetermined conditions.
To help fund the development of the Ethereum platform, Ethereum also took part in an ICO. An initial coin offering (ICO) is a means of crowdsourcing funding for a project in the same way that an initial public offering (IPO) of stock provides early access to investors.
Following Ethereum’s lead, ICOs gained traction in 2017, with numerous websites dedicated to keeping tabs on the latest offerings and weekly Bitcoin investments of several million dollars.
While many ICOs were useful in getting ventures off the ground and rolling quickly, several turned out to be scams after the founding teams vanished with the funds they had obtained, and the value of the tokens they had distributed plummeted.
Following a warning from the U.S. Securities and Exchange Commission (SEC), many services no longer permit customers from the United States to participate in initial coin offerings (ICOs).
Even though initial coin offerings (ICOs) are still widely used today, regulators are paying closer attention to them, and some nations have outright banned them.
Present
At present, Bitcoin’s market cap is nearing $1 trillion, and by early 2021, the total market cap of all cryptocurrencies has risen to $2 trillion. Bitcoin and other cryptocurrencies have expanded in popularity thanks in part to the participation of institutional investors buying them, and some nations have even adopted them as legal cash, which has contributed to this expansion.
As of this writing, one Bitcoin is worth almost $35,000, and it controls more than 35% of the cryptocurrency industry (BTC). Only Ethereum comes close to Bitcoin in terms of market capitalization, with a value that is nearly half as much as Bitcoin’s. More than 10,000 cryptocurrencies exist today, and every month sees the introduction of new projects on dozens of networks.
However, Bitcoin is not without its critics, and some nations, including China, have outright banned the cryptocurrency. Even more, countries have made it their official currency, such as El Salvador. Regulating Bitcoin and other cryptocurrencies is an ongoing priority for the SEC and the United States government.
The rising demand for a fully digital money system has even the world’s central banks considering the development of their own digital currencies, which they refer to as central bank digital currencies (CBDCs).
The crypto industry as a whole has grown, with the introduction of numerous novel projects in areas as varied as virtual real estate in the metaverse, gaming platforms supported by stablecoins, and marketplaces for artists. The introduction of NFTs, or non-fungible tokens, is arguably the most significant change to cryptocurrencies in recent memory.
NFTs
In the blockchain, an NFT represents a one-of-a-kind digital token of ownership. An NFT is a form of digital signature that is as unique as a product’s serial number, and the person in possession of an NFT is considered to be the legal owner of the associated digital asset.
What makes NFTs non-fungible is that they can’t be split up or traded for anything else. Given the one-of-a-kind nature of each NFT, they provide excellent collateral for valuable physical possessions or works of art that exist only once in the digital realm.
In 2014, digital artist Kevin McCoy built the first NFT, which just sold at auction for $1.4 million to Sotheby’s. However, NFTs did not become widely used until 2020 and beyond, when NFT marketplaces for digital artists expanded at a dizzying rate. Users of exchanges like OpenSea can purchase and sell NFTs using the platform’s native cryptocurrency pricing, which currently includes Ethereum (ETH) and Solana (SOL).
A growing number of celebrities are also cashing in on the NFT art trend by producing and selling their own original works of digital art and building fan groups around their namesake businesses. NFTs are also empowering musicians to monetize their work by distributing ownership rights as digital tokens.
In 2022, NFTs are really starting to take off, and new uses and possibilities are constantly being discovered. Some analysts believe NFTs may eventually surpass Bitcoin in value, although their future is still unwritten.
Bottom Line
While Bitcoin has only been around for a decade, the concept of a decentralized, secure payment system has been around for nearly 40 years. Bitcoin is the perfect embodiment of the vision of Bitcoin pioneers Chaum and Szabo, and it has successfully attracted the attention and money of people all over the world.
However, bitcoin is still in its infancy, and a natural consequence of rapid technological advancement is a high degree of market uncertainty. Despite the fact that long-term Bitcoin and cryptocurrency investors hope prices would level off, we are living through the birth of a new asset class and should anticipate significant price swings as the industry develops.
Specifically, regarding the technological front. Bitcoin has already established itself to be a safe and reliable payment network, and there is a large development community working to further strengthen the Bitcoin network.
In addition to Bitcoin and Ethereum, numerous other cryptocurrencies and blockchains have since emerged, with far-reaching implications for the future of banking, the arts, and many other sectors.
There appears to be no way to slow the rise in Bitcoin’s popularity and value since the cryptocurrency continues to gain acceptance from governments and other large institutions while mining difficulty doubles every four years.
The future of cryptocurrencies and NFTs is bright since they have the potential to tokenize property and intellectual property rights. Many sectors are ready for change, but the cryptocurrency and blockchain industries seem to be where the most cutting-edge thinkers are converging.
Despite all of this, obstacles remain. Bitcoin and other cryptocurrencies are vulnerable to regulatory uncertainty, an increase in fraud, and the launch of alternative central bank digital currencies (CBDCs). Market volatility is inevitable for a new asset class like Bitcoin and cryptocurrencies as it goes through its developmental stages.
