Modules for Personal Finance
Introduction to cryptocurrencies
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The origin of cryptocurrencies
Cryptocurrencies are digital or virtual assets that are secured by cryptography. They are created using blockchain technology. Since blockchain tech is immutable and transparent, it is almost impossible to counterfeit cryptocurrencies or double spend them.
The very first cryptocurrency to be introduced to the world was Bitcoin. Since then, many other crypto coins have been created using Blockchain technology. In fact, there are over 18,000 cryptocurrencies in existence today - as of March 2022.
Cryptocurrencies can be traded via crypto exchanges. This helps individuals make gains from the price fluctuations of the digital assets. However, in most countries of the world, cryptocurrencies are not recognized as legal tender, meaning that they cannot be used in everyday transactions.
The history of cryptocurrencies
With the talk of cryptocurrencies being all the rage these days, it is natural for individuals to think that the concept of such digital currencies is something that was established recently. However, this couldn’t be far from the truth.
If you were to trace the origin of cryptocurrencies, you would quickly find that the concept existed as early as the 1980s. Back then, these digital currencies were known as cyber currencies instead.
Although the popularity of cryptocurrencies spiked after the year 2009, an American cryptographer by the name of David Chaum had already used cryptography to secure and verify transactions way back in the 1980s. David Chaum invented something that was known as Blinded Cash that relied on cryptography for security. The algorithm that David Chaum invented was capable of ensuring secure, encrypted, and unalterable exchange of information between two parties.
However, there weren’t any cryptographic protocols, standards, or software back then. It was only in the 1990s that proper protocols and software for cryptography started to develop, paving the way for the introduction of cryptocurrency as we know it now.
The pre-Bitcoin era
Now that you’ve gotten a brief introduction to cryptocurrency, let’s take a quick peek into the pre-Bitcoin era before moving on to the first cryptocurrency.
In the late 1990s, Wei Dai, a software engineer came out with a white paper on a virtual currency called ‘b-money’. The currency contained a lot of information on the key components and architecture that modern day cryptocurrencies are based on, such as decentralization and anonymity. However, the ‘b-money’ concept remained just that - a concept. It was never brought into the fray as a full-fledged and working currency.
At around the same time, another virtual currency system called the ‘Bit Gold’ was introduced by Nick Szabo. The architecture that Bit Gold was based on included solving cryptographic puzzles and publishing the same to the public. This concept was an early precursor to the blockchain technology that we know of today.
And finally, there was Hashcash. Introduced in the mid 1990s, this was arguably one of the more successful digital currencies in the pre-Bitcoin era and consisted of several architectural elements that can be found in several modern day cryptocurrencies. The currency came with a proof-of-work algorithm and allowed individuals to generate and distribute coins, which is very similar to the way crypto mining is done today.
Bitcoin: The first cryptocurrency
After witnessing several digital currencies rise and fall, the internet was introduced to one more in late 2008. An individual or a group of individuals going by the pseudonym Satoshi Nakamoto came out with a white paper known as ‘Bitcoin - A Peer-to-Peer Electronic Cash System’.
And a few months later, in the year 2009, the first cryptocurrency - Bitcoin was introduced to the world. Powered by blockchain technology, Bitcoin immediately set the cryptocurrency stage in motion, thanks to the plethora of advantages that it offered.
From decentralization and anonymity to lower transaction costs and increased security. Not to mention, the open-source and transparent nature of Bitcoin. At first glance, Bitcoin seemingly incorporated all of the aspects, components, and architectural elements of other virtual currencies of the 1980s and 1990s to great success.
The evolution of cryptocurrencies other than Bitcoin
The exceptional popularity of Bitcoin gave rise to other similar cryptocurrencies that not only boast of better use of the blockchain technology, but also promise additional features and benefits.
Since these cryptocurrencies are based on Bitcoin or the general idea of blockchain and cryptocurrency, they’re dubbed as ‘alternative coins’ or ‘alt-coins’ for short. Currently, there are as many as 12,000 cryptocurrencies in circulation in the world. While not all of them enjoy the popularity of Bitcoin, a few of them such as Ethereum, Litecoin, Ripple, and Dash have their own set of supporters and believers.
Cryptocurrencies are no longer the exotic assets that individuals trade in the hopes of generating profits. If the adoption of Bitcoin as legal tender by the country of El Salvador is anything to go by, cryptocurrencies are slowly being embraced by individuals and even governments as legal tender and an alternative to physical currencies.
Contrary to popular opinion, the evolution of cryptocurrencies didn’t start with the introduction of Bitcoin in the year 2008. Instead, the seeds for modern day cryptocurrencies had been laid way back in the 1980s and 1990s itself.
With this, we’re done with this chapter. Hope you’re now aware of the exciting history of cryptocurrencies. In the next chapter, we’ll take up the concept of blockchain and look into the reasons for their popularity.
A quick recap
- The concept of cryptocurrencies existed in the 1980s itself. Back then, they were known as cyber currencies.
- An American cryptographer by the name of David Chaum had already used cryptography to secure and verify transactions way back in the 1980s.
- David Chaum invented something that was known as Blinded Cash that relied on cryptography for security.
- In the late 1990s, Wei Dai, a software engineer came out with a white paper on a virtual currency called ‘b-money’.
- B-money focused on decentralization and anonymity as two of its main features.
- Another virtual currency, called the ‘Bit Gold’, was introduced by Nick Szabo in the 1990s.
- The architecture that Bit Gold was based on included solving cryptographic puzzles and publishing the same to the public.
- Hashcash, another virtual currency, with a proof-of-work algorithm and allowed individuals to generate and distribute coins, which is very similar to the way crypto mining is done today.
- In 2009, the first cryptocurrency - Bitcoin was introduced to the world, powered by blockchain technology.
- Other cryptocurrencies based on Bitcoin and blockchain made their way later, coming to be known as ‘alternative coins’ or ‘alt-coins’ for short.
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