Cryptocurrency: A Brief History

In nowadays society, technological evolution alongside globalization’s progress created a financial environment, where new forms of financial markets have emerged. Digital and virtual currencies, also known today as Cryptocurrency, have become a new alternative to the conventional stock trading market. Not only are they extremely sustainable but they are also considered, by many experts, much more reliable. This article will focus on a quick rundown through Cryptocurrency’s history, hopefully helpful for the ones who are interested in investing in it.

History: Technical Foundations

Cryptocurrency existed as a theoretical construct long before the first digital alternative currencies debuted. Early cryptocurrency proponents applied cutting-edge mathematical and computer science principles to solve what they perceived as practical and political shortcomings of “traditional” fiat currencies.

The first attempts of creating a digital currency began in the 90’s tech boom when an American cryptographer named David Chaum invented a “blinding” algorithm that still remains central to modern web-based encryption – ‘blinded money’. This was an algorithm that provided secure and unalterable information exchanges between parties, laying the groundwork for future electronic currency transfers. Chaum soon became to be the founder of ‘DigiCash’, a for-profit company that produced units of currency based on the blinding algorithm. Initially, the company had a strong monopoly on supply control, similar to central banks’ monopoly on fiat currencies, but there was a problem – unlike Bitcoin and most other modern cryptocurrencies, ‘DigiCash’s’ control wasn’t decentralized.

Around the same time, other systems started to appear in the global financial markets, such as Flooz and Beenz. All of them used a Trusted Third Party approach in their system, meaning that the companies behind them verified and facilitated the transactions. They were inevitably fragile to several situations like fraud, financial problems, and even friction between companies’ employees and their bosses.

The Birth of ‘Bitcoin’

Years later, in the late 2000s, an anonymous group of programmers under the alias “Satoshi Nakamoto”, whose true identity remains a mystery to this day, introduced Bitcoin to the World. Satoshi Nakamoto published the white paper called Bitcoin: ‘A Peer-to-Peer Electronic Cash System’, describing the functionality of the Bitcoin blockchain network. He mined the first block of the Bitcoin network, known as the ‘Genesis Block’, effectively piloting the blockchain technology.

He has carved the path for the events that followed, making Bitcoin widely regarded as the first modern cryptocurrency. At first, it used means of exchange, able to combine decentralized control, user anonymity, record-keeping via a blockchain, and built-in scarcity, meaning there are no servers involved and no central controlling authority.

The trend became popular among ‘cryptomaniaks’ and in July of 2010, the first cryptocurrency exchange appeared in the name of bitcoinmarket.com (now defunct). By that time, Bitcoin managed to reach parity with the US Dollar, and the idea stuck among other computer engineering enthusiasts, that started to work on dozens of similar cryptocurrencies – including popular alternatives like Litecoin.

Nowadays, dozens of merchants view the world’s most popular cryptocurrency as a legitimate payment method, as well as an extra income source – if you’re interested in investing in cryptocurrency, click here to find the best apps, on the market, for that! In late 2012, WordPress became the first major merchant to accept payment in Bitcoin, followed by Newegg.com (an online electronics retailer), Expedia, and Microsoft.

There are a few cryptocurrencies other than Bitcoin, that are widely accepted for merchant payments, allowing holders to exchange them for Bitcoin or fiat currencies – providing critical liquidity and flexibility.

How Does it Work?

Cryptocurrency developers build these protocols on advanced mathematics and computer engineering principles that render them virtually impossible to break, as well as duplicating or counterfeiting the protected currencies. The anonymity masks the identities of cryptocurrency users, making transactions and fund flows difficult to attribute to specific individuals or groups.

However, one of the most important problems that any payment network has to solve is double-spending. It is a fraudulent technique of spending the same amount twice. That’s why a trusted third party – a central server – that keeps records of the balances and transactions is of the utmost importance. In a decentralized network like Bitcoin, every single participant needs to do this job – through via Blockchain, a public ledger of all transactions that ever happened within the network, available to everyone.

Every transaction is a file that consists of the sender’s and recipient’s public keys (wallet addresses) and the number of coins transferred. It’s also signed off by the sender with their private key.

Within a cryptocurrency network, only miners can confirm transactions by solving a cryptographic puzzle. They take transactions, mark them as legitimate, and spread them across the network, adding to the database. Once the transaction is confirmed it becomes unforgeable, irreversible and the miner receives a reward, plus the transaction fees.

If nodes of the network disagree on a single balance, the system would basically break.

The decentralized control provides a more safe and secure activity of the users, with highly complex protocols built into their governing codes, instead of the conscious, human decisions of central banks or other private regulatory authorities.

The activities of miners are critical to currencies, stability, and a smooth function of the process. They help cryptocurrency users, who leverage vast amounts of computing power, to record transactions, receive newly created cryptocurrency units, as well as new transaction fees, paid by other users in return.

The Future

Crypto assets remain and will continue to remain extremely important in building a strong empire towards the world economy. With cryptocurrencies, you are able to “be your own bank” – you are the only one in control of your digital assets and the only one in charge of keeping them secure. It’s a trustworthy process that’s ensured by strong cryptography and a consensus-keeping process. This, along with the previously mentioned factors, makes third parties and blind trust a concept completely redundant. But before you invest, keep in mind that cryptocurrency users need to remain ever-mindful of the concept’s practical limitations.

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Tim Spafford

Tim Spafford

Tim is a student who works hard to get a degree in finance and build a successful career in business consulting. Being a student and living in London Tim has a real-life experience in budgeting, saving, money making, traveling and having fun.