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Bitcoin is the first cryptocurrency to survive, not the first cryptocurrency

By Nelson Muhoozi

Added 19th November 2019 10:16 AM

In recent years, the investment and technology world has become saturated with cryptocurrencies, blockchain apps, and related ventures and projects.

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In recent years, the investment and technology world has become saturated with cryptocurrencies, blockchain apps, and related ventures and projects.

Although Bitcoin was the first established cryptocurrency, there had been previous attempts at creating online currencies with ledgers secured by encryption. Two examples of these were B-Money and Bit Gold, which were formulated but never fully developed.


In recent years, the investment and technology world has become saturated with cryptocurrencies, blockchain apps, and related ventures and projects. Even with the tidal wave of new digital currencies that have transformed the market, there has remained a single digital currency that has held the attention of the public more than any other, bitcoin (BTC) of course.

Voluminous newbies in the cryptocurrency world including some investors consider bitcoin to be the original cryptocurrency. Founded in 2009 by a programmer or, perhaps, a group of programmers under the pen name Satoshi Nakamoto, bitcoin ushered in a new age of blockchain technology and decentralized digital currencies.

Satoshi's whitepaper outlining bitcoin described the concept of blockchain technology for the first time, saying that "the network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work.

" Although there is no doubt that bitcoin has had a revolutionary impact on the cryptocurrency space, it has spawned dozens of forks and imitators, and it remains the number one digital currency in the world by market cap and several other metrics, but is it really the first cryptocurrency?

Early Attempts in the Netherlands
According to a report in Bitcoin Magazine, one of the earliest attempts at creating a cryptocurrency actually predates bitcoin's creation by about 20 years.

Petrol stations in the Netherlands were suffering from nighttime thefts and rather than post guards and risk their safety, a group of developers attempted to link money to newly-designed smartcards. Bus drivers who needed to access the stations would carry these cards instead of cash, and the stations would not have paper money lying around.

This may have been the earliest example of electronic cash, which has links to digital currencies as we know them today.

Blinded Cash:

About the same time, or even earlier, American cryptographer David Chaum experimented with a different form of electronic cash and he conceptualized a token currency that could be transferred between individuals both safely and privately. Once more, the similarities to modern-day cryptocurrencies are striking, right?

So Chaum developed a so-called "blinding formula" to be used to encrypt information passed between individuals. "Blinded cash" could thus be safely transferred between individuals, bearing a signature of authenticity and the ability to be modified without traceability. Chaum founded Digi Cash to put his concept into practice several years later.

Although DigiCash went bankrupt in 1998, the concepts the company put forward as well as some of its formulas and encryption tools played an important role in the development of later digital currencies.

Web-Based Money
In the 1990s, a number of startups made efforts at furthering the goals of DigiCash. Of these, perhaps the company with the greatest lasting impact on the broader financial world was PayPal (PYPL). PayPal revolutionized person-to-person payments online.

It allowed individuals to quickly and securely transfer money via a web browser. By connecting itself to the eBay community, PayPal secured a dedicated user base which allowed it to grow and thrive. It remains a major payment service currently.

Accordingly, PayPal also inspired its imitators, including companies that attempted to provide a means for trading gold via a web browser. One of the most successful of these operations was called e-gold, which offered individuals online credit in exchange for physical gold and other precious metals.

This company, however, ran into issues with various types of scams, nonetheless, it was eventually shut down by the federal government in 2005.

B-Money
In about 1998, developer Wei Dai proposed an "anonymous, distributed electronic cash system" called B-money. Dai proposed two different protocols, including one which required a broadcast channel that was both synchronous and unjammable.

Ultimately, B-money was never successful, and indeed, it was quite different from bitcoin in many ways. Nonetheless, it was also an attempt at an anonymous, private, and secure electronic cash system.

In the B-money system, digital pseudonyms would be used in order to transfer currency through a decentralized network. The system even included a means for contract enforcement in-network as well, without the use of a third party.

Although Wei Dai proposed a whitepaper for B-money, it was ultimately unable to garner enough attention for a successful launch. Still, Satoshi referenced elements of B-money in his bitcoin whitepaper roughly a decade later, so the impact of B-money on the current digital currency craze is undeniable.

Bit Gold
Not to be confused with the contemporary gold-based exchange of a similar name, Bit Gold was another electronic currency system that dates back to the same period as B-money. This was proposed by Nick Szabo, Bit Gold came with its own proof-of-work system that in some ways is mirrored by today's bitcoin mining process.

Through this procedure, solutions were compiled cryptographically and then published for the public in much the same way a modern blockchain would function. Perhaps the most revolutionary aspect of the Bit Gold concept, however, had to do with its movement away from centralized status.

Bit Gold aimed to avoid reliance on centralized currency distributors and authorities. Szabo's aim was for Bit Gold to reflect the properties of real gold, thereby enabling users to eliminate the middleman entirely. Bit Gold, like B-money, was ultimately unsuccessful.

Nevertheless, it too provided inspiration for a large group of digital currencies that would enter the market a decade or more after its introduction.

Hashcash
Developed in the mid-1990s, Hashcash was one of the most successful pre-bitcoin digital currencies, according to The Merkle. Hashcash was designed for a number of purposes, including minimizing email spam and preventing DDoS attacks.

Hashcash opened up a wide array of possibilities which would only be realized nearly two decades later. It used a proof-of-work algorithm to aid the generation and distribution of new coins, much like many contemporary cryptocurrencies.

Indeed, Hashcash also ran into many of the same problems as today's cryptocurrencies nowadays. Also, in 1997, facing an increased processing power need, Hashcash eventually became less and less effective. In spite of the fact that it eventually fizzled out, Hashcash saw a large degree of interest in its heyday. Many of the elements of the Hashcash system worked their way into bitcoin's development as well.

So, when bitcoin was developed in 2009, it launched a new generation of digital currencies. Bitcoin differs from many of its predecessors in its decentralized status and its development of blockchain technology, however, it's difficult to imagine the creation of bitcoin, let alone the hundreds of other digital currencies which have since launched, without the earlier attempts at cryptocurrencies and electronic cash in the decades before bitcoin was launched.

Not that you can make a kill investing in these currencies, although investing in cryptocurrencies and Initial Coin Offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation to the reader to invest in cryptocurrencies or ICOs. Although you could do it on your own and test the waters and since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions.

 

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