A Brief History Of Cryptocurrencies

Bitcoin: A New Whole Greater Than the Sum of Its Old Parts

Satoshi Nakamoto, likely a pseudonym for an individual or a group, introduced the concept of modern cryptocurrency through the white paper titled Bitcoin: A Peer-to-Peer Electronic Cash System distributed via a cryptography mailing list in 2008. This document outlined the creation of a decentralised digital currency by ingeniously combining existing cryptographic principles.

The notion of digital currency was not entirely new. DigiCash and B-Money were notable examples of previous attempts that failed due to a centralised point of failure. Nakamoto took an innovative approach to solving this challenge by combining the concept of a blockchain, based on Merkle trees pioneered by Ralph Merkle in the late 1970s, with proof-of-work, a mechanism based on Adam Back’s 1997 solution to combat email spam by requiring users to commit computational resources to solving complex mathematical problems.

This technological fusion resulted in what is often referred to as a decentralised ledger, maintained and secured by a network of so-called “miners” whose computer systems “work” to ensure that transactions are secure, transparent, and immutable. In other words, the network must always find consensus on a single version of history across all transactions. 

Bitcoin’s Probable Reason for Being

While Nakamoto did not explicitly state the motivations behind Bitcoin’s creation, a clue lies within the first block of the Bitcoin blockchain.

In a blockchain, blocks are data structures primarily designed to contain information about transactions between users. The blocks, however, can also contain a message. In the very first block of the Bitcoin blockchain, Nakamoto referenced a headline from the 3 January 2009 edition of UK newspaper The Times: “Chancellor on the Brink of Second Bailout for Banks.” The inclusion of this text likely implies that Nakamoto was concerned about the viability of traditional financial infrastructure and had launched Bitcoin as a decentralised alternative.

Bitcoin’s Journey to Mainstream Attention

Initially embraced by niche tech enthusiasts and libertarians, Bitcoin gradually captivated mainstream media and investors, with interest skyrocketing around 2017 when its price surged to $20,000. Its price peaked at around $69,000 in November 2021 and has since fluctuated, currently trading for just under $40,000.

The Expanding Crypto Ecosystem

Since the mid 2010s, growing buzz around Bitcoin has inspired a multitude of other cryptocurrencies, with the teams behind them each attempting to carve out a unique niche in the crypto space. Today, a prominent cryptocurrency price information website tracks over 11,000 different digital assets across more than 900 specialized exchanges.

Perhaps the best-known example of such so-called “alternative-to-Bitcoins,” or altcoins, is ETH, which runs on the Ethereum blockchain. Launched in 2015 by Vitalik Buterin, this blockchain  facilitates smart contracts and decentralised applications in addition to transactions. 

One Lesson from Cryptocurrency History

A key takeaway from the relatively short yet eventful history of cryptocurrencies is the pivotal role adoption plays in which of them rise to prominence and which do not. Adoption hinges on users’ perceived utility of a crypto asset and their actual reasons for using it.

Analysts often consider Bitcoin’s utility to be as “digital gold,” i.e. a store of value for users seeking an alternative to so-called fiat currencies overseen by central banks. Even if users do not fully grasp the technology behind this utility, such a narrative around it is relatively straightforward and easy to understand for many.