Although the history of Cryptocurrency is brief, it is arguably one of the most fascinating stories of the twenty-first century. Bitcoin rose from relatively obscure beginnings to become a household name, and the total crypto market cap reached $3 trillion in 2021.
If Bitcoin becomes a global reserve currency, the history of cryptocurrency may become required reading in economics 101 courses. Those who want to stay on top of the latest trends should look back at the high points in cryptocurrency history.
The Concept of Cryptocurrency
Many people are surprised to learn that the concept of cryptocurrency predates the 2008 Bitcoin whitepaper by decades. Although Bitcoin is the most successful cryptocurrency to date, it was created as a result of many failed projects.
Some tech historians claim that Dutch researchers were the first to experiment with digital currencies, but most agree that UC Berkeley’s David Chaum was a key figure in the early development of crypto. Chaum published a paper titled ‘Computer Systems Established, Maintained, and Trusted by Mutually Suspicious Groups’ in 1982, which laid the groundwork for future blockchain developments.
Chaum’s invention of the ‘blinding formula’ was one of his contributions to cryptocurrency. Chaum successfully demonstrated how it can securely send and receive digital tokens without a central authority using advanced cryptographic and encryption technology.
In the 1990s, Chaum’s company DigiCash released a digital currency called ‘eCash’ to put his theories into practice. Despite attracting the attention of companies such as Microsoft, DigiCash ran out of funds by 1998. Nevertheless, the eCash experiment stimulated further development in the blockchain space.
Many developers were inspired by Chaum’s example to create a digital token that would mimic the price stability of gold. Digital tokens such as EGold and Bit Gold, for example, first appeared in the late 1990s. Despite their failure, these tokens influenced Satoshi Nakamoto, Bitcoin’s creator, to emulate the properties of gold (particularly its scarcity) when developing Bitcoin.
Bitcoin’s History (2008-2010)
When the housing bubble burst, Bitcoin (BTC) was born. Satoshi Nakamoto published the famous whitepaper ‘Bitcoin: A Peer-to-Peer Electronic Cash System’ in 2008, which outlined the concept of a peer-to-peer internet-based currency.
Nakamoto proposed a limited supply of 21 million bitcoins, based on previous gold-influenced tokens, and implemented a consensus mechanism known as proof-of-work (PoW) to validate transactions on the Bitcoin network. Surprisingly, this novel confirmation system was introduced with a failed ’90s project called ‘hashcash’, the original goal of which was to reduce spam emails.
To post new transactions on a ‘blockchain’, PoW requires computers to solve an algorithmic puzzle. This blockchain contains all network transactions and is publicly accessible. ‘Miners’ use Bitcoin network computing power and receive BTC rewards for each block they verify. Every four years, the Bitcoin rewards are cut in half, and this will continue until the 21 million supply is reached.
In early 2009, Nakamoto mined the first Bitcoin block (also known as the “genesis block”) and soon sent the first successful Bitcoin transaction to developer Hal Finney. One year later, programmer Laszlo Hanyecz made the first recorded real-world Bitcoin purchase, purchasing Papa John’s pizzas for 10,000 BTC. Crypto enthusiasts still celebrate this event annually with ‘Bitcoin Pizza Day’ on May 22.
While these developments were exciting for those in the cryptographic space, they did not pique the interest of the general public. There were no large crypto exchanges, and information about Bitcoin was only just beginning to circulate on the internet.
Who Exactly Is Satoshi Nakamoto?
One of the greatest mysteries in the cryptocurrency world is the identity of Satoshi Nakamoto. Many people have proposed theories about who Nakamoto is, but all of this is pure conjecture. Indeed, many people believe Nakamoto purposefully chose to remain anonymous. Bitcoin might not have achieved the same level of success if it had a more easily targeted leader.
It’s also clear that Nakamoto was wary of centralized authority. We know this because Nakamoto inserted the headline ‘Chancellor on Brink of Second Bank Bailout’ into Bitcoin’s genesis block in 2009. They clearly saw Bitcoin as a solution to the many problems associated with the 2008 financial crisis.
We may never know who Nakamoto is (or was), but that doesn’t diminish the Bitcoin network’s power. If anything, Nakamoto’s anonymity increases some people’s trust in BTC as a currency.
Crypto Market Growth (2010-2014)
Bitcoin did not experience its first genuine ‘price pump’ until Forbes reported on it in 2011. BTC reached an all-time high of nearly $9 after this story broke. Previously, BTC was trading for around $1 per coin.
However, not all of the initial Bitcoin excitement was positive. Bitcoin gained a reputation in the early days on illicit online markets, particularly the Silk Road. This is primarily due to transaction anonymity. Despite the fact that Chainalysis data suggests that 0.15% of crypto addresses are linked to criminals, Bitcoin is still shaking off this old stigma.
In order to further acceptance and adoption of Bitcoin, members of the Bitcoin community established the nonprofit Bitcoin Foundation in 2012. In the same year, Bitcoin Magazine published its first issue.
As Bitcoin gained mainstream attention, it drew new blockchain enthusiasts into the game. This resulted in the first altcoins, the majority of which ‘forked’ from Bitcoin. Although many of these early altcoins are no longer popular, some, such as Litecoin and Ripple’s XRP, are still widely traded.
Scams and the Ascension of Ethereum (2014-2016)
Although Bitcoin’s price rose to the triple digits in the early 2010s and adoption continued to rise, the cryptocurrency suffered a major public relations setback in 2014. Mt. Gox, a large Bitcoin exchange, suffered a major security breach in which hackers stole 850,000 BTC.
Wallet technology was immature in the early 2010s, and there were no insurance protections or centralized crypto exchanges (CEXs). Many users who were impacted by the Mt. Gox hack are still waiting for their funds to be returned.
While Mt. Gox was a disaster for Bitcoin investors, it inspired early cryptocurrency supporters to create secure CEXs. It is now standard practice for major cryptocurrency exchanges such as Binance and Coinbase to provide customers with insurance protection and security features such as two-factor authentication. All of these security enhancements stem from the Mt. Gox hack.
The launch of Ethereum in 2015 was another significant event during this time period. Prior to Ethereum, most non-Bitcoin crypto projects were riffs on peer-to-peer payment systems with minor technical differences. Ethereum’s developers had bigger plans for blockchain technology. Ethereum sought to decentralize the internet rather than serve as a payment system or a store of value. When certain conditions were met, developers introduced concepts such as automated smart contracts, which could fulfill commands entirely with code. It rose to prominence as a global computer, capable of unstoppably executing complex code in nodes all throughout the network. NFTs (non-fungible tokens) and DeFi (decentralized finance) applications were also born on Ethereum.
Ethereum quickly rose to prominence and become the world’s second-largest cryptocurrency, behind Bitcoin. Hundreds of projects soon began using the Ethereum protocol to create dApps (decentralized applications). However, Ethereum’s early days were not without incident. In 2016, Ethereum experienced a significant hack in a decentralized autonomous organization (DAO) that was intended to serve as an investment vehicle. It is estimated that hackers stole $60 million from this $150 million fund.
The Ethereum community was divided on how to respond to the DAO hack. Because this was one of the first significant investments in Ethereum, some contended that the funds should be returned by “forking” the current blockchain into a new Ethereum. Others argued that the original Ethereum should be preserved because true DeFi should require no human intervention.
The Ethereum community eventually decided to proceed with the fork. The original “Ethereum Classic” chain is still operational, but it is far less influential than the forked Ethereum.
The Rise in Popularity of Cryptocurrencies (2018-Present)
During 2017-2018, the price of Bitcoin skyrocketed. For the first time in history, it surpassed $10,000 and briefly touched $20,000 before plunging into a ‘crypto winter’. During this time, developers had numerous heated debates about how to scale the Bitcoin network. Some left Bitcoin to form Bitcoin Cash, while others proposed a special settlement layer on top of Bitcoin, now known as the Lightning Network.
During this time, there were also numerous developments in Ethereum’s ecosystem. Notably, NFTs began to emerge as distinct digital collectibles, particularly after the game CryptoKitties caused blockchain congestion. DeFi projects, such as decentralized exchanges (DEXs), have also begun to build on Ethereum.
Despite all of this innovation, the crypto market didn’t really come back to life until 2020. During this bull market, Bitcoin reached nearly $70,000 per coin, and was added to the balance sheets of major corporations such as MicroStrategy and Tesla. El Salvador, in fact, made Bitcoin legal tender. Because of the increased prevalence of NFTs and metaverse games, Ethereum has also gained more users.
However, as 2021 became 2022, much of the euphoria faded. Aside from macroeconomic headwinds, the crypto space was dealt a significant blow when TerraForm Labs’ US dollar stablecoin UST fell to zero. Crypto VCs and centralized lending companies linked to UST have been dragged down by the overall crypto market.
In spite of these negative headlines, the crypto market is still worth $1 trillion in 2022.
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