A Brief History Cryptocurrency
To many people, cryptocurrency might seem like something that emerged out of nowhere to become a huge force in both the technological world and the realm of personal finance. The digital coins have the potential to replace the current method by which we both pay for products or services and receive payment for those things. They also might someday be the impetus for individuals taking control over aspects of their lives that were once governed by middlemen and third parties.
People may not realize that cryptocurrency has some history behind it. Not a very long history, but it definitely had some major signposts and events that it had to experience before it could reach where it is today. At different points in its existence, cryptocurrency has seemed like both a sure thing that would be indispensable in the future and a scourge of society that only held value for those who were up to no good.
It is important to examine the history of anything that has the potential to shake up the world. Cryptocurrency certainly has that ability, which is really quite impressive for an innovation that is barely ten years old.
Starting in the 1980s, there were several developers and innovators who had the idea for money that would exist in the digital realm. These people didn't get very far with their work. But they at least planted the seed for the future and those who would create cryptocurrency as we know it.
Many of the ideas that would drive crypto were already in place in inventions such as ecash or bit gold.
These early forms of cryptocurrency were meant to be anonymous payment systems that were verified over a widespread network via a cryptographic process. For whatever reason, none caught on with the public like a certain piece of writing that would be issued in 2008.
The Origins of Bitcoin
In that fateful year of 2008, someone named Satoshi Nakamoto wrote a white paper, which is a technical document explaining some scientific project. They titled the paper "Bitcoin: A Peer-to-Peer Electronic Cash System." Around this time, someone also registered the domain Bitcoin.org, while Nakamoto published the software allowing Bitcoin to be mined for the first time.
The identity of Nakamoto has always remained a closely-guarded secret. Various investigative efforts have attempted to learn who this person is and if they used a pen name; some even suggest it is a pen name representing multiple people. In any case, Nakamoto sent some Bitcoin to a friend in 2009, and the world's first digital currency was born.
Bitcoin started to attract some attention in certain online communities for the ingenious way that it left banks and other financial institutions out of the equation. It really was a peer-to-peer method of payment between parties. The currency operated over a decentralized network, and the cryptographic process that had been in place in early digital currency attempts was refined.
In this new invention, a network of computers all worked at verifying the transactions made between parties. This process eliminated the concerns about double payments that had slowed up similar projects that had been attempted previous to this. Bitcoin could conceivably be used to pay for something, and no one but the parties involved would need to be a part of the process.
Bitcoin has remained the most popular and lucrative cryptocurrency ever since that white paper was published. But the road for the coins to get to that point has been long and often quite bumpy. And in many ways, it still has a long way to go in terms of being a viable payment system, if only because it isn't used often enough in that manner.
The first cryptocurrency transaction allegedly occurred when someone paid 10,000 Bitcoin to another person for some pizza. At the time, the coins had no real value. That amount of Bitcoin would be worth a fortune today.
Eventually Bitcoin started to gain value and occasionally lose it thanks to simple principles of supply and demand. Because Nakamoto had capped the supply of the coins in his original paper, it meant that the demand for them would have an effect on the value in a somewhat volatile way.
Bitcoin was meant to act as currency, but in terms of its actual value, it fluctuated as if it were a stock.
The first widespread public awareness of Bitcoin came with a negative spin attached to it. When a large criminal network known as Silk Road was busted in 2013, it came to light that those in charge of the operation hid their doings by using Bitcoin. That's because payment with Bitcoin requires the transacting parties to sacrifice no personal or financial information beyond the money that changes hands.
Bitcoin's value steadily grew, however, so much so that the currency eventually attracted some coins that were built in its image. After all, the original software was open source, meaning that anybody could take it and try to build their own projects from it. Coins with names like Litecoin and Swiftcoin started to appear in the same circles in which Bitcoin was traded.
These newer coins utilized the same blockchain technology that Bitcoin had enacted. But they made subtle changes in an effort to take care of the issues that many thought plagued Bitcoin, such as the ability to handle a large number of transactions in the network.
Ultimately, these other Bitcoin-like coins have had a hard time gaining ground on the original. There is even a spin-off called Bitcoin Cash that was created when some enthusiasts couldn't convince the main Bitcoin network to switch the size of the data that could be verified at one time. In any case, Bitcoin still holds the largest market capitalization of cryptocurrency by a wide margin, and those figures take into account a new generation of coins that began entering the picture.
The Second Generation of Cryptocurrency
Bitcoin spawned a lot of imitators in the early days of cryptocurrency, with most of these coins doing the same thing that Bitcoin did, only in slightly different ways. Somewhere along the line, people began to realize that the blockchain technology that led to Bitcoin's creation was more versatile than that. If the blockchain could verify a financial transaction, why couldn't it fill in as the mediator and validator for other peer-to-peer interactions?
The answer was, of course, that it could do those things. Hence came the second generation of cryptocurrency. While many of these coins could indeed serve as a digital currency, they also could be spun off to fulfill other functions.
Ethereum, which came into existence in 2015, was the first of these alternative coins, or altcoins, to make a widespread impact. The blockchain network of Ethereum, which is fueled by its native coin called Ether, can execute smart contracts. These contracts can be written up by two parties and go into effect automatically when terms are met.
Another Ethereum innovation was the creation of decentralized applications, or dApps. These are similar to the apps that you might find on a cell phone or an internet network, only they are completely decentralized, meaning that the creators maintain absolute control over them instead of ceding control to a third party.
There have been many other coins in this second generation that have made a dent on society already. Many of them were no more than ideas originally that eventually came to life when the creators secured funding, which led to another cryptocurrency innovation known as the ICO.
An ICO, or initial coin offering, occurs when the entrepreneurs and technical directors behind a new cryptocurrency need money to help them turn their ideas into concrete results. The cryptocurrency project reaches out to investors who are interested in funding the projects. Those investors usually pony up Bitcoin or Ether and receive the new coins of the startup project in return.
Ethereum's ICO was such a major success that most other coin projects quickly followed suit and headed straight for retail investors for funding. Millions were raised in this way, and new coins proliferated. The only thing that seems even remotely able to slow down the rise of ICOs is regulation, which has its own odd history with cryptocurrency.
Cryptocurrency and Regulation
The way that the financial situation has always worked is that a country issues money and then reserves the right to impart regulations on that money as they see fit. But cryptocurrency is a decentralized currency, meaning that there are no "powers that be" in charge of it. That has led to the financial regulatory bodies of various nations throughout the world attempting to make difficult decisions about cryptocurrency.
Some countries have aggressively attempted to cut out the legs of cryptocurrency initiatives. Others have been more receptive. That same sort of polarization is evident in the reactions of large financial institutions like banks or investment firms to cryptocurrency.
While there have been many conflicting decisions made by governing bodies around the world, there hasn't really been any consensus reached. The only thing that can be said for certain about cryptocurrency and regulation is that there has been subtle progress towards the coins being accepted into the mainstream. That kind of mainstream push will only come in full, however, if regulatory bodies take more of an active stance, one way or the other, on the coins.
Investment History of Cryptocurrency
Cryptocurrency was first created to be the solution to a problem concerning personal financial independence. What it became, almost inadvertently, was a huge investment property. As the coins became more popular, their values started to rise, and they made steady progress throughout the middle of this decade.
But it was 2017 when the prices of cryptocurrency really went off the map. Some of it was spurred by the popularity of the coins and increased public awareness of their usefulness in society. And some of it was driven by that old investment maxim of fear of missing out, with investors rushing in to become involved in cryptocurrency even though, in some cases, they had no idea of what it really was.
However it happened, the prices spiked in 2017 to unheard-of levels. Bitcoin, of course, led the charge, with the coins at one point topping the $20,000 price mark. Other coins also rose dramatically. For a while, it seemed like the cryptocurrency market would never stop rising.
There was, however, a backlash coming. Many governments started to actively monitor the coins, while regulatory bodies began to step in to check their unabated progress. In this past year, Bitcoin has fallen back down to a level of about 70% below its peak. Other coins fell even harder, making investors who came to cryptocurrency a little late wonder why they did in the first place.
Bitcoin and the rest of the cryptocurrency market have stabilized some in the past few months. But the coins have an innate volatility that likely will remain until they start to establish themselves as useful to a large percentage of the population.
One of the things holding cryptocurrency back from rising to previous levels is the fact that not enough of the coins have actually been used in the situations for which they were intended. That means that Bitcoin isn't accepted by many places as payment, even though it gains more traction every day. And it also means that many of the second-generation coins have not yet delivered on the kind of game-changing innovations that they promised.
Many of the detractors of cryptocurrency point to this lack of usage as a sign of its weakness as an investment vehicle. Its proponents think otherwise, pointing to the steady progress the coins are making towards saturation on a widespread level.
In many ways, the history of cryptocurrency has displayed almost as much volatility as the prices of the coins themselves are apt to do at any given time. But the historical surge of cryptocurrency has largely been headed in a positive direction, even though the sample size of ten years is awfully small to make definitive judgments on where it is headed in the future.