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In 2009, Bitcoin demonstrated to the world the power of cryptocurrencies. Today, these next-generation assets are set to digitize the economy. However, this wasn’t always the case. If it weren’t for developers’ hard work and contributions over the years, the world might have missed the blockchain mark completely.
While Bitcoin is by far the most successful digital currency, it was by no means the first. For decades, digital currency developers built upon each other’s theories, and they continue to do so today. Consequently, history is littered with the bits and pieces of concepts that eventually led to Bitcoin development.
How Bitcoin Won
Crucially, Bitcoin was the first digital currency to solve the notorious double-spend issue encountered by digital currencies. Double-spends occur when a hacker spends a digital currency more than once. Usually, this involves conducting transactions during the processing of the original transaction.
Bitcoin uniquely solved this problem. Bitcoin’s creator Satoshi Nakamoto integrated a timestamp into the hashing algorithm. He figured out that if the following block of transactions relied on a time-stamped hash, it would be nearly impossible to alter.
His discovery was a major development in the digital money sector. However, it would be irresponsible to forget about all of the other programmers whose concepts also helped bridge the gap. Here are some of the most interesting attempts at digital currencies before Bitcoin:
One of the first attempts to make money digital occurred in the Netherlands during the eighties. The concept came about as a way to try and curb gas station robberies in remote areas. At that time, smartcards had just begun to enter the market.
Someone had the great idea to start loading these smartcards with value. Truckers could use these smartcards to refill without the need to bring cash. The concept was a huge success. It also started the long trail towards Bitcoin’s development.
Another eighties venture into digital currency was DigiCash. The DigiCash concept was the brainchild of American cryptographer David Chaum. Chaum figured out a mathematical formula known as the “blinding formula” that allowed users to transfer value between each other securely.
The concept was met with excitement by both bankers and tech firms. At one point, Microsoft offered the Chaum $180 million to place his protocol on every Windows PC. This early digital cash failed mainly due to a marketing strategy that focused on banks primarily. Also, the protocol failed to solve the double-spend issue successfully.
The Internet is Here
Once the internet arrived, it changed the landscape for digital currencies forever. Notably, there was a shift from European efforts over to North American developers. The introduction of online payment processors such as PayPal and online marketplaces changed the industry forever.
Platforms such as eBay showed the world that digital money needed to be in consumers’ hands and not the banks. Originally, PayPal utilized a Peer-to-Peer cash transfer system. However, the company changed its strategy after realizing that most people needed its services within their web browser.
Another exciting attempt at digital currency was e-gold. This concept allowed users to mail in their physical gold and receive an e-gold credit. Best of all, anyone could join. The platform was a success. It enabled large international gold transfers in minutes. Unfortunately, the success didn’t last long.
HashCash introduced the world to the Proof-of-Work consensus algorithm. The protocol assisted in securing the network and the distribution of tokens. Eventually, the power demands of the PoW network became a hindrance to adoption. Notably, there are many aspects of HashCash found in Bitcoin’s protocol.
1998 the well-known cryptographer Wei Dai published his B-Money whitepaper. He explained how one could utilize a decentralized network to create an anonymous, private, and censorship-resistant digital currency in the document.
Digital Currency Crackdown
By the start of the 2000s, regulators began to enter the digital currency sector in force. The 9/11 attacks turned regulators fiercely against any form of non-regulated finance. In 2005, regulators raided e-gold’s Florida office and halted operations. Additionally, they targeted all the support networks of the industry, including exchanges and competitors.