What's the History of Cryptocurrency?

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There almost seems to be a shroud of mystery—at least, in the minds of most average people—about the world of digital currency. For example, the creator of Bitcoin, “Satoshi Nakamoto,” was up until recently considered a pseudonym; it was thought this could be one person or an entire group, and for five years no one knew with any certainty who that was. The mystery was revealed in March 2014, when Newsweek Magazine published a lengthy article showing that Satoshi Namakoto was, indeed, the actual name of Bitcoin's founder.

Satoshi's identity aside, we've been asked many times how cryptocurrency came to be. The industry's only been around since 2008—that's when the reclusive Mr. Nakamoto published the white paper that would lead to the launch of Bitcoin in 2009—and in the few short years since it's gotten a lot of press. But most of that attention has been given to the fluctuations in value, rumors and analysis about a field so young that even its experts are playing a little bit of a guessing game. What seems to be missing is its history—to most people, one day it wasn't there, and the next day it was. So, today, we'll tackle that topic: How did digital currency get started?

The concept of electronic money transfers is not all that new; as long as the Internet's been around, there have been ways to exchange legal tender by electronic means. Credit card companies, banks, online vendors and even governments have taken advantage of the ease with which money can change hands on the web. So, “digital money” in its broadest sense goes back as far as the 1990s; however, this really isn't cryptocurrency as we understand it today.

In the late 1990s, some online gaming systems and websites decided to establish their own “currencies” that could be traded only within the confines of their games or web pages; World of Warcraft is an example, and even Facebook had what they called “credits” that could be used for on-site upgrades or transactions between their members (these were discontinued in 2011). These developments brought the concept a step closer, but we hadn't yet arrived at what we know as digital currency today, for two reasons: One, these exchanges were still based on traditional currency such as US dollars; two, their use was restricted to only one site.

So, the foundation was laid. Cryptocurrency was born in somewhat a spirit of rebellion; Satoshi Nakamoto's 2008 white paper (this link is in .pdf format) in 2008 laid the groundwork. It spelled out the concept of a currency that was fully independent from governments or corporations; it could be purchased with government-issued legal tender, but from that point forward it would be free from government and bank regulation, surcharges, and other factors that affect traditional legal tender. Its unique encryption methods would allow for anonymity between payer and payee, if they so wished. Digital currency would be its own new and revolutionary financial tool, and could be freely traded internationally.

And the rest, as they say, is history. Bitcoin was introduced in 2009, and it had free reign in the digital currency market for almost two-and-a-half years, when in 2011 Litecoin appeared. The next year, Peercoin (also known as PPCoin or Peer-to-Peer Coin) hit the market, and these three currencies dominate at the time of this writing. However, there are almost 30 different types of cryptocurrency active out there, with more undoubtedly waiting in the wings.

Even though the field of cryptocurrency is still in its infancy—or a toddler, at best—there are already a few tombstones dotting its path. Names like Junkcoin, Liquicoin and Fairbrix have come and gone, those types of currencies already defunct. It's clear in this industry that survival of the fittest is the number-one rule; if you can't get enthusiastic and energetic investor interest quickly, you're not gonna be around long. That's perhaps a somewhat depressing warning—but it also underlines just how vigorous and up-to-the-minute the industry is. We find that an exciting prospect.

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