History Of Cryptocurrency. Part II: Decades Before Bitcoin
From the previous article, you have learned a brief history of cryptocurrency predecessors — first digital money and electronic payment systems. Today we'll talk about the earliest stages of the cryptocurrency market development and attempts to create crypto money long before Bitcoin was invented. Even though these projects have never been implemented, they play an important role in the history of cryptocurrency. Their creators are still considered to be involved in Bitcoin development and blockchain revolution: the personality of Satoshi Nakamoto is unknown, but whoever this person is, he or she is clearly good at cryptography.
E-Gold was a digital currency and payment system for making instant money transfers. E-gold money existed only in electronic form and was backed with gold. Its value was expressed in grams of gold and other precious metals. The system was founded by two Americans in 1996 and existed until 2009, when all e-gold transfers were ceased due to legislative issues.
By 2006, the popularity of E-Gold reached the peak — the annual amount of funds transferred in the system exceeded $2 billion. This amount seems insignificant comparing with the current cryptocurrency market capitalization, but at that time it was a high indicator of cash flow. In addition, several unique ideas were implemented with the E-Gold creation:
- It was the first successful micropayment system. Users could transfer amounts equivalent to 0.0001 grams of gold.
- The idea of instant transfers implemented in E-Gold formed the basis for the development of smart contracts in a p2p network.
- Data on the status of accounts and transactions in the E-Gold system was available online for 24 hours. This allowed tracking electronic gold usage statistics.
At one time, E-Gold was a technology pioneer among digital currencies, which allowed it to occupy an important place in the history of cryptocurrency. The anonymity and the lack of control attracted intruders, and the increasing number of fraud cases made E-Gold leave the market.
B-Money is the first decentralized electronic cash system. The idea was presented in 1998 by Wei Dai, a well-known cryptographer and computer engineer. The published project document, white paper, consisted of two protocols:
- The first one described the Proof-of-Work algorithm as a concept of creating a currency that can be transferred through anonymous transactions after the network participants reach consensus.
- The second one contained two categories of users: participants who send and verify transactions and participants-“servers” who have control functions.
As you can see, some of these ideas were further implemented in Bitcoin. The B-Money system, however, remained only in the form of documentation and was never supported. In his white paper, Satoshi Nakamoto indicated that he used the ideas of Wei Dai. At the same time, the B-Money developer himself is sure that Satoshi came up with his idea on his own, and found out about B-Money much later.
Bit Gold is another predecessor of Bitcoin, mentioned in Nakamoto’s white paper. Its author is Nick Szabo. In 1998, Szabo proposed the idea to create a decentralized payment system and “digital gold” — cryptocurrency that can be transferred without intermediaries. The described concept had many things to do with bitcoin mining that was realized later. In Bit Gold, the Proof-of-Work algorithm was also used.
Like B-Money, Nick Szabo's project wasn't implemented, but served as an inspiration for future developments. Bitcoin, introduced ten years later, marked the beginning of a new era of cryptocurrency and blockchain revolution. It’s a technology that changes the world every day, even if you don't know it.