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History Of Cryptocurrency. Part I: Origin Of Digital Currencies

20:30 18/01/2019
History Of Cryptocurrency

Although bitcoin is considered the first cryptocurrency, this is only half true. It’s the first released cryptocurrency, which was widely distributed and opened the blockchain revolution and the era of decentralized currencies. But the history of cryptocurrency began long before the invention of blockchain technology by Satoshi Nakamoto. On January 3, Bitcoin celebrated its first anniversary — 10 years ago the first block was mined. Now it's time to recollect what framework behind the establishment of Bitcoin was.

 

At the root of digital currency creation is the desire to get rid of cash as it became inconvenient. Although, there was a time when cash was a real discovery that terminated barter. Of course, today we won't talk about checks and bonds, but we'll focus on cryptographic and electronic past of modern cryptocurrencies, without which the blockchain revolution would be impossible..

 

Smart cards and POS terminals

 

A smart card is a plastic card with a microprocessor. It was patented in 1977 by Michel Ugon, an engineer at the Honeywell Bull company. It looks like a regular bank card with a chip and is considered its ancestor. MasterCard or Visa cards are smart cards that comply with the international EVM standard, which determines how it interacts with point-of-sale terminals. By the way, this is not the only kind of smart card known, but in this form it matters for the history of cryptocurrency.

Smart Cards

The first wave of popularity came to smart cards in the 1980s. In France, they were widely used to pay for pay-phone calls. In the Netherlands, they were used at gas stations mainly for security reasons. Stations worked 24 hours per day and were often robbed at nights. Smart cards solved this problem: they were used as e-vouchers with programmable features to pay for gas. POS terminals appeared in 1993, and their further integration with payment systems showed the advantages and prospects of electronic money.

 

Digital money and crypto security

 

Along with the introduction and popularization of smart cards, another novelty was presented to the world — DigiCash, or digital cash. This was the first electronic money based on cryptography. DigiCash inventor, American cryptographer David Chaum, worked on a blind signature that encrypted data. He founded his company in 1989, and his digital cash was the first-ever cryptography-secured money with anonymous online internet-transactions.

Digital Cash

Unfortunately, at that time, Chaum’s invention didn't get widespread, partly because of conflicts with financial regulators, partly because the Internet was not so popular that days. The company went bankrupt, but the idea of secured and anonymous transactions remained and was later implemented more than once.

 

Internet payment systems

 

The next round of cryptocurrency history is the emergence of electronic payment systems. No matter how short the success of DigiCash was, it showed the need for electronic money. The free and profitable niche was taken by PayPal, founded in 1998, which allowed users to exchange money just by making money transfers. In DigiCash, a receiving party had to be a merchant, a service provider. This caused problems with regulators and customers' dissatisfaction.

PayPal Logo

Later, PayPal had competitors — Skrill, WebMoney, QIWI and other electronic payment systems. However, none of them managed to become just as successful. Anyway, the attempts to develop secure and anonymous crypto money systems, that are very close to Bitcoin, are of much greater interest for us. These are BitMoney, BitGold, and HashCash — they will be the topic of our next article.

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