Origins of Cryptocurrency | History Of Bitcoin by Advantage Blockchain

Cryptocurrencies were started with Bitcoin in 2008, but do you know some of the things that led to the creation of Cryptocurrencies? This video takes a look back in time to see where Cryptocurrency’s of today got their roots.

Encryption

Encryption can be dated back thousands of years BC to encrypted hieroglyphics in Egyptian Temples or even 100 BC when Julius Caesar used the “shift by 3 cipher” to win military battles. However, Encryption became a real area of study only about 100 years ago. The Germans had an encryption breakthrough in the mid 1900’s called The Enigma, which wasn’t deciphered until WW2. Then, in the 1980’s, groups of people called “cypherpunks” were able to interact using the world wide web enabling discussion and collaboration. Not long after, there were encryption techniques for all sorts of web interaction.

Encryption today is mainly used to protect private user/consumer data which is stored in databases or cloud storage, compliance operations, applications on the web, and payment systems.

Cryptography in Money

The combination of cryptography and money began around the same time as the creations of bit gold, B-Money, and electronic cash. Cryptocurrency uses monetary incentives and encryption techniques to create a digital cash system. Cryptocurrencies operate without using central banks, which makes them less prone to human manipulation.

A computer scientist in 1998, Nick Szabo, created Bit Gold which combined cryptographic puzzle solving, public key cryptography, and a BFT mechanism. His only issue was that people could “double spend”, or spend money they don’t have, which plagued the internet especially within the music sharing industry. Some believe Szabo was the one who created Bitcoin given his prior background and knowledge.

Bitcoin

Bitcoin’s white paper was published in late 2008 by pseudonymous Satoshi Nakamoto. Bitcoin combines SHA-256 cryptographic hash functions with a Proof of Work consensus mechanism and a capped supply schedule.

Proof of Work is what drives miners to “mine” bitcoin. The act of mining bitcoin is a process of turning electricity into block rewards (rewards paid out in BTC for verifying transactions). The miner who solves the next block’s hashing algorithm secures the block and receives a reward in BTC for doing so. Bitcoin uses SHA-256 as its Proof of Work consensus algorithm. There are numerous consensus algorithm techniques such as Proof of Stake, Proof of Importance, Proof of Authority, and so on.

Many believe Bitcoin fits into one of two use cases, digital gold or digital cash. There are arguments to both sides such as bitcoin being an exceptional store of value due to a comparison to fiat currencies, its deflationary in nature, and being uncorrelated with any other asset class. There are also financial products such as Grayscale’s Investment Trusts or CME’s cash settled bitcoin futures. Bitcoin as a currency can be argued for and against because its very portable but only certain people know how to interact with the network, its divisible but costly to spend small amounts, and its acceptability is growing but isn’t accepted everywhere.

Projects such as the Lightning Network, a layer 2 scaling project, and US Regulated ETF’s can help Bitcoin can become both Digital Cash and Digital Gold. Back in 2010 bitcoin was used as a form of payment when Laszlo Hanyecz sent 10,000 BTC to Jercos for an order of 2 Papa John’s pizzas. That was great at the time but now those same two pizzas would be worth 10’s of millions of dollars in today’s bitcoin value. As an investment bitcoin is used all the time. Back in 2015, 500,000 bitcoin were sent from one address to another, which would have been a much more strenuous process if using cash or gold.

Bitcoin’s Supply Schedule is one of its most highly regarding principles. The supply is capped at 21 million bitcoin which will be mined over the course of the next 100+ years with every 4 years a halvening in the block reward. To date, there has been more than 18 million bitcoin mined.

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