The history of first cryptocurrencies before Bitcoin
Bitcoin has dominated the cryptocurrency space for years. But was it the first digital currency?
Bitcoin might be considered the father of cryptocurrencies, and the starting point for everything that came out of its domino effect, but digital money and/or electronic payment systems are not a totally new idea only introduced by the mysterious Satoshi Nakamoto as many would believe.
Bitcoin is not the first project that promotes the idea of a fundamentally new financial system. Before its creation, such a concept was tried to be embodied in ecash, B-money, Bit Gold and other pioneer developments.
Their creators — people with extraordinary financial thinking have formed a new market and prepared the world for the digital economy. Looking at the crypto market today, we can see that thanks to the effectiveness of blockchain technology, digital money is becoming more and more popular around the world.
Virtual money at gas station
Virtual money is not recognized as a legal means of payment in many countries. There are no national governments behind it. Instead, the creators of virtual currencies are platform developers. Today, there are many options for issuing new virtual money. Before cryptocurrencies, digital assets were represented as bonuses. All these early virtual money had a common problem: it was too weakly protected from attacks by hackers and scammers. In addition, the lack of any kind of material support caused many companies to question the true value of such currencies.
One of the first attempts to create digital money was made in the Netherlands in the late 1980s. Gas station owners were tired of being robbed all the time. The problem was so serious that someone thought it would be safer to keep the money on smart cards. The owners of freight companies could put money on these cards and give it to their drivers. And drivers would pay for gas with these cards.
Another example of using virtual money before the emergence of cryptocurrencies is the Flooz e-currency. Flooz.com released this virtual money in 1998 as part of its marketing campaign. The cost of 1 Flooz was $1. Users received Flooz for purchases made on Flooz.com. They could spend it to buy other products on this site, as well as pay them as bonus points in many other online stores that participated in this project.
This concept was far ahead of its time, and — despite the multimillion-dollar advertising campaign — Flooz never gained the popularity it needed to keep the project afloat. In addition, Flooz.com suffered heavy losses after it turned out that a group of Russian and Philippine hackers made purchases on this platform using stolen credit cards. This company no longer exists now, but the ideas that inspired the creators of Flooz, were implemented in modern cryptocurrencies.
In 1981, an American cryptographer named David Chaum published a legendary article called “Traceable E-mail, Reverse Addresses and Digital Aliases”. In this article, Chowm described an anonymous digital payment system. In 1989, Chaum created a functioning digital currency DigiCash based on his protocol. It was a revolutionary technology that gave the world the concept of “blind signatures”. Blind signatures conceal the content of a message and use a combination of public and private passwords to confirm a transaction. Today, this concept is used in well-known cryptocurrencies in the form of public keys.
10 years after DigiCash appeared on the market, a developer named Wei Dai made a sensation in the crypto community with his article “B-money: anonymous distributed electronic payment system”. This virtual currency was based on the use of a decentralized network, where members would perform certain work and contracts would be executed automatically. Although this virtual currency was technically very much inferior to blockchain technology, and the project had never been implemented, it had a huge impact on the future cryptocurrency market.
Long-time cryptologist Nick Sabo developed the Proof-of-Work protocol for his Bit Gold concept, which is now used by various cryptocurrencies, including Bitcoin. Bit Gold helped to create an image of a decentralized system without a third party responsible for transaction confirmation. Satoshi Nakamoto has borrowed a lot of valuable ideas from Sabo. In fact, he took so much from the Bit Gold concept that many people believed that Nick Szabo was Satoshi Nakamoto. Szabo had to publicly refute those rumours.
Many crypto enthusiasts believe that the immediate predecessor of bitcoin is HashCash. The concept of HashCash was introduced in 1997 by cryptographer Adam Beck. He suggested using the Proof-of-Work protocol to confirm transactions. Prior to its use in digital currencies, Proof-of-Work was used to reduce spam. This idea had such an impact on Nakamoto that he quotes Beck in his White Paper on Bitcoin. However, HashCash failed due to scalability issues caused by network congestion.
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