By Nikhil 13 4 minute read
Table of Contents
Several
other projects ultimately preceded the birth of Bitcoin, but it took more than
20 years for it to develop into the well-known Crypto it is today.
Interesting,
isn’t it? In this blog, let’s find out more about this.
Before
moving ahead, let’s see what Crypto is.
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About Crypto
A
digital asset called Crypto is created and traded through the use of
cryptography. It differs from fiat currency like metal coins or paper currency
since it is made using complex computer codes.
·
Unlike traditional money, it is basically intangible and cannot
literally be handled or stored.
·
It’s a virtual currency, and a different type of payment system is
developed with an encryption algorithm.
·
It is governed by a decentralized network of data ledgers and
blockchains rather than a single body.
To
learn more about the advantages and disadvantages of Crypto and its two sides,
click here.
Now,
let’s talk about our 1st Crypto, e-Cash.
eCash
– The OG of Crypto
In
1983, David Chaum, an American cryptographer, proposed a secure and
confidential way to transfer electronic cash. His idea was to use a token
currency that could be exchanged between individuals with utmost privacy, which
shares similarities with modern-day Cryptos.
To
encrypt information transferred between people, Chaum developed a technique
called the “blinding formula.” This formula enabled the safe transfer of
“Blinded Cash” between individuals, with a unique signature of authenticity and
the ability to modify the currency without any traceability.
Years
later, Chaum founded DigiCash to bring his concept into reality. The company
developed the first-ever cryptographic electronic currency, known as eCash.
Although DigiCash went bankrupt in 1998, the company’s ideas, formulas, and
encryption tools played a vital role in the development of digital currencies
that followed.
Other
known Cryptos
E-Gold
Dr.
Douglas Jackson and Barry Downey developed a digital currency in 1996 that was
linked to the ownership of gold. The users of a website could use this
electronic money to transfer gold ownership between one another. However, the
currency unintentionally became a tool for money launderers and others who
wished to remain anonymous in their illicit activities.
Bit Gold
Nick
Szabo is known as one of the pioneers of Crypto and is credited with creating
the concepts that eventually led to the development of Bitcoin. His
concept, called Bit Gold, employed many of the same blockchain techniques, such
as peer-to-peer networking, mining, ledger or registry, and cryptography.
Bit
Gold’s most groundbreaking aspect was its shift from centralized control.
Szabo’s objective was to create a currency that did not rely on centralized
authorities and currency distributors. Bit Gold aimed to mimic the properties
of physical gold, enabling users to eliminate intermediaries. Though
unsuccessful, the Bit Gold concept inspired the creation of digital currencies
that emerged a decade or more after its inception.
B-Money
Wei
Dai, a developer, proposed a distributed electronic cash system in 1998 called
B-money, which aimed to provide anonymity. Dai presented two protocols, one of
which required a synchronous and unjammable broadcast channel. However, B-money
was not successful and had several differences compared to Bitcoin.
Nevertheless, it was an attempt at developing an anonymous, private, and secure
electronic cash system.
In the
B-money system, users would transfer currency through a decentralized network
using digital pseudonyms. The system also included a method of in-network
contract enforcement without the involvement of a third party. Despite the fact
that Wei Dai published a whitepaper on B-money, the system failed to gain
enough attention for a successful launch.
Hashcash
Hashcash
was a successful digital currency developed in the mid-1990s, before the advent
of Bitcoin. It had
multiple uses, including reducing email spam and preventing DDoS attacks.
Hashcash’s
proof-of-work algorithm helped generate and distribute new coins, similar to
many modern-day Cryptos. Hashcash encountered many of the same issues that
contemporary Cryptos do today, such as the need for increased processing power.
As a result, it gradually became less effective.
Despite
its decline, Hashcash garnered considerable interest during its peak. Many of
the features of the Hashcash system were eventually incorporated into the
development of Bitcoin.
Bottom line
Gradually,
the rise and failure of the Cryptos mentioned above led to the launch of
Bitcoin. Bitcoin may not be the 1st Crypto to be launched, but it is definitely
the oldest surviving Crypto.
Bitcoin
addresses various problems that traditional currencies face. It enables
peer-to-peer (P2P) transactions without the need for a trusted third party.
Moreover, Bitcoin tackles several problems by utilizing a Proof-of-Work
mechanism and storing its data on a decentralized ledger, allowing all network
members to agree on a single ledger state.