A Brief History of Cryptocurrencies Before Bitcoin
When a programmer working under the pseudonym Satoshi Nakamoto published a paper titled Bitcoin: A peer-to-peer Electronic Cash System on 31 October 2008 and released its source code as open-source software on 3 January 2009, nobody had anticipated that bitcoin would turn out to be a global phenomenon that it is today. The first decentralized cryptocurrency was created.
However, the idea of digital currency was floating since the 1980s. David Chaum published a scientific paper, Blind Signatures for Untraceable Payments, in 1983, explaining the idea of anonymous cryptographic electronic money called ecash. He put his concept into practice through his corporation Digicash in 1995. The “blinding formula” developed by Chaum encrypted information passed between individuals, as such that it allowed electronic payments to become untraceable by the issuing bank, the government, or a third party.
The linking of money to the newly designed smartcards for petrol stations in the Netherlands during the late 1980s is considered to be one of the more earlier examples of electronic cash. This way, the truck drivers could access the station through this card instead of cash.
Walking in the footsteps of Digicash, numerous startups were trying to make efforts to create a perfect digital payment system. One such attempt was made by oncologist Douglas Jackson and lawyer Barry Downey with their idea of e-gold in 1996. This digital gold currency facilitated users with online credit in exchange for physical gold and other precious metals and provided them with the ability to make instant transfers of value to other e-gold accounts. Four years into its operation, e-gold became the first digital payment system used by more than one million people. It was the world’s first successful micropayment system. Subject to various criminal abuse and Jackson himself claiming to have been a part of illegal activities, e-gold was shut down by the US government.
In 1998, computer scientist Wei Dai proposed an "anonymous, distributed electronic cash system" known as B-money. The protocol that Dai suggested was the creation of an autonomous, private and secure electronic cash system, where a decentralized network would be used to transfer currency by using digital pseudonyms. While Dai was unsuccessful in creating such a system, his ideas were subsequently used by Satoshi, who contacted Dai in 2008 and he included references of b-money paper in his Bitcoin whitepaper.
Another important concept in the electronic currency system was proposed by computer scientist Nick Szabo in 2005. The protocol that he proposed was aimed at creating bits online with minimal dependence on trusted third parties and which could be "securely stored, transferred, and assayed with minimal trust." The decentralized proof-of-work function that Nick tried to employ resembles the bitcoin mining process in some ways. Also, the decentralized bit gold network aimed at the creation of secure transactions without the need for administration. Arguably considered the most successful digital currency prior to bitcoin, Hashcash utilized the proof-of-work system to limit email spam and denial-of-service attacks. Hashcash was proposed by cryptographer Adam Back in 1997 and he outlined the concept in his 2002 paper Hashcash — A Denial of Service Counter-Measure. Hashcash served as an inspiration for Satoshi as he wrote in his Bitcoin whitepaper the need to “use a proof-of-work system similar to Adam Back's Hashcash”.
The creation of Bitcoin opened the possibility for new cryptocurrencies to be created. These cryptocurrencies are changing the way people conduct financial transactions. And, it all began with the registration of the domain “bitcoin.org” on 18 April 2008.