The History of Cryptocurrency
Ever wondered how cryptocurrency started? If Satoshi Nakamoto and Bitcoin come to mind, well, you’re wrong. Bitcoin may have been the first decentralized digital currency but it was before the ‘70s that research into applying cryptography to secure payment methods began.Since then, academic research has fueled the industry, leading to a cryptocurrency market valued at over $600 Billion.
Martin Hellman, an A.M. Turing Award Winner from Stanford University, is known for using asymmetric public-key cryptography in digital signatures. His foray into cryptography began in 1968 when he worked at IBM Research. In an interview, Hellman said, “Around that time, I could see the day potentially when you might buy a loaf of bread with an electronic funds transfer. I couldn’t say debit card because we didn’t have it; it was an EFT, which were these multimillion-dollar transactions.
American cryptographer Dr. Bailey Whitfeld Diffe of Stanford University, on the other hand, offered recommendations on how to secure data transmission over public channels in his 1976 paper, New Directions in Cryptography.
The 1980s heralded the concept of digital money with the research of Dr. David Chaum. He wrote about using a personal “card computer” for all financial transactions in his 1985 paper, Security without Identification. Chaum developed his paper into what was then known as digital cash and later founded the now-defunct electronic cash firm DigiCash.
The early ‘90s brought along with it the cypherpunks, who advocated having an anonymous system that protects privacy and security.
Some well-known cypherpunks include Julian Assange (the infamous WikiLeaks founder), Nick Szabo (inventor of bitgold) and Bram Cohen (creator of Bittorrent).
The cypherpunk manifesto, written in 1993, was a foretelling of what was to come. Eric Hughes writes, “Cryptography will ineluctably spread over the whole globe, and with it the anonymous transactions systems that it makes possible.”
CC Image courtesy of Travis Goodspeed on Flickr
This decade also marked the US government’s efforts to control the keys to encrypted communications. The Clipper Chip was introduced to enable private parties and businesses to communicate via a cryptographically secure phone line but allowed the government access to monitoring conversations because the US government held a copy of each chip’s encryption mechanism in a “key escrow. Much debate followed the introduction of the Clipper Chip, with the US Government pushing for its adoption which was countered by a growing public coalition of privacy advocated opposing the meddling of the government in private matters. This debate became known as the Crypto Wars and was ended only when Matt Blaze, then a researcher at Bell Laboratories, discovered a flaw in the chip: a brute force attack disabled the backdoor whilst still allowing its use as an encryption device.
Cryptographer Adam Back created what would be Bitcoin’s mining function, Hashcash, which was then known as an email anti-spam tool in 1997. Hashcash pioneered Proof of Work and ensured that spam email would not be economically viable to send because each email required a certain amount of CPU time expenditure to calculate the Hashcash stamp that spammers would not be willing to pay.
Wei Dai, an open source software developer and part of cypherpunk, proposed B-money, an anonymous and distributed e-cash platform. B-money works by transferring money and broadcasting it to all participants who keep accounts of others in a sort of public ledger. Sounds familiar? That’s because Satoshi Nakamoto referenced B-money when he developed Bitcoin.
Cryptocurrencies were explored by cryptographer and former cypherpunk member Nick Szabo’s 1998 research on what he then called “bit gold.” Sensing the instability of markets that favored precious metals and collectibles as well as being impacted by inflationary and hyperinflationary factors, he thought of revolutionizing the industry with the concept of a decentralized unforgeable proof of work chains (proof of work is expensive and tedious data to create but easy to verify).
So how come Nick Szabo’s not in the limelight then? Well, Bit Gold never really caught on.
Szabo’s proposal of Bit Gold and its similarities with Bitcoin lead to people speculating that Szabo was Satosh Nakamoto – a rumor he vehemently denies. In a 2015 interview with The New York Times, Szabo said, “I’m not Satoshi, and I’m not a college professor. In fact, I never was a college professor. I mean, the reason people tag me is because you can go through secure property titles and Bit Gold — there are so many parallels between that and Bitcoin that you can’t find anywhere else.”
2004 saw the first reusable proof of work system through the work of Hal Finney, a computer scientist from PGP Corporation. Finney was known to have transacted the first Bitcoin with Satoshi Nakamoto. Hal Finney implemented a variant of Szabo’s Bit Gold with his RPOW (Reusable Proofs of Work).
Nick Szabo wrote in 2005: “it would be very nice if there were a protocol whereby unforgeable costly bits could be created online with minimal dependence on trusted third parties, and then securely stored, transferred, and assayed with similar minimal trust.”
Enter Satoshi Nakamoto, whose identity remains anonymous as of this writing. In 2008 , he published the bitcoin whitepaper, Bitcoin: A Peer-to-Peer Electronic Cash System on a cryptography mailing list. Within a year, Bitcoin was distributed to the public through mining and various transactions were being recorded on the blockchain.
In 2010, an anonymous Bitcoin owner famously sold 10,000 units for two pizzas, making it the first public trading of the digital money. Imagine how much those Bitcoins would be worth today!
By 2011, other cryptocurrencies emerged, signaling a new decentralized era in the cryptocurrency market and with each passing year, cryptocurrency becomes more ubiquitous and easily accessible.
All the best from your ico-check team.