It’s widely believed within the crypto community that Bitcoin (BTC) was the very first cryptocurrency, but what if I told you that this isn’t technically true?
To truly see the birth of cryptocurrency as we know it today, we need to look back at the 1990s. With the rise of the internet came ideas and concepts that many crypto users take for granted nowadays. It was also a period that saw intense legal battles that allowed cryptocurrency to exist in the first place.
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This radical decade was revolutionary in ushering crypto and digital assets into the modern age and inspiring countless future developers to push forward with their crypto-ambitions.
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Why the 1990s Were so Important for Cryptocurrency
The emergence of the internet would eventually lead to personal home computers becoming the latest tech-craze throughout the 1990s.
The accessibility of the Internet prompted many tech enthusiasts and cryptographers to start thinking about how this digital network could be used to transfer digital currency safely and, most of all, privately.
This inevitably began sparking radical ideas that have since become commonplace in today’s crypto ecosystem.
A few examples include decentralization, which involves passing money without relying on a centralized exchange like a central bank or financial institution. Other examples are the importance of encrypting transactions to ensure privacy and a proof-of-work system to verify the reliability of transactions.
Meanwhile, a “crypto war” was raging behind the scenes between governmental agencies and the cryptography community concerning whether these ideas were legal and whether they would be used in good faith.
Needless to say, this era was all about planting the crypto seeds so that they could flourish in the future, but when exactly did this all begin?
David Chaum: The Crypto Firestarter
Several notable programmers at this time helped establish cryptocurrency at the forefront, but David Chaum was the most important and far ahead of the curve.
In 1982, Chaum wrote a doctoral dissertation titled “Computer Systems Established, Maintained, and Trusted by Mutually Suspicious Groups.” In the paper, he sets out his rough ideas about a form of “electronic cash” that could be passed between two individuals within what he coined as a “Blockchain.”
A year later, Chaum dives deeper into these ideas with his “Blind Signatures for Untraceable Payments” article. The primary focus here was on his “blinding formula” which centered around encryption of personal information and transactions, keeping them hidden from onlookers.
After several years of pondering whether this was even possible with current computing power, Chaum successfully put his dreams into practice with the launch of Digicash in 1990. This was officially the first crypto company to possess the first crypto asset, eCash.
After heavy legal pressure and lack of interaction, Digicash filed for bankruptcy in 1998, but its legacy would live on for several more decades through the ideas that Chaum had expressed to the public.
Other Important ’90s Crypto Projects
David Chaum wasn’t the only one theorizing what cryptocurrency could look like. In fact, there would go on to be a handful of crypto projects throughout the 90s that similarly introduced concepts that we are all very familiar with today:
- Hashcash: Created by Adam Back, it was developed as an anti-spam plugin for emails that would use a proof-of-work algorithm widely used in the crypto ecosystem.
- Liberty Reserve: This service allows money to be transferred using only name, email, and date of birth. The sender converts fiat currency, such as the US dollar, into a digital equivalent, which is then restored to fiat upon arrival.
- Bit Gold: A digital imitation of gold that emphasizes decentralized security and trust by avoiding reliance on intermediaries and a central authority.
The Crypto Wars
The concept of cryptocurrency may have been a thrilling experiment for the developers, but the American government didn’t exactly look upon it fondly at the time.
Considering that this was emerging alongside the chaotic dot-com bubble which was spiraling the capital market out of control, it makes sense why cryptocurrency was treated with so much caution.
The Central Issue
Throughout the 1990s, there was a legal battle that has since been called the “Crypto War.” At the center of the dispute was the legality of public key cryptography, which, in simple terms, refers to making digital transactions with a public key.
Since this was not regulated by the government like fiat currency, the United States Security Agency (NSA) feared that this kind of cryptography could be used as a weapon or for devious acts like money laundering. As a result, they demanded a “backdoor” into any platforms that used the technology so that the NSA could monitor for criminal activity.
The truth is that cracking into such systems was proving to be far too difficult, and since the cryptographers refused to budge, the NSA instead took matters into its own hands.
The Zimmermann Investigation
A prime example of this occurred in 1991, when Phil Zimmermann, the developer of an encrypted messaging service known as Pretty Good Privacy, was subject to a three-year investigation.
The U.S. Justice Department believed that Zimmermann’s encrypted platform was being used for illegal activities. As a result, they decided to clamp down on his operation to serve as a warning to anyone else trying to hide their transactions from governmental vision.
Coding as a Form of Speech
By the mid-90s, the Crypto War was reaching a boiling point. As more economists and freedom thinkers joined the front lines, though, it became clear that the authorities were struggling to demonize the freedom that cryptography and coding provided.
As a way to counter this, many cryptographers began citing the First Amendment, claiming that coding, in general, is simply a form of expressive speech. Therefore, trying to erase it would be seen as immoral.
Some even went as far as to mock the NSA for their hardline stance, such as getting tattoos of code on their body or printing it on t-shirts in an act of defiance.
Finally, in 1996, asymmetric cryptography was made legal and became accepted as a legitimate form of free speech. That same year, all criminal charges held against Phil Zimmerman were dropped.
What Took Crypto So Long to Re-Emerge?
So after such a heated legal battle, why did cryptocurrency seemingly fade into obscurity until Bitcoin’s arrival in 2008?
There isn’t one definitive reason, but developers and crypto enthusiasts have made some compelling arguments in recent years about why this was the case. For example, it could be that many people simply weren’t interested in accessing an alternative form of currency until the 2008 financial crisis shook the US financial system to its core.
Therefore, the Bitcoin: A Peer-to-Peer Electronic Cash System white paper, written by Satoshi Nakamoto that same year, couldn’t have come at a more opportune time.
Another argument is that there may have been a waiting period until a new generation came along who had already grown up with computers. This tech-savvy demographic could better understand the possibilities and future potential of crypto once it came onto the scene.
It’s also important to consider the technical side of things. Systems like proof-of-work and blockchains had already started being formed throughout the 1990s, but the consensus mechanisms and algorithms to hold everything together weren’t fully developed and practical until at least the early 2000s.
Bitcoin and Beyond
The first time an official Bitcoin transaction would take place wasn’t until 2010, when Laszlo Hanyecz spent BTC on two pizzas. It may not have been the most exciting purchase, but most importantly, it proved that cryptocurrency finally worked in practicality.
Bitcoin’s unprecedented growth and success inspired many other alternative cryptocurrencies, known as altcoins, to pop up from the groundwork which all built upon one another.
For example, Ethereum (ETH) would be the first to introduce smart contract functionality and NFTs, which have since become directly tied to crypto exchanges and DeFi apps. Ripple (XRP), on the other hand, specializes in quick and cheap transactions, including international payments, which expands upon the vision set out by Liberty Reserve back in the 90s.
The use cases for cryptocurrency have also expanded greatly since its origins. For example, cryptocurrency can now be used for in-store purchases at select stores, alongside being compatible with many video games to purchase in-game items and weapons. NFTs were also born from the inspiration of cryptocurrency, and have become a popular way to own digitized goods.
Additionally, the proof-of-stake model, which is an evolution of proof-of-work, allows users to stake tokens on their preferred blockchain network to help keep it safe and secure.
Gaining access to the crypto market is also now easier than ever, especially through ETFs, which enable non-crypto investors to interact with the crypto market and monitor its trading volume without needing any prior experience.
On the Flipside
- At the end of the day, the early 90s crypto projects were deemed to be failures in practical terms. None of them were ever classed as being official, and though they are still important in establishing what crypto could be and how it could work, Bitcoin was the first crypto to prove its longevity.
Why This Matters
Cryptocurrency and blockchain technology have come a very long way, to the point where many of the concepts that were laid out in previous decades have now been fully realized. Not only that, but we now live in a world where we can freely buy, trade, and invest in crypto without having a target on our backs for being “immoral” or “dangerous.”
All of this is made possible largely in part by the formative decade that was the 1990s and the many passionate developers who helped to make it a reality for future generations to use.
FAQs
With a market capitalization of over 1 trillion dollars, Bitcoin still reigns as the largest cryptocurrency on the crypto market today. Despite this, Bitcoin’s price fluctuates, resulting in much volatility.
In Bitcoin’s entire history, the blockchain has never been exposed by hackers. Part of the reason for this is that the Bitcoin blockchain is open-source, meaning anyone can test and verify its security to ensure it’s strong enough to protect its users.
A crypto exchange is a business that allows its users to exchange digital currencies. These exchanges often allow investors to manage and interact with a selection of different tokens. For example, the popular exchange Coinbase supports tokens including Ether, Bitcoin, Litecoin, and a selection of stablecoins.