Cryptocurrency: History of electronic money

A cryptocurrency is a digital asset designed to work as a medium of exchange that uses strong cryptography to secure financial transactions, control the creation of additional units, and verify the transfer of assets.

Cryptocurrency has evolved ever since the release of cryptographic protocols into the public domain in the 1970’s. A series of research and development in cryptographic protocols, some thought experiments, and after some beta tests by cypherpunks and cryptographers it ultimately culminated in the ultimate release of Bitcoin in 2009.

To briefly outline the most significant events in chronological order

Enter Crypto-Anarchy

Ecash was conceived by David Chaum as an anonymous cryptographic electronic cash system in 1983. It was realized through his corporation Digicash and used as micropayment system at one US bank from 1995 to 1998. 

Known as the founder of the Crypto-Anarchist movement; Timothy C. May hinted at the need for digital money in his 1992 Crypto-Anarchist-Manifesto in which he explicitly stated that “The technology for this revolution–and it surely will be both a social and economic revolution–has existed in theory for the past decade.” 

These cypherpunks along with Cryptographers most likely conceptualized this so called Crypto-Digital-Money (From the Greek kruptós, meaning “hidden” or “secret”) because of a need to “protect privacy, political freedom, and economic freedom”, in a world where Computer technology is on the verge of providing the ability for individuals and groups to communicate and interact with each other in a totally anonymous manner. Two persons may exchange messages, conduct business, and negotiate electronic contracts without ever knowing the true name, or legal identity, of the other2.

Inspired by Timothy C. May’s Crypto Anarchy, the computer scientist known as Wei Dai expanded on the notion that with “Crypto Anarchy the government is not temporarily destroyed but permanently forbidden and permanently unnecessary,” and where “A community is defined by the cooperation of its participants, and efficient cooperation requires a medium of exchange (money) and a way to enforce contracts.” This led Dai to the conceptualization of how such a monetary system could be implemented in the idea titled “b-Money”. Nick Szabo proposed a solution to decentralize a digital currency through proof-of-work (POW) mechanisms as he was trying to “mimic as closely as possible in cyberspace the security and trust characteristics of gold, and chief among those is that it doesn’t depend on a trusted central authority.” As a side note, Hal Finney in 2004 proposed a currency based on reusable proof-of-work (RPOW). Although the Bitcoin POW relied more on Nick Szabo’s solution, Hal Finney was the first ever recipient of Bitcoin in January 2009.

Further Reading