These days, cryptocurrency appears to be ubiquitous. With names like Musk or Buterin appearing in the headlines daily, almost like the «regular» celebrities, people are increasingly more inclined to perceive cryptocurrency as an essential part of global finance as if it has always been there. In reality, for most of its history blockchain was rather a difficult-to-enter sphere for nerds and dedicated enthusiasts.
With the trend for decentralization of everything marching across the planet, it is crucial to understand where it started and how it has developed. Without this knowledge, it is impossible to stay ahead of the curve and be truly included in the evolution of modern finance. After all, without this long journey, a platform like KvaPay with all its cryptocurrency tools would never emerge. So, let’s start with KvaPay’s brief history of cryptocurrencies.
What Is Cryptocurrency?
Cryptocurrency is money. It serves the same three functions as the traditional (fiat) funds. You can store your wealth with crypto, exchange it with other people, and use it as a unit of account. Some might object that cryptocurrency is way too volatile and not backed up with anything ‘real.’ The first objection has indisputable grounds since Bitcoin has plummeted numerous times during its crises. The argument about cryptocurrencies ‘not being backed up’ can be neglected, since fiat currencies are currently not backed by gold or any other commodity.
The technology behind cryptocurrency is fairly easy to understand on a level enough for a regular user. Crypto exists in a digital form only; no coins or banknotes are issued. The transactions happen through blockchain technology, which operates through decentralized computer networks.
Let’s find out about blockchain. Chains and blocks are involved somehow. We can look at it through a notebook analogy. Each page of a notebook is a block, and the block consists of transaction records. Once the page is full, it is linked to the previous page, thus creating a chain of blocks. All of those blocks are verified by the decentralized system of computers and then stored within the blockchain, ensuring that all transactions match. This transparency combined with the need for confirmation from multiple sources makes blockchain exceptionally robust to fraud and hacking.
Early Concepts and Precursors
The idea to create a digital currency traces back long before the creation of Bitcoin. In the 1980s and 1990s, several innovative minds were exploring the possibility of using the newly emerged Internet and cryptography to develop a secure and efficient alternative to traditional banking systems.
Probably the most notable attempt came from David Chaum, an American cryptographer. Chaum created DigiCash in 1989 to introduce the concept of secure and private digital money. The system used a specifically developed cryptographic protocol called blind signatures, which allowed users to spend money anonymously after withdrawing it from a bank. The DigiCash digital currency, known as eCash, could be stored on users’ computers for online transactions.
This innovative approach to money faced some challenges. The company failed to gain wide adoption due to the modest scale of the Internet infrastructure at that time. Although the project was a failure from the commercial point of view, it was an essential foundation for the next generations of digital financial solutions and Chaum’s research.
The Birth of Bitcoin
The cryptocurrency market as we know it today began in October 2008, when Satoshi Nakamoto, the creator of Bitcoin, published the Bitcoin whitepaper. The title was «Bitcoin: A Peer-to-Peer Electronic Cash System» explaining the principles of the technology allowing for transparent and decentralized exchange unseen before. Then, on 3 January 2009, Satoshi mined the first block of Bitcoin, also known as «the genesis block». This date is considered the date of creation of Bitcoin.
Being the first true decentralized currency, Bitcoin allows people to send and receive payments without a bank. It also has a notable feature — its scarcity. There will ever be no more than 21 million Bitcoins, meaning that the mining of Bitcoin will stop. It is predicted to happen in the year 2140. After the last Bitcoin is mined, the miners will receive only transaction fees, instead of newly issued Bitcoins. Being finite, Bitcoin is often compared to the «real world» commodities. Gold or crude oil rises in price, as humanity has less and less of them.
Let’s remember what we were saying about the functions of money and crypto’s poor ability to store wealth due to its volatility. In the case of Bitcoin, volatility may seem formidable in smaller time frames, but if you look at the global trend, you see it right away.
The all-time high of BTC/USD is 73,000$. While it may suffer bearish times, it has been proven so far to rebound every time reaching record highs. Keep this in mind when making your long-term investing decisions!
First Transactions
The first Bitcoin transaction to be ever recorded occurred when Satoshi Nakamoto sent 10 Bitcoins to Hal Finney, a programmer and early supporter of Bitcoin. These events, together with the genesis block, marked the beginning of Bitcoin’s history as a financial phenomenon.
The first purchase made with Bitcoin is also remembered and celebrated as a historic event. On May 22, 2010, Laszlo Hanyecz, a resident of Florida, paid 10,000 BTC for two Papa Johns pizzas. As of June 24, those two pizzas would cost around $630 million.
Who is Satoshi Nakamoto?
The true person behind the Satoshi Nakamoto pseudonym remains unknown to this day. The addresses they used for mining the first blocks and sending money to the mentioned Hal Finney have been dormant and untouched ever since those transactions were made. Only some Bitcoin users send money to these addresses as a tribute to the genius.
The Rise of Altcoins
Shortly after Bitcoin, other cryptocurrencies started to emerge. The generic term for non-Bitcoin cryptocurrencies is altcoins from «alternative».
The first altcoin Namecoin was based on Bitcoin’s code limiting the number of mined coins to 21 million. However, it didn’t grow significantly.
Litecoin
Litecoin is one of the first successful altcoins on the market. Created by an ex-Google engineer Charles Lee in 2011, it was adopted from Bitcoin’s code with some modifications. Like Bitcoin, Litecoin is decentralized and open-source, thus not controlled by central banks. The difference is in increased block generation rate and use of a different hashing algorithm.
Ethereum, Ether, and Smart Contracts
Ethereum blockchain was created by Vitalik Buterin in 2015. It introduced an innovative concept of smart contracts on the so-called Ethereum Virtual Machine (EVM). The terms of these contracts are coded in the EVM with the execution protected from fraud and attacks. In addition to the smart contracts, Ethereum hosts ether (ETH), a cryptocurrency used for payments within the blockchain.
Impact on the Cryptocurrency Ecosystem
Ethereum’s capabilities enabled the revolution in the cryptocurrency market. The Initial Coin Offering (ICO) was a new method of raising capital for blockchain startups by issuing their tokens. Additionally, Ethereum gave a basis for decentralized applications (dApps) and many more revolutionary features.
Recent Developments and Future Prospects
The Rise of DeFi (Decentralized Finance)
One of the most significant innovations in the cryptocurrency space, DeFi stands for a broad range of blockchain-operated financial services that do not depend on traditional financial institutions. With smart contracts on the Ethereum blockchain and others, users can lend, borrow, trade, and earn interest on crypto just like they can with banks. This innovation adds to the decentralization and democratization of global finance, offering people more control and freedom over their funds.
NFTs (Non-Fungible Tokens)
Non-fungible tokens have changed the concept of digital ownership and even art. NFTs are unique digital assets that are verified using blockchain technology. This makes them suitable for displaying ownership of digital art, music, films, and even virtual real estate. With big sales like Beeple's digital artwork selling for $69 million, the NFT market has seen a huge development. NFTs allow consumers to get authentic, limited digital goods and give artists additional sources of income. They have also raised discussions over the benefits and effects of blockchain technology on the environment.
Conclusion
The share of cryptocurrency in global finance is forecasted to increase, as the world financial system seeks integration with decentralized finance. With all the limitations governments and banks impose on us, crypto’s lower transaction speeds and ease of use contribute to the financial system development. As an alternative, there are many plans to introduce digital currencies backed by governments and created by central banks, adapting crypto and government-controlled financial realms.
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