Origins of Crypto(currencies)

What is Bitcoin, and how did it come to life? We take a quick look at the evolution of money, the creation of Bitcoin and what made it so successful.

Origins of Crypto(currencies)

The early days of exchanging goods

Many centuries ago, people used to trade by exchanging goods for other goods. For example, someone had a goat and exchanged it for a bag of grain. The thing is, there is no unit of account (think euros or dollars) - let’s say the value of things is measured in goats. That’s all fine and well, but it’s hard to imagine selling 0.23 of a goat. Tricky…

Since humans are an intelligent species (hey, we landed on the Moon, right?), we came up with the concept of money. Money is about 5,000 years old, and initially came in the form of coins. Some cultures used sea snail shells instead, but we’ll go with coins, because shiny! 😀

Far away in the Pacific ocean, one culture had an idea...

On the small Micronesian island of Yap, however, they used stones, known as Rai (meaning stone money). But these were not just ordinary stones. Some were quite small, whereas the largest were more than three meters in diameter and weighed more than four tonnes. Try carrying that around in your back pocket!

On the small Micronesian island of Yap, however, they used stones, known as Rai (meaning stone money).

The remarkable thing about Rai stones is that the monetary system of Yap relies on an oral history of ownership. Because the stones were too large to move, buying an item with one simply involves agreeing that the ownership has changed. As long as the transaction is recorded in the oral history (the two involved parties loudly and publicly declared that a particular stone was now property of the new owner), it will now be owned by the person to whom it is passed and no physical movement of the stone is required.

Sounds a lot like blockchain, right?

We all know what money is. Or do we?

Fast forward to modern times, and there has been a new development. Coins are all nice and beautiful, but carrying a lot of them around can be a real pain, Which is why banknotes came to life in the 17th century, followed by credit cards, sending money online, smartphone apps, etc.

The biggest advantage of modern money is that pretty much everything can be measured in it. We all know how many euros or dollars a coffee, lunch or a car costs.

You may have heard of the term “fiat money”. Simply put, fiat money is money that doesn’t really have any value in and of itself (Wanna learn a fancy new word? That’s also called “intrinsic value”. You’re welcome 😉), but its value is usually guaranteed by a government.

By the way, for almost the last 50 years, the value of fiat money has no longer been backed by gold.

A group of people start debating the concept of “digital currency”

Somewhere along the way, the internet happened. Combine modern-day distrust of governments, and technological progress, and add to that a pinch of paranoia (we’ve all heard of Big Brother, right? And no, not the TV show…), and a movement was born, advocating the use of cryptography with the aim of achieving greater privacy and security. They were called Cypherpunks.

Cypherpunks were really concerned about privacy and their personal liberty. As a result, they talked about the need and possibility for a digital currency that was anonymous or could be anonymized using cryptography.

There were a few projects that tried to achieve that and some of them came very close to being realized. The one that probably came the closest was Digicash from David Chaum. Other attempts at creating something similar were Bit Gold by Nick Szabo, HashCash by Adam Black, B money by Wei Dai, etc. However, at the time, nobody was really ready for this, apart from cypherpunks themselves.

Bitcoin is born

But then, in 2008, as the world was seemingly falling apart due to the biggest financial crisis in decades, a person (or group of persons, since his/their identity still remains unknown) called Satoshi Nakamoto took a lot of those early-day ideas and made them work. On 31 October 2008, Satoshi Nakamoto published a white paper titled Bitcoin: A Peer-to-Peer Electronic Cash System. And so Bitcoin, an encryption-based protocol utilizing a ledger called the blockchain, came to life.

The first bitcoin was created (well, technically it was “mined”) in the so-called genesis block on 3 January 2009. Fun fact: the genesis block, apart from being the very beginning of the Bitcoin blockchain, also included a secret message, encrypted in hexadecimal format:

“sknab rof tuoliab dnoces fo knirb no rollecnahC 9002/naJ/30 semiT ehT”.

Easy to read and understand, right? Let us help you: read back to front, and the message says:

“The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”.

On 12 January 2009, the first Bitcoins were sent from one person to another. Not only that, the sender was none other than Satoshi Nakamoto, who sent 50 Bitcoins to Hal Finney, one of the most prominent cypherpunks.

There’s one more date we think is worth mentioning: 22 May 2010. Our Italian friends will forever remember it as the day Inter Milan beat Bayern Munich 2:0 in the UEFA Champions League final, winning their first major European title in more than 40 years. But something else happened on that day a few thousand kilometers to the west. In Florida, a man named Laszlo Hanyecz bought two pizzas for a price of 10,000 Bitcoins. At the time, they were worth $41. The date has become known as Bitcoin Pizza Day. Want to know the value of the transaction today? Hold on to your seat!

What made Bitcoin successful?

One of the main factors that enabled Bitcoin’s success was definitely timing. Most of you remember that the global financial crisis of 2008 shook the foundations of people’s trust in the financial system. At the time, many governments bailed out major financial institutions, pouring in billions to cover huge losses and save the banks from bankruptcy. This approach was heavily criticized, as many thought the financial institutions were to blame for the financial crisis in the first place.

The idea of Bitcoin was to create “an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.” Basically, to send payments without the use of financial institutions (banks).

The rest, as they say, is (or at least will become) history. Don't miss out and be a part of it - buy Bitcoin.

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