The History of Cryptocurrency

There are more than 2.4 million different cryptocurrencies tracked by CoinMarketCap. While the vast majority of these are joke coins or have niche use cases, the rest form the foundation of a global digital ecosystem that encompasses payment systems, stores of value, speculative assets, and the foundation of decentralized finance.

This is all well and good, but how did it start in the first place? Let’s take a look at the history of cryptocurrencies to find out.

Before Bitcoin

Bitcoin was the first successful cryptocurrency, but it wasn’t formed out of thin air. It incorporated some ideas from its unsuccessful predecessors.

Digicash (1989): Digicash was the first attempt to connect anonymous, encrypted cash transactions between users and banks. The main stumbling block was getting banks to participate. The idea foundered after PayPal was introduced in 1998.

Hashcash (1997): Hashcash was an attempt to limit email spam. Email senders had to solve a cryptographic formula in a Proof of Work scheme, much like how Bitcoin is mined. This was trivial for normal email users but would be a major burden for email spammers, who could only send one email at a time. The system fell out of use as the time and processing power needed to send emails increased.

Bit Gold (1998): Bit Gold introduced the idea of a decentralized digital currency using Proof of Work and a ledger that functioned somewhat like a blockchain. Despite these innovations, it never got past the theoretical stage.

Bitcoin

Bitcoin was the first true cryptocurrency as we understand the term today. It took the best ideas from its predecessors and formed a functional whole. Bitcoin was deliberately designed to have a limit of 21 million Bitcoins to avoid the devaluation and inflation of fiat currencies. In practical terms, the total amount will be far less once the last one is mined since an untold number of BTC have been lost in hard drive crashes and forgotten wallet passwords.

An Abbreviated History of Bitcoin

• 2008: Someone going by the online name “Satoshi Nakamoto” publishes a white paper titled "Bitcoin: A Peer-to-Peer Electronic Cash System," outlining the concept of a decentralized digital currency.
• 2009: The Bitcoin network launches with the mining of the first block, known as the Genesis Block.
• 2010: The first real-world transaction occurs when programmer Laszlo Hanyecz buys two pizzas for 10,000 BTC. Bitcoin begins to gain traction as a medium of exchange.
• 2011: Bitcoin marks a major milestone, reaching parity with the dollar for the first time. Other cryptocurrencies, such as Litecoin, begin to emerge, which aim to improve Bitcoin's model.
• 2013: Bitcoin receives significant media attention. Prices surge from $13 in January to $1,100 in December. Major Bitcoin exchanges start operating, and crypto wallets become more user-friendly.
• 2014: The Mt. Gox exchange collapses after a hack, losing more than 740,000 BTC and $27 million in cash. Mt Gox was the world’s largest Bitcoin exchange, handling more than 70% of global BTC transactions. This incident raises concerns about security and regulation.
• 2015: Bitcoin bottoms out at $150 after major European Bitcoin exchange Bitstamp loses 19,000 BTC in a hack. Even so, more online-connected companies, including Microsoft and Dell, begin accepting Bitcoin, and Bitcoin prices recover to $500.
• 2017: Bitcoin experiences a massive price rally, hitting nearly $20,000 in December as mainstream media feeds a frenzy. This year marks increased institutional interest and the launch of Bitcoin futures.
• 2018: The first “Crypto Winter” hits as cryptocurrencies collapse. Google, Twitter, and Facebook ban crypto ads, citing the prevalence of scams. Bitcoin ends the year below $4,000, losing $10,000 for the year.
• 2020-2021: Bitcoin endures a year of extreme volatility during the COVID crisis. Paypal begins supporting Bitcoin transactions. Fidelity and Square invest in Bitcoin, further legitimizing it. El Salvador makes Bitcoin legal tender in June 2021. The government credits this move for a 95% increase in tourism. By 2022, more Salvadorans had a Bitcoin wallet than had a bank account. Bitcoin prices reach a high of over $64,000 in April 2021. MicroStrategy begins its famous amassing of Bitcoins, buying more than $1 billion worth over the year.
• 2022-2023: Bitcoin, along with most crypto, experiences a major selloff, spending most of the year between $20,000 and $30,000 before falling under $17,000 to end the year.
• 2024: Institutional interest in Bitcoin explodes with the SEC approval of spot Bitcoin ETFs in January, pushing prices to all-time highs of more than $73,000. Prices retrench after April’s automatic “halving,” where Bitcoin miners saw rewards for mining a block cut in half.

Profit-taking and interest rate worries saw Bitcoin struggle to hold between $55,000 and $65,000 by mid-year as investors rotated into other assets.

Ethereum

Ethereum is the second-largest cryptocurrency by market cap. It introduced major innovations such as blockchain-based immutable “smart contracts” that automatically execute when the coded conditions are met. This laid the foundation for “dapps,” or decentralized applications. This blockchain flexibility is something that BItcoin lacks.

Another major difference between Bitcoin and Ethereum occurred in 2022 when Ethereum switched from the standard Proof of Work to a Proof of Stake confirmation protocol. The switch reduced global Ethereum electricity use by more than 99.9%.

An Abbreviated History of Ethereum

• 2013: Vitalik Buterin releases the Ethereum whitepaper, introducing the idea of a crypto platform for decentralized apps.
• 2014: The Ethereum Foundation is formed. An Initial Coin Offering (ICO) raises 31,000 Bitcoin (approx. $18 million.)
• 2015: The Ethereum Genesis block is mined
• 2016: A hacker exploits a vulnerability in the DAO smart contract code, siphoning off $60 million of the organization’s $150 million. The controversial decision to roll back the Ethereum blockchain (which is supposed to be immutable) to before the DAO hack splits the community. A large number of people refuse to implement the hard fork (rollback) and maintain the original blockchain. This version of the blockchain is now known as Ethereum Classic. Two more hard forks of the Ethereum blockchain are pushed to respond to more hacks.
• 2017: A flood of “altcoins” is built on top of the Ethereum blockchain, spiking demand for Ether (the Ethereum token.) The demand results in heavy congestion of the Ethereum blockchain, spiking transaction fees and causing some transactions to be delayed by as much as a day.
• 2019: The base Ethereum code sees three major updates to improve network performance and improve security.
• 2020: Decentralized Finance dapps become the latest innovation to take advantage of the Ethereum blockchain, ushering in an alternative to traditional lending.
• 2022: The Merge is implemented, moving Ethereum from a Proof of Work consensus to Proof of Stake.

Dogecoin

Dogecoin, based on the popular “Doge” meme of a Shiba Inu commenting in broken English, is the world’s most famous meme coin. It was created as a light-hearted response to “serious” cryptocurrencies like Bitcoin. It burst into the mainstream after users funded the Jamaican bobsled team to compete in the Winter Olympics and raised $50,000 for a clean water project in Kenya.

An Abbreviated History of Dogecoin

• 2013: Dogecoin is released on December 6.
• 2014: Dogecoin becomes famous for its active community and philanthropy efforts. Major causes included raising $30,000 to send the Jamaican bobsled team to the 2014 Winter Olympics in Sochi, Russia, $50,000 to fund clean water projects in Kenya, and sponsoring NASCAR driver Josh Wise’s car, which was wrapped in Dogecoin images.
• 2015: Development of dogecoin slows down after co-founder Jackson Palmer leaves the team.
• 2017-2018: Dogecoin surges in value during the crypto boom, breaking the $2 billion market cap.
• 2020: TikTok and Reddit influencers start promoting Dogecoin, spreading Doge memes and urging their followers to invest.
• 2021: Dogecoin gains enormous national attention. Elon Musk sends Dogecoin prices “to the Moon” after he starts tweeting about it, calling himself “the Dogefather.” In a publicity stunt, Mark Cuban announces that the NBA Dallas Mavericks will start accepting Dogecoin payments.
• 2022: Dogecoin is caught in the “crypto winter,” along with other cryptocurrencies. Tesla announces that it would accept Dogecoin as payment for non-car-related purchases. Actual Teslas must still be paid for with fiat currencies.
• 2023: Broader familiarity with Dogecoin due to its meme status sees its “tipping culture” expand from purely Doge-centric circles to a wider social media presence. The first steps are taken to adapt Dogecoin for DeFi purposes.

Ripple

Ripple, or Ripple Labs, is a software company formed in 2012 to facilitate faster and less expensive cross-border transactions between hundreds of banks and other financial institutions. The XRP token and blockchain, often mistakenly called Ripple, is the ecosystem on which the Ripple Network functions. XRP acts as a bridge currency for international transactions involving two different currencies.

Ripple is famous for its long-running legal battles with the SEC from 2020 to 2024. The wider crypto community closely followed the litigation as it was expected to set precedents that the SEC would apply to the entire sector.

An Abbreviated History of Ripple

• 2004: Ryan Fugger creates an early version of Ripple as a decentralized credit network for communities to create their own money.
• 2011: Jed McCaleb, David Schwartz, and Arthur Britto develop the XRP ledger as a first step in building a Ripple ecosystem.
• 2012: Ripple Labs is formed to further develop the XRP ledger for use in institutional cross-border payments and other financial transactions.
• 2013: The XRP blockchain is launched. 100 billion XRP tokens are pre-mined. 80 billion XRP are donated to the new Ripple Foundation to promote the network's adoption, with 20 billion XRP retained by the program’s founders.
• 2014-2015: The Ripple Foundation shifts focus to promoting the XRP network to banks and financial institutions as a bridge currency for international transactions.
• 2016-2017: Major financial institutions such as Bank of America, JP Morgan Chase, UBS, and American Express sign on to use the XRP protocol for cross-border transactions.
• 2020: The SEC sued Ripple for selling unregistered securities, charging that the initial XRP ICO was conducted by a central authority (Ripple Labs) to people who expected to gain financially from the purchase. Ripple counters that the XRP token is a digital currency and not subject to securities law. As a result, several exchanges, including Coinbase, suspended trading or removed XRP.
• 2021: Ripple expands operations to cover the Middle East and Asia-Pacific as US financial institutions shy away from XRP. More overseas financial institutions begin using XRP for cross-border transactions.
• 2023: The SEC lawsuit against Ripple ends with a partial victory for both sides. The judgment found that XRP was a security when sold by the Ripple Foundation directly to investors but is not a security when sold by the public on an exchange. This effectively made all ICOs securities offerings. The Ripple Foundation is forced to pay a $125 million fine for securities violations.

STABLECOINS

Stablecoins are a digital asset class where blockchain tokens are pegged to a fiat currency (often the US dollar.) There are four basic types of stablecoin:

• Fiat-backed (usually the dollar;)
• Commodity-backed (usually gold;)
• Backed by a major cryptocurrency like Bitcoin or Ethereum;
• Algorithmic stablecoins, where smart contracts automatically mint and destroy supply in order to maintain the coin’s peg.

Of all the attempts at developing a stablecoin, three stand out as notable successes:

• Tether (USDT), with a market cap of $119 billion;
• USD Coin (USDC), with a market cap of $35 billion; and
• DAI (DAI, now USDS), with a market cap of $5 billion.

They are also the top three stablecoins by market cap, ranked #3, #5, and #19 among all cryptocurrencies.

An Abbreviated History of Stablecoins

• 2014: BitUSD was launched in 2014. Collateralized by a second, unbacked coin named Bitshares, BitUSD lost its dollar peg in 2018 and never recovered.
  Also launched in 2014, NuBit was collateralized with Bitcoin. It was unable to hold enough reserves to ride out Bitcoin volatility, losing its peg temporarily in 2016 and for good in 2018.
• 2015: Tether is launched, becoming the first successful stablecoin. Unlike the previous two attempts, Tether was backed 1:1 by US dollar reserves held in traditional financial institutions.
• 2017: DAI (DAI) launched as the first successful algorithmic stablecoin. It is backed by users depositing Ethereum-based crypto in a smart contract in return for a smaller dollar amount of DAI. The excess collateralization is used to cushion volatility in the price of the deposited coins. DAI was also one of the earliest decentralized finance (DeFi) apps. It is used to facilitate decentralized borrowing and lending using smart contracts.
• 2018: USD Coin (USDC) debuts as a joint venture between Circle and Coinbase, backed by 1:1 by dollar-denominated securities. In March 2023, USDC lost its peg for four days after it was announced that a large portion of the coin’s collateral was held at the failed Silicon Valley Bank.
• 2020: The crypto bull market was accompanied by a sharp rise in DeFi applications. USDC and DAI emerged as the top stablecoins for funding decentralized financial transactions.
• 2021: On a broader scale, Tether cemented its place as the dominant stablecoin despite concerns over a lack of transparency regarding its dollar reserves. Tether was sued by the New York Attorney General’s office in 2021 over a lack of transparency regarding its operations. It was fined $18.5 million and required to issue periodic transparency reports.
• 2022: TerraUSD, one of the largest algorithmic stablecoins, collapses during the widespread “crypto winter” market downturn, causing at least $40 billion dollars in losses and the failure of several crypto exchanges. UST’s meltdown triggered a general distrust of algorithmic stablecoins, and increased calls for government regulation.

CENTRAL BANK DIGITAL CURRENCIES

Central Bank Digital Currencies (CBDCs) are digital forms of a country's fiat currency issued and regulated by a country’s central bank. Unlike cryptocurrencies, which are decentralized and not tied to any government, CBDCs aim to combine the benefits of digital currency with the stability of traditional money.

CBDCs are essentially legal tender digital versions of a country’s existing currency (e.g., digital dollars, euros). This ensures a wider acceptance by the public compared to cryptocurrencies.

Unlike decentralized cryptocurrencies like Bitcoin, CBDCs are fully regulated and controlled by central banks.

CBDCs look to incorporate the improvements that cryptocurrencies have made to the efficiency of payment systems, such as reduced transaction costs, improved financial inclusion of the unbanked, and combating issues like money laundering and fraud.

There are generally two main types of CBDCs. “Retail” CBDCs work like everyday regular currency, aimed at the general public for everyday transactions. “Wholesale” CBDCs are intended for use by financial institutions to conduct large interbank transactions.

Countries That Have CBDCs

Most CBDCs that have already launched are located in the Caribbean Sea. The Bahamas, Jamaica, and the Eastern Caribbean Union have all launched CBDCs. Nigeria also has an active CBDC program.

Countries With CBDC Pilot Programs

China is the major nation with the most advanced pilot CBDC program. Digital Yuan pilot programs have been implemented in 29 different areas of the country. Sweden, Russia, and India all have CBDC pilot programs running.

Countries Considering CBDCs

Major nations actively researching or running trials of CBDCs include the EU, France, UK, US, Japan, South Korea, and Brazil. Other nations, including Australia, Canada, and Turkey are in the early stages of researching CBDCs.

NFTs

“NFT” stands for “Non-Fungible Token.” An NFT is a unique token on a cryptocurrency blockchain representing ownership of a digital version of a particular real, physical item such as a painting or a completely digital asset. The most common NFTs represent digital artwork. Other popular types of NFTs are music, videos, and digital collectibles or trading cards. The Bored Apes digital cartoons and the NBA Top Shots video clips are some of the most famous NFTs.

An Abbreviated History of NFTs

• 2014: The first NFTs debut on the Bitcoin blockchain.
• 2015: The first NFTs using smart contracts on the Ethereum blockchain appear.
• 2017: The first CryptoPunks are released. Early CryptoPunks become some of the most expensive NFTs on the market. The CryptoKitties NFT collectibles game debuts. Its popularity nearly brings the Ethereum network to a halt as congestion and transaction fees skyrocket.
• 2020: Rarible and OpenSea gain traction as major NFT marketplaces
• 2021: Beeple's "Everydays: The First 5000 Days" sells for $69 million in a Christie’s auction. Music artist Grimes sells $6 million worth of digital art NFTs. NBA Top Shots, which are official NBA video clips, are released. Bored Ape Yacht Club launches, becoming a mainstream craze.
• 2022: The NFT market implodes during the “crypto winter,” flushing out speculators and erasing $9 billion from overall NFT market cap.

DEFI

Decentralized Finance, or DeFi, is a blockchain system of peer-to-peer lending, borrowing, and earning interest using cryptocurrencies. DeFi solutions bypass banks and other institutional lenders, allowing the unbanked and those with poor credit to obtain loans. It is also used as a fundraising tool.

Abbreviated History of DeFi

• 2017: The concept of DeFi is introduced with the launch of the DAI stablecoin, with its decentralized governance.
• 2019: “DeFi” enters the mainstream lexicon.
• 2020: The concept of “yield farming,” where people earn interest on the crypto that they lock up in liquidity pools for making loans, gains attention.
• 2021: January: Total Value Locked (TLV) in DeFi projects exceeds $20 billion.
  May: Most DeFi projects weather the “crypto winter,” increasing confidence in the system. November: TVL reaches $250 billion.
• 2022: The collapse of TerraUSD and Luna result in the failure of several crypto exchanges, highlighting the dangers of overleveraged DeFi systems.
• 2023: DeFi comes under increased regulatory scrutiny due to its unregulated nature.

Crypto Winter

The "crypto winter" of 2022 was a widespread crash in crypto prices that wiped out more than $2 trillion in asset value. It was caused by the pop of a frenzied bubble in crypto assets that sent prices to unsustainable heights. Several factors came together to crash the market:

• A spike in inflation pushed the Federal Reserve to rapidly increase interest rates, increasing fears of a recession.
• This led to risk-off market sentiment that saw investors exiting leveraged crypto positions at a loss.
• Excessive redemptions exposed the frailty of algorithmic stablecoins, culminating in the collapse of TerraUSD and its associated Luna token, wiping out billions of dollars in value.
• Spreading market contagion led to the collapse of centralized crypto exchanges and hedge funds such as Celcius Network and Three Arrows Capital.
• FTX, one of the largest crypto exchanges, declares bankruptcy. Court-appointed trustees discover instances of massive mismanagement of funds. Public outcry leads to Congress calling for increased regulation of the crypto ecosystem.

Famous Crypto Hacks

Unfortunately, the only time cryptocurrencies really garner mainstream media coverage is during hacks. These are the top five crypto exchange hacks, based on the market value of the stolen coins at the time of the hack:

1. Ronin Network (2022): Used by the play-to-earn game Axie Infinity to store crypto assets. $625 million in Ether and USDC stolen.
2. Poly Network (2021): The DeFi platform lost more than $611 million in various cryptocurrencies due to an exploit in a smart contract. Notable for the fact that the hackers returned most of the money, saying the hack was done to point out the vulnerability in Poly’s code.
3. FTX Exchange (2022): $600 million in crypto was drained from FTX client wallets the day the exchange filed for Chapter 11 bankruptcy protection.
4. Binance Exchange (2022): A bug in a smart contract was exploited to mint and steal $569 million of Binance Coins (BNB)
5. Mt Gox (2014): The most famous crypto exchange hack of all time, the Mt Gox hack stole 650,000 Bitcoins from exchange clients and 100,000 Bitcoins belonging to the exchange itself, resulting in a total loss of $473 million.

What Does The Future Hold For Crypto?

What does the future hold for crypto? A greater acceptance of stablecoins will open up more avenues of traditional finance for crypto, especially as a frictionless method of cross-border payments and remittances for consumers. It is expected that businesses and manufacturers will expand the use cases of smart contracts, notably in improving supply chain tracking.

Government uses of crypto could expand beyond CBDCs primarily being used between banks to work as a secure way to distribute public benefits to prevent misuse and theft. There are proposals to use the immutability of blockchains to enhance election security.

DeFi projects will mature, hardening security against hacks while growing to service the unbanked both in the US and abroad. Of course, crypto will remain a major market asset, expanding on the spot Bitcoin and Ethereum ETFs already available. Crypto trading will grow, as more young crypto-savvy people become investors.

While no one knows exactly what will happen, one of the largest obstacles to greater crypto adoption is the lack of regulatory clarity. In the US, that means getting the SEC to form a clear set of rules for crypto, instead of continuing its “rulemaking through enforcement” strategy of filing lawsuits.

Once that is done, who knows what the future will bring?