About 4000 years ago, the world witnessed the birth of its first currency, a development that redefined the avoidable methods of doing business; the barter system became obsolete, trades became easier and convenient to undertake and more importantly currencies acted as a somewhat universal store of value accepted by all who fell under the jurisdiction of the powers that created them. The next four millennia saw this new system evolve into something new; banks went from basing the value of currencies on scarce assets to storing customer info on ledgers, then computers and finally taking the whole process of doing business online with the rise of secure payment gateways in the early 20th century.
As the system evolved new problems and limitations came into being. Existing methods of undertaking transactions required a third party to act as an intermediary; these transactions were ergo subject to the governance of this third party, who not only charged (progressively increasing) premiums for their services but also discriminated against who was privy to utilize such services. Then, there was also the ever-present risk that such ‘singular’ bodies were subject to intrusion and hacks. The need for a more efficient system, one that effectively plugged all the loopholes of the existing framework grew stronger by the day.
- And then there was Bitcoin!
Yes, bitcoin! The now egregiously popular cryptocurrency that has turned many into overnight billionaires and left another handful biting their nails – if I’d known I would have ‘hodlded’ for much longer… But before Satoshi Nakamoto, debuted his famous whitepaper detailing bitcoin’s intricacies, other software engineers had experimented with the concept of digital currencies.
Worthy of note is David Chaum, an American cryptographer who had specific interests in electronic cash. Chaum developed what was then called the ‘Blinding Formula’ – a cryptic algorithm still in use today as a protocol for web encryption. The Blinding formula allowed users to send and receive payments anonymously, its acceptance and adoption were a huge at the time. Sailing the winds of success brought on by the blinding formula, Chaum would go on to kickstart DigiCash, one of the very first internet based currencies. Sadly, despite its promising potential with Microsoft reportedly offering Chaum $180 million to incorporate DigiCash on its windows pc, the startup ran into insolvency in 1998. Exactly one decade later, Satoshi Nakamoto introduced the bitcoin whitepaper.
- A decentralized way of doing things!
Unlike DigiCash which was hosted on a central server, Satoshi’s bitcoin launched atop something revolutionary – the blockchain. The blockchain is a distributed ledger operated by a system of nodes (computers) – Its pillars were secure cryptography, shared infrastructure and a proof of stake algorithm. This framework allowed bitcoin to:
- provide a safe means of transferring value
- significantly lower the cost of effectuating transactions
- And perhaps more importantly, run without any central governing authority: decisions were made based on popular votes of its base community!
At first bitcoin and its parent architecture – blockchain was greeted with a bit of skepticism, but after Satoshi Nakamoto released the first bitcoin public client early in 2009, a significant number of developers hitched onto the bitcoin-blockchain train, little did they know that they were in for one heck of a ride.
From Jan. 2009 when the client was released to early 2010, bitcoin was a geek’s plaything, Satoshi and his cohort of developers tinkered and manipulated the technology, implementing a few updates as time went on. In April of 2010, the first marketplace (exchange) for bitcoin appropriately tagged BitcoinMarket.com was launched. Trades commenced, and a month later Laszlo Hanyecz used bitcoin for the first time in the real world to purchase two pizzas, the price as at then was 10,000 bitcoins. At the end of 2010, after a major flaw in the bitcoin framework was discovered and subsequently patched, Satoshi Nakamoto, bade an official farewell to the bitcoin project with the release of bitcoin ‘farewell’ version 0.3.9. The real identity (Satoshi Nakamoto was a pseudonym) bitcoin’s veiled inventor to this day remains a mystery.
This, however, failed to stymy the bitcoin movement, if anything it propelled it to new heights. In 2011 the technology gained popularity. More developers and enthusiasts cast their laser-eyed gaze on its architecture, resulting in several updates and modifications of the existing framework. Some adjustments, however, failed to get the green light for incorporation, and developers backing such mods went on to create their own spinoffs of bitcoin, notable among which were, namecoin, litecoin, and peercoin, dogecoin, bytecoin, opencoin to mention but a few. Today these are collectively called ‘altcoins’ and together with bitcoin they make up the cryptocurrency pool.
From 2012 to 2014 bitcoin experienced varying degrees of fluctuations in its market value. Towards the end of 2013, however, specifically in November, the cryptocurrency peaked at an all-time high of $1240, up from $265 at the start of that same year. This was a tell-tale sign of what was to come in the nearest future.
- Update ‘Ethereum’!
While others focused on updating and incorporating newer features into the bitcoin source code, one developer felt that its underlying architecture was somewhat limited – that developer was Vitalik Buterin. The potential of blockchain technology – a decentralized self-governing network with practically limitless computing power was immense, no doubt. However, its Achilles heel was that it lacked the scripting language that would have propagated the development of custom blockchain applications. Like Satoshi, Buterin had a dream of improving the existing system – and he did just that. In May 2015, Buterin launched an upgraded version of the blockchain to the general public; he called it Ethereum. Ethereum came fresh out of the box with support for
- Smart contracts – a transaction protocol that allows for the specification of transacting conditions that must be fulfilled before a transaction can be completed
- A blockchain IDE – that gave developers the opportunity to develop native blockchain applications
This two features along with other minor improvements gave Ethereum a strong footing in the blockchain-cryptocurrency tech sphere. Ethereum also came with its own native cryptocurrency – ether and in the first year of its release its value was pegged at $1; by 2016 it peaked at $12 per ETH and as of today one ether trades for over $400.
- The cryptocurrency Boom!
January 2014, one bitcoin (BTC) was trading for $600, and despite an end of the year retrogression that saw it plunge to $350, its price leveled up to $650 mid-2015. From then on it has been a bullish drive to all new highs. As at the time of writing this the value of one BTC soared over $1000 in just 24 hours to reach a record high of $14000 per BTC. ETH and various other altcoins have also benefited from this surge. One ETH is trading for $451 (as at the time of writing this), and for the first time, the joint total market cap of cryptocurrencies has exceeded $300 billion making them more valuable than the Bank of America.
This exponential rise in value comes on the backdrop of increased stakeholder interest and participation in the cryptocurrency market. Japan began accepting bitcoin as a form of payment. Inflation ravaged economies like Zimbabwe and Venezuela have since turned to bitcoin for solace, and just recently JP Morgan announced that it would start trading bitcoin futures. The future looks set for cryptocurrency penetration.
- Into the Future!
The phenomenal rise in the value of bitcoin and other cryptocurrencies has however attracted sustained criticism. Experts are tagging the current surge a bubble and J.P. Morgan CEO Jamie Dimon, went as far as calling bitcoin an outright scam. For what it’s worth, cryptocurrencies have on many occasions demonstrated their value proposition – their impact on inflation-ravaged countries is a classic demonstration of their value proposition; a growing number of e-commerce sites already accept cryptocurrency payments with more on the line to do so; and worldwide user acceptance and adoption of cryptocurrency tools is growing.
More importantly, however, the underlying framework of cryptocurrencies – the blockchain opens up a boundless gateway of opportunities. Its robust and decentralized framework allows for the actualization of a broad range of solution – most of which would have been otherwise though to scale or outrightly impossible to implement. It is all but certain that cryptocurrencies and blockchain technology both have an important role to play in our future, like the internet, the extent of this impact will only be revealed as time goes on.