History of Cryptocurrency

Learn about the origins of Bitcoin and other cryptocurrencies

If you’ve been swept up in the recent popularity of cryptocurrencies or are just curious about how they work, it’s important to understand the history of cryptocurrency and how digital currencies like Bitcoin and the underlying blockchain technology came into being.

While the creator of cryptocurrency flagship Bitcoin is somewhat mysterious, there’s plenty we know about the history of cryptocurrency that could influence your decisions around investing and trading in this relatively new asset class.

The Challenge of Digital Currency

Digital currencies offer a unique challenge compared to traditional currencies like dollars and euros, called “fiat” currencies in the cryptocurrency community. That’s because, unlike dollars and cents that can be physically exchanged and tracked, cryptocurrencies exist only in the digital domain.

Digital assets are inherently difficult to secure. Just as you can copy a picture of your dog or your kids into an email to your parents or friends, most digital files are easy to replicate and send worldwide.

While your bank may hold dollars on your behalf, you can’t copy those dollars to double your holdings. They are secure at the bank. You, the bank, and the U.S. government agree what’s in a bank account is your money. With digital currencies, many of those systems would need to be recreated from scratch. That led to several attempts at cryptocurrencies before the current versions, built on a technology called blockchain, took off and went mainstream.

Blockchain and Bitcoin

Modern cryptocurrencies were first described in 1998 by author Wei Dai. The concept fully emerged in 2009 with the release of a white paper that explains the foundations of blockchain and Bitcoin. The author of the white paper is “Satoshi Nakamoto,” which is presumably a pseudonym for either a person or group of people.

Bitcoin runs on a technology called blockchain, which the Bitcoin Foundation calls a “triple-entry” bookkeeping system. Every time there’s a new transaction, the sender, receiver, and a third party must confirm and agree on the transaction. Every Bitcoin transaction is recorded in a triple-entry digital record called a “blockchain”—any Bitcoin transaction can be located on that digital record.

This allows for a combination of trust and a certain level of anonymity, as you can trace every transaction to a specific Bitcoin wallet but don’t necessarily know who owns that wallet. That’s great for privacy advocates but can be a challenge for anti-terrorism and anti-money-laundering officials who would like better ways to trace digital currency transactions around the world.

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