Money on the internet often feels like it started with Bitcoin, however, the road to an internet-based, decentralized and trustless currency was anything but straightforward.

Bitcoin didn't come out of a single idea—but was built on decades of research and hands-on experimentation by pioneering computer scientists like Nick Szabo and David Chaum.

Read on to explore the rise of Bitcoin since the early days of the internet to the release of its whitepaper on a hacker forum in 2009, the birth of Bitcoin Layer 2 scaling solutions, to the inception of various Bitcoin token standards that have opened up new decentralized finance opportunities to users across the BTC ecosystem.

Setting the Stage for the Pre-Bitcoin Era

Back in the day, long before anyone came up with the term "blockchain," people were already toying around with the idea of digital money.

In the early 1990s, the internet started to become very popular. At the same time, there was a growing need for a special type of money that could be used easily online.

The people who first started working on this idea had a simple but important goal. They wanted to change how money transfer works, make it easier to buy and sell things online, and give people more control over their money.

However, there was a significant problem: the issue of double-spending and ensuring a single token couldn’t be copied or spent more than once. Without solving this issue, electronic cash systems would become easy to exploit and difficult to implement in the real world.

Early Concepts: Exploring the Origins of Digital and Electronic Money

Let’s discuss some of the innovative ideas that laid the groundwork for the evolution of e-money and digital money research:

eCash—The First Cryptocurrency

Computer Scientist David Chaum often referred as the grandpa of crypto proposed an electronic cash system called eCash that prioritized security, privacy and anonymity. 

The eCash system used blinded signatures to encrypt information being transferred between users, as such, the recipient could use a signature of authenticity to decrypt the digital cash thereby preventing traceability.

On the foundation of the eCash system, Chaum founded DigiCash, a cryptographic and electronic payments company. While the company went bankrupt in 1998, its formulas and concepts around encryption played a huge role in shaping Bitcoin.

E-Gold

E-Gold was invented by Barry K. Downey and Dr. Douglas Jackson, an arttoney and an oncologist respectively who wanted to pioneer a new way of transferring gold on a digital payment network. Unfortunately, the system became a breeding ground for money launderers and criminals seeking an anonymous way of transacting.

b-money

b-money was introduced in 1998 by an anonymous developer called Wei Dai who proposed a new concept of broadcasting transactions on an unjammable yet synchronous protocol. While b-money never became succesful, it was an impressive attempt for a secure, anonymous and private electronic payments system.

One of the defining features for Dai’s electronic cash system was encrypted pseudonyms that allowed users to transact in a decentralized P2P network. There was also a feature for enforcing contracts without entrusting third-parties. Unfortunately, his innovation did not get sufficient attention to launch succesfully.

Challenges of Early e-Money: Limitations and Vulnerabilities of Early Systems

The digital cash or electronic money systems of the time were innovative yet shared in some common pitfalls. Some of these pitfalls had something to do with centralization issues due to middle-parties managing the transactions, trust problems since these middle-parties could not uphold the value and integrity of the system.

At the same time, regulatory scrutinies and the lack of clear compliance policies poised legal challenges, particularly when these payment systems became a breeding ground for illegal activities such as money laundering.

Influential Figures: Pioneers and Their Contributions to Digital Currency

There are many pioneers who contributed to the foundation of Bitcoin.  We can trace cryptographic currency origins to the works of these influential figures.

Their experimentation has been primary in  setting the stage for the origins of magic internet money. In this section, we’ll touch base on a few of them, whom we believe made the biggest contributions to modern day electronic cash.

David Chaum

David Chaum, a computer scientist and cryptography researcher has long been recognized as the inventor of electronic cash, with his 1982 thesis which proposed the original blockchain being referenced over 6,000 times.

Another thesis titled ‘Computer Systems Established, Mantained and Trusted by Mutually Suspicious Groups’ made proposals for a blockchain protocol and a code implementation. 

In the Bitcoin Whitepaper, Satoshi Nakamoto has referenced several elements of the dissertation, and for reasons such as this, Chaum has usually been refered to as the Godfather of cryptocurrencies and the father of online anonymity.

Wei Dai

An intensely anonymous computer engineer Wei Dai is an popular and influential figure in the cryptography space with his works, research and practical experimentation attributed as some of the founding ideas and concepts for cryptocurrencies.

His b-money paper was later referenced by Satoshi Nakamoto on the Bitcoin whitepaper. While there have been speculations that Wei Dai is Satoshi Nakamoto, he’s long denied these allegations.

Nick Szabo

Nick Szabo, a U.S. cryptographer has heavily contributed to the cryptocurrency space, thanks to his research work which helped immensely with the creation of smart contracts.

He was also able to come up with a digital currency, Bit Gold, which was able to solve the double spend problem and pioneer ideas for proof of work.

Satoshi Nakamoto introduced Bitcoin almost a decade after Szabo’s proposal of an electronic cash system based on proof of work cryptography. There have also been speculations that he could be the real identity of Nakamoto.

Adam Back

A computer science PHD holder, Adam Back whose work and interest across electronic cash, parallel computers ,encryption and semi-automated compilers pioneered Hashcash, an innovative system for protecting internet users against email spam and DDos attacks. The algorithm behind Hashcash still plays a crucial role as a core tenet of Bitcoin mining.

Transition to Bitcoin: How Early Efforts Paved the Way

By the late 2000s, it was clear how an electronic currency needed to work: provide a fix for the double-spending problem, have no reliance on centralized control, and implement a secure, transparent ledger to keep everything in check.

Fast-foward to 2008, Satoshi Nakamoto dropped the Bitcoin whitepaper. The concept of a peer-to-peer electronic cash system, as described on the whitepaper pulled together ideas like decentralized consensus, proof of work, and cryptographic security to create a trustless digital currency that didn’t require middle parties. It was the result of decades of innovation and problem-solving finally coming together.

Final Take

Today, Bitcoin has developed and expanded even beyond what it was in the 2010s towards 2020. Back then, there wasn’t a way for programable smart contracts to function on the largest chain in the world, thereby preventing it from launching decentralized finance projects for BTC HODLers who would have wanted to participate in yield generating activities such as lending, borrowing, staking and supplying liquidity. We even have non-fungible tokens, meme coins, and all manners of altcoins launching on the Bitcoin Network.

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