In the last chapter of our crypto stories, we explored the insidious volatility that was waiting around the corner for Bitcoin holders and the first serious cases when the market saw the strongest crash in the history of Bitcoin prices. Today, we continue our chronicle of crypto challenges, diving into the rise and fall of altcoins, and exploring how the creation of Ethereum influenced the global perception of cryptocurrencies for better or worse.

Introduction to Altcoins

BTC has established itself as the “gold standard” and proudly bears the title of the main cryptocurrency, thanks to its first-mover advantage. While Bitcoin’s primary mission is to serve as a store of value, altcoins often emerge with diverse objectives addressing Bitcoin’s limitations and shortcomings.  

The first altcoins came into being in 2011 as attempts to reimagine Bitcoin and improve upon its code. Simply put, if it’s not Bitcoin, it’s an altcoin, regardless of the blockchain it’s developed on.

Overview of Early Altcoins 

So, in 2011, someone looked at Bitcoin and its technology and decided, "Why don't we improve on that?". Thus, early altcoins like Litecoin and Namecoin were born - alternative cryptocurrencies that have been actively filling the ecosystem since 2011.

The first contender, Namecoin, debuted in April 2011 as an ambitious attempt to revolutionize domain name management using blockchain technology. Designed as a decentralized DNS system, Namecoin sought to enhance internet domain ownership rights through blockchain innovation.

Though its vision was bold, it remained niche. However, it proved one thing: cryptocurrencies weren’t just about money or storage of value, they were also about innovation.  

Next came Litecoin, launched on October 7, 2011, which reduced block creation time to 2.5 minutes in a bid to speed up transactions. The creators dreamed of processing a higher volume of transactions in less time, aiming for a faster network. But, as life often teaches us, faster doesn’t always mean better.  

By December 2017, Litecoin miners were overwhelmed, struggling to process the sheer volume of transactions at the promised speed. This called the original scalability vision into question.  

To address the issue, Litecoin adopted technologies like SegWit, Lightning Network, and even something called MimbleWimble (no, it’s not a spell from *Harry Potter*). These upgrades helped Litecoin handle the load and regain its status as a crypto favorite.

The early altcoins demonstrated that Bitcoin was just the beginning. What followed was a wave of experiments, creativity, and fresh approaches to blockchain technology in which the modest programmer Vitalik Buterin plays a key role.

The Founding of Ethereum and Vitalik Buterin’s Vision (2015)

Ethereum, both as a blockchain and a cryptocurrency, did far more than just add another coin to the market. Russian-Canadian programmer Vitalik Buterin opened the doors to an entirely new era of financial decentralization.  

Vitalik Buterin’s Background

Without going into details of Vitalik Buterin biography, he has a bold idea at just 19 years old: “Why not create a new reality?”. A boy from Russia who emigrated to Canada with his parents at a young age, Vitalik could add three-digit numbers faster than his classmates could read them. Today, he’s widely recognized as the "face of decentralization."  

Vitalik’s interest in cryptocurrencies was sparked in 2011. He began writing for Bitcoin Magazine and quickly realized that while Bitcoin was great, blockchain technology had the potential to do so much more. From this realization, the idea for Ethereum was born—a blockchain not just for storing money, but for building smart applications and automated systems.  

Ethereum Launch 2015

Vitalik published the Ethereum whitepaper in 2013, explaining how blockchain could go beyond simple transactions. Inspired by his vision, crypto enthusiasts rallied around the project, leading to an ICO in 2014 that raised $18 million. By July 2015, the Ethereum network officially launched.  

Ethereum has become a universe of possibilities. Its revolutionary smart contracts — self-executing agreements triggered automatically once predefined conditions are met changed the game entirely. On Ethereum, anyone could build applications, systems, and even new technologies that redefined global finance, art, and more.  

Ethereum’s Impact on the Crypto Space

Ethereum’s contributions to the crypto world extend far beyond creating a new coin. Let’s break it down with a simple real-life example:  

Imagine you want to get a loan without dealing with a bank. Decentralized applications (dApps) built on Ethereum, like Aave, let you collateralize your crypto, with a smart contract ensuring the terms are met. Miss a payment? The contract automatically sells your collateral to cover the debt. No queues, no loan officers, no unnecessary stress.  

Or consider Uniswap, a decentralized exchange where users trade cryptocurrency directly with one another. No central authority, just smart contracts doing all the work.  

Ethereum didn’t just expand blockchain’s potential, it fueled the rise of concepts like NFTs. This technology uses blockchain’s public ledger to provide proof of ownership, whether it’s for artwork, real estate, digital collectibles, or even in-game assets.  

Through Ethereum, Vitalik Buterin proved that blockchain isn’t just about finance. It’s about entertainment, art, gaming, and unique collections. Ethereum opened the door to a decentralized world, showing us what the future could be.  

The Forking of Bitcoin: Bitcoin Cash (2017)

In 2017, the crypto community found itself amid a heated Bitcoin scalability debate. The issue was the block size limit in Bitcoin of 1 MB. This limit had been set during Bitcoin’s early days to ensure network security and decentralization. However, as the number of transactions grew, the network became overloaded, leading to slower processing times and increasing fees.  

 Disagreements between developers and miners escalated to the boiling point. One camp proposed increasing the block size from 1 MB to 8 MB, aiming to speed up transaction processing and lower costs. The opposing camp argued that larger blocks could undermine decentralization, as network nodes would require more resources to handle the increased data load.  

The tensions culminated on August 1, 2017, in Bitcoin’s first-ever hard fork, giving birth to a new cryptocurrency Bitcoin Cash (BCH). This new coin split off from the original Bitcoin network and blazed its own trail, adopting protocols that included larger block sizes to support faster and cheaper transactions.  

The Impact of Bitcoin Fork

No global scandal erupted after the Bitcoin Cash fork; both cryptocurrencies simply went their separate ways, each offering its own approach to solving the scalability problem.  

Users who supported the new network and held Bitcoin at the time of the split received an equivalent amount of Bitcoin Cash, seeing it as the key to solving scalability issues.  

Others considered unnecessary hard fork Bitcoin Cash creation and stuck with the original Bitcoin, arguing that its approach to scalability was safer and more in line with the original vision. 

The ICO Boom 2017

ICO (Initial Coin Offerings) became one of the most transformative eras in cryptocurrency history. By early 2017, ICOs were rapidly gaining popularity, allowing numerous blockchain projects to raise significant funds. Companies offered pre-issued tokens to investors in exchange for the capital needed to launch new networks and decentralized applications.  

Think of ICOs as a hybrid between IPOs (Initial Public Offerings) in traditional finance and crowdfunding, where token sales serve as a fundraising tool for blockchain-based projects.  

The ICO boom laid the foundation for major projects that continue to play a key role in the crypto ecosystem today. Among these are Ethereum, EOS, Chainlink, Filecoin, Tezos, and Telegram (TON).  

  • EOS: Block.one, the creator of the EOS network, conducted the largest ICO, raising a staggering $4.1 billion in 2018.  
  • Telegram: The second-largest ICO came from Telegram, raising $1.7 billion. Unlike many others, this one was aimed at private, high-net-worth investors rather than retail backers. 
  • Filecoin: The third-largest ICO was run by the decentralized data storage network Filecoin, which raised $257 million in 2017. 

However, the ICO boom wasn’t without its problems. Along with the significant successes for projects and investors, the period also saw its fair share of scams, including "exit scams" and "rug pulls." This attracted the attention of regulators like the U.S. Securities and Exchange Commission (SEC).  

In 2017, the SEC investigated the ICO of the "The DAO" project from 2016 and concluded that its tokens were unregistered securities. This case marked the beginning of the SEC’s active actions against ICOs.  

  • Block.one (EOS): The company was fined $24 million.  
  • Telegram: Telegram was fined $18.5 million and had to return $1.2 billion to investors, after which the project was shut down.  

Nevertheless, ICOs in cryptocurrency played a key role in the industry’s development, paving the way for many impactful blockchain projects.

The BitConnect Scam

BitConnect was founded in 2016 as a high-yield investment platform. It promised investors unrealistically high returns, attracting thousands of people worldwide. The core of the platform was its lending program, where users were encouraged to invest in exchange for stable, guaranteed profits.

BitConnect's creator, Satish Kumbhani, and his associates claimed that the profits were generated through a unique technology: the "BitConnect Trading Bot" and "Volatility Software." These tools allegedly leveraged the volatility of cryptocurrency markets to trade and generate significant profits. However, as it later turned out, the platform was a classic Ponzi scheme, where early investors were paid using funds from new depositors.

BitConnect reached the peak of its popularity in 2017, when its market capitalization hit $3.4 billion. However, in January 2018, the company suddenly shut down its lending program. Afterward, Kumbhani and his team began manipulating the price of their own cryptocurrency, BitConnect Coin (BCC), creating the illusion of high market value and demand.

The scammers also hid the origin of the stolen funds by using complex schemes to transfer money through numerous crypto wallets and international exchanges. In total, the BitConnect scam impact amounted to losses of about 2.4 billion dollars from the pockets of honest users.

BitConnect managed to avoid registration with the U.S. Financial Crimes Enforcement Network (FinCEN), violating the Bank Secrecy Act. This allowed the company to fly under the radar of regulators until its collapse.

After an investigation, Kumbhani was charged with conspiracy to commit fraud, commodity price manipulation, operating an unlicensed payment system, and international money laundering. If found guilty on all charges, he faces up to 70 years in prison.

The Role of Smart Contracts and Ethereum

Ethereum smart contracts gave the world a shiny new way to automate complex processes without any intermediaries. This breakthrough allowed developers to create tokens, set up decentralized autonomous organizations (DAOs), and conduct ICOs based on Ethereum standards, such as ERC-20.

Thanks to Ethereum's versatility, the platform became the foundation for thousands of decentralized applications. These dApps cover a broad range of industries, including finance (DeFi), art and collectibles (NFTs), gaming, and even social networks. They run on the Ethereum blockchain, making them censorship-resistant and ensuring decentralized governance.

The ICO boom that kicked off in 2017 demonstrated Ethereum’s potential as a fundraising platform and a launchpad for innovative projects. As a result, Ethereum solidified its position as the go-to blockchain for developers and users alike.

Ethereum itself was funded through an ICO in 2014, raising $18 million by selling ETH tokens in exchange for Bitcoin BTC. Later, the Ethereum network became the key platform for ICOs. Thanks to smart contracts, developers could easily issue new tokens and automatically distribute them to investors once the funding threshold was met.

While thousands of ICOs were either poorly planned or outright scams, the successful, standout projects have proven far more useful to the ecosystem. The ICO boom not only bolstered Ethereum's position but also established the ERC-20 standard, propelling the growth of the decentralized app ecosystem.

Crypto Stories: A Journey Through Time. Part 3: Bitcoin’s First Major Market Movements (2013-2014) | HODL FM
In the first part of Crypto Stories, we talked about The Inception…
hodl-post-imageHODL FM: The Wildest Ride in the Crypto MarketHODL Team
hodl-post-image

Disclaimer: All materials on this site are for informational purposes only. None of the material should be interpreted as investment advice. Please note that despite the nature of much of the material created and hosted on this website, HODL FM is not a financial reference resource and the opinions of authors and other contributors are their own and should not be taken as financial advice. If you require advice of this sort, HODL FM strongly recommends contacting a qualified industry professional.