You may be surprised to learn that the digital currency revolution began many years before Bitcoin entered service. In fact, the race to create a more secure digital currency has long been a goal for developers and financial experts since the 80s. As such, history is littered with previous attempts to create cryptocurrencies.
Notably, Bitcoin can be thought of as a combination of these technologies rather than just some random new invention. As such, the world’s first successful cryptocurrency, Bitcoin, is the culmination of decades of theorizing and experimentation into the concept of digital money. Here are some of the most influential digital currencies that existed before Bitcoin. These projects exemplify the experimental nature of the sector and helped to influence Satoshi Nakamoto during the creation of Bitcoin.
Digital Money Before the Internet Took Off
One of the earliest forms of digital money comes from the late ‘80s in Netherland. It was at this time that the country needed a solution to help alleviate the constant robberies of their gas stations along remote shipping routes. The problem that had motivated the creation of this digital money was the fact that these gas stations were located so far from civilization that it was impossible to provide adequate security.
For one, these remote stations needed to hold a significant amount of stocked goods and funding to provide services to the late-night trucking community. Recognizing their vulnerability, a group of thieves began knocking these stations off regularly. The problem got so bad that the truckers and the gas stations finally decided it was time to try something new.
The concept they came up with, SmartCards, would have a resounding effect on the digital financial systems moving forward. The concept was simple. The trucking companies would receive a smart card that could be loaded with value. These cards would be accepted at all of the gas stations. The goal of the project was to remove any actual fiat currency from the locations.
Notably, the project was a major success. Over the following months, the robberies ceased as there was no real bounty available for the thieves. While the concept did help to push the card-based economies of the future into the limelight, it didn’t solve one of digital currencies’ most pressing issues, the double-spend conundrum.
The double-spend conundrum is a term used to describe a hacking concern that plagued all digital currencies before Bitcoin. The hack involved sending multiple transactions in such close proximity to each other that the second transaction would start to process before the first one was completed. This issue enabled hackers to spend the same coins twice. It wasn’t until Bitcoin entered the market in 2009 that the double-spend issue was resolved once and for all.
DigiCash was brought to the world via the inventive mind of American cryptographer, David Chaum. The goal behind the project was to leverage recent advancements in the personal computing sector to enable anyone to transfer value securely across the globe. Notably, the project caught the attention of some major tech firms due to the invention of the mathematical formula known as the “blinding formula.”
Specifically, there was a ton of interest expressed towards this project by both bankers and major tech companies. Impressively, Microsoft offered Chaum $180 million to place his protocol on every Windows PC. However, the concept was not to be, as the firm’s lofty goals quickly fell apart during company negotiations. Chaum didn’t trust large tech firms and this distrust led to him shunning multiple offers. Additionally, DigiCash didn’t solve the dreaded doublespend issue.
A Shift in Strategy
The rise in popularity of the internet in the 90s changed the digital landscape forever. For one, the internet was based out of the US. This led to a shift in development momentum from European creators to American developers. Notably, it was when the online payments giant PayPal and eBay joined forces that it became evident that the consumer would be the driving factor behind digital currencies, not the traditional financial firms.
The E-Gold concept was an early stablecoin that gained momentum in the market. This digital currency enabled users to mail in their physical gold and receive e-gold credits in exchange. This was similar to today’s gold-pegged stablecoins. However, this was before the advent of blockchain technology. As such, the project was centralized in nature.
Users sent in their gold holdings and the E-Gold would hold their assets in a safe. The credits issued could then be sent anywhere globally in minutes. This strategy revolutionized the sector in that it removed the middlemen from large international gold transfers. Sadly, the checks and balances of the project were lacking. Before long, the firm noticed a ton of unusual activity.
Eventually, the company issued a statement in which they stated that they would deny any suspicious transfers. However, since the firm didn’t require any KYC or AML checks, banned persons could simply just start another account and continue their illicit activities. Eventually, this led to an SEC raid and significant fines for the project’s creators. Notably, E-Gold is still in operation today.
HashCash is one of Bitcoin’s best-known predecessors. This digital currency introduced the world to the Proof-of-Work consensus algorithm. The platform was a pioneer in the decentralized currency sector. The network’s PoW system provided both security and monetary issuance strategies that would remain a popular option for cryptocurrencies up until today.
Notably, Nakamoto cites HashCash in the Bitcoin whitepaper as one of the inspirations for his creation. Notably, just like Bitcoin today, the power demands of the PoW network became a hindrance to adoption. Currently, there is a major debate in the market regarding Bitcoin’s massive energy consumption which is the direct result of the PoW algorithm used to secure the network.
In 1998, the world came one step closer to digital money when cryptographer Wei Dai published the B-Money whitepaper. B-money never entered service but it did pioneer the concept of a decentralized network where nodes keep a distributed ledger. Specifically, the B-money concept described how anyone could utilize a decentralized network to create an anonymous, private, and censorship-resistant digital currency.
Digital Currencies Before Bitcoin
Now that you have a better understanding of the evolution of digital currencies before Bitcoin, you can now see how decades of developments helped to inspire the world’s first successful cryptocurrency. Today, the crypto market encompasses thousands of projects. However, none of these coins would be here if it wasn’t for the determination and creativity of early digital currency developers.