WHAT IS CRYPTOCURRENCY?
A Brief History
Cryptocurrency, including Bitcoin (BTC), Ethereum (ETH), Cardano (ADA), Ripple (XRP) and Tether (USDT), is a digital payment system that doesn't rely on banks to verify transactions. It’s a peer-to-peer system that can enable anyone anywhere to send and receive payments.
Instead of being physical legal-tender fiat money carried around and exchanged in the real world, cryptocurrency payments exist purely as digital entries to an online database describing specific transactions. When you transfer cryptocurrency funds, the transactions are recorded in a public ledger on a blockchain.
Crypto can be purchased on exchanges, for example Coinbase, Binance, Crypto.com, Gemini, BitMart, Kraken and Kucoin and stored in hot or cold digital wallets such as Ledger, Exodus, Coinbase Wallet, Electrum, MetaMask and Daedalus, among others.
TIMELINE OF CRYPTO
1998: Crypto is Coined
The term cryptocurrency was officially established in 1998, the same year DigiCash went bankrupt. During this time Wei Dai was pushing B-money, as he pushed a crypto model focusing on decentralization. Although the term cryptocurrency outlasted B-money, Wei Dai would go on to be one of the most important names in crypto.
Today, the Wei -the smallest unit of Ether- is named after Dai. His concept of a decentralized payment system using cryptography is a cornerstone of all modern cryptocurrencies.
2008: Economic Crisis Strikes
The ‘08 economic collapse shook the foundations of the financial industry. The value of traditional money decreased at the same time that public trust in banks and financial institutions began to waiver. Inherent flaws in the existing systems were exposed and people were looking for a new answer.
This set the stage for a public that was more ready to adopt a decentralized alternative. Satoshi Nakamoto, the creator of Bitcoin, cites this period as his inspiration, even referencing the bank bailout in Bitcoin’s genesis block.
2009-2017: Bitcoin Birth to Boom
During this period, Bitcoin went from being the only cryptocurrency anyone had heard of (if they had even heard of cryptocurrency at all!) to being the hottest new investment opportunity on the block(chain). Although it was hardly the only coin out there, Bitcoin had begun to pull crypto into the public lens.
Satoshi Nakamoto, the pseudonym of the still unknown creator, releases Bitcoin. He strove to show that another type of currency is possible, allowing for international and decentralized use without relying on any financial institution. To many it seemed a pipedream at the time, but history (and the near future) would be kind to Nakamoto.
2009: New Liberty Standard
The first crypto exchange, the New Liberty Standard, is established. On this platform, users can buy/sell Bitcoin. This was a precursor to modern platforms like Binance, Coinbase, and Kraken. Since there was no true valuation of Bitcoin at this time, the NLS established the price by dividing $1 USD by the average amount of electricity to run a high CPU computer multiplied by the average residential cost of electricity in the previous year.
When the New Liberty Standard first launched Bitcoin, trading $1 USD was worth 1,309.03 Bitcoin (BTC). If they held on for just a few short years, early investors would soon be rich.
2010: Bitcoin Valuation
Bitcoin’s first true valuation came when it was sold for the first time. And as with many great things, it started with pizza.
The first Bitcoin sale famously exchanged 10,000 BTC for two pizzas. At current prices, that would have been worth more than $300 million, enough to buy the pizza franchise multiple times over. Still, this is an important moment as it finally makes it possible to assign Bitcoin a true monetary value.
2011: Competition Emerges
While widespread adoption of crypto was still a few years out, competitors were seeing the potential. New altcoins began to emerge, hoping to cash in on Bitcoin’s popularity. They attempted to jump on new angles and services to attract crypto investors.
At this time, Litecoin became one of Bitcoin’s biggest contenders. It used a new algorithm and had a higher maximum cap for coins. As a result, Litecoin became cheaper and faster than BTC. Yet, it still failed to supplant the bigger coin. Although it’s still around today, one Litecoin is only worth (at the time of writing) $235 USD.
2012: The Halvening
The first halvening happened in 2012, with the next in 2016 and again at the end of 2020. The halvening (or halving) is where the rewards for mining Bitcoin are cut in half. This is necessary because there is a finite amount of Bitcoin available. The event occurs every 210,000 blocks and often precedes a surge in the coin's value.
The first halvening was significant as it marked the traction cryptocurrency was getting. Enough mining was occurring that rewards had to be slowed to prevent running out of Bitcoin and/or devaluing the currency. Mining was hitting the mainstream and crypto was really entering the public eye.
2012: Staking Tokens
Up to this point, the only way to make passive income with cryptocurrency had been through mining. With rewards halved and more resources needed to mine coins effectively, it was no longer a practical option for people to earn Bitcoin. Trading or holding coins could boost portfolios but wasn’t generating income.
Then a 2012 paper for Peercoin introduced the Proof of Stake concept. Switching from a proof-of-work model to proof-of-stake increases security and is more energy-efficient. By staking coins, crypto investors can use their tokens or coins to earn more.
In October 2012, one of the world’s most recognized exchanges, Coinbase Global Inc (or simply Coinbase), launched. The exchange was founded by Brian Armstrong and Fred Ehrsam and reached 1 million users by 2014. Today, it is the largest exchange by trading volume.
Dogecoin is the flagship of memecoins. Although it was originally created as a joke, it played an important role in crypto history. Using the popular Doge meme, it was able to reach a larger demographic while also distancing itself from some of the negative imagery and controversy that surrounded other coins. It built a consumer-friendly image with fundraisers like Doge4Water and raising money to take the Jamaican bobsled team to the Sochi Olympics.
Later, Dogecoin would go on to prove the potential value from the speculative nature of cryptocurrency. On May 4, 2021, Dogecoin’s value passed $0.50 USD, increasing more than 20,000% in one year.
In 2013 a Bitcoin investor named GameKyuubi on the bitcointalk forum encouraged his fellow investors to avoid selling during a price drop. In a semi-drunk state, he typed "I AM HODLING," instead of ‘holding’. The typo became an overnight meme before becoming a recognized crypto investing term meaning to stay invested in an asset during a rapid decline in price.
To this day, some people consider HODL an acronym for ‘Hold On for Dear Life’, but that is an alternative interpretation.
2016: Ethereum ICO
The only coin to truly come close to rivaling Bitcoin is Ethereum. The platform goes beyond currency, generating smart contracts and applications through blockchain. It is the biggest mover in using crypto to enhance business processes using the same secure model of authentication. This would prove to offer more value to banks and large enterprises, making crypto more appealing to them in the near future.
Ethereum’s currency, Ether, quickly found its initial use case: Initial Coin Offerings (ICOs). ICOs brought token projects liquidity from an emerging global investor base, and allowed investors to trade cryptocurrencies similarly to public stock. The US government warned that this model left potential for scams and China banned it altogether. And the SEC is still picking up the pieces from the variety of Wild West activities that went down on the fringes of securities laws. Despite this, Ethereum and the initial coin offerings showed that cryptocurrency was capable of so much more.
2017: Bitcoin Booms
Bitcoin hits $10,000 USD, a long way from paying 10k BTC for two pizzas! Although steady growth had been going for years, hitting this benchmark along with the boost from the previous year’s halvening spun the world into a Bitcoin frenzy.
Early investors were bragging about their new wealth and new investors were looking for any opportunity to cash in. Meanwhile, big banks were taking notice and the fintech industry exploded with new uses for blockchain technology.
Cryptocurrency became truly proven, finally recognized as one of the biggest markets for both traditional and alternative investors. Investors across the world would enter telegram groups asking founders and other investors in token project the typical phrase, “when moon?”
2019: Commercial Buy-In and Altcoins
Large enterprises and financial institutions start to make massive investments into cryptocurrency. Ethereum becomes a major focus as its additional services and smart contracts can improve efficiency, speed, security, and automation. Microsoft launches a blockchain service so users can compile and deploy Ethereum contracts.
Other Fortune 500 companies continue to buy into Ethereum and other ‘Altcoins’ over the next few years including JP Morgan, Chase, Amazon, IBM, and Walmart. These Altcoins include:
2020: Crypto Lending
Although cryptocurrency lending was already happening it went mainstream midway through 2020. An economic crash resulting from the worldwide pandemic leads to falling interest rates and lending opportunities plummeting. Investors start looking for other opportunities and crypto is there to pick up the slack.
Cryptocurrency loans give access to fiat currencies, helping to make them a new standard for generating passive income.
2021: Market Cap Surpasses $2 Trillion
The total market cap of cryptocurrency passes $2 Trillion USD. Once seen as a speculative experiment, crypto has become a monolith. New ways of using the technology and strategies for generating income are rapidly emerging. Crypto’s place in the market is cemented. And while changes are sure to come, there appears to be a lot more growth on the horizon.