It is so happening with a multitude of people across the globe that yesterday their entire understanding of currency revolved around the piece of paper that they held in their hands, and today they are dazzled by the phenomenal idea of storing value digitally in something called a cryptocurrency. It is fairly acceptable to feel that it is a little too much to digest in one go. But this seemingly explosive shift is actually a result of decades of progressive thinking, mathematical research and strong-gut attempts at fundamentally changing the world’s long existing, centrally-controlled economic order (which, by the way, is one mammoth of a task).
Early experiments with cryptocurrency
Businesses and merchants offered virtual currency to their customers for a long time, which was effectively a token representing the fiat currency. This redeemable virtual currency could be used for purchases, transfers to other people or just stored as credits. People began toying with the idea of digital cash and virtual currency as early as the 1980s, when the earliest of ideas were translated into experiments around money.
As an extension to the popular encryption algorithm RSA, American cryptographer David Chaum invented the first form of internet money as DigiCash in the Netherlands. The amazing technology and its truly interesting product eCash garnered tremendous media attention. At one point, Microsoft offered $180 million to Chaum’s company to put DigiCash on every Windows PC in the world. However, Chaum’s company made some mistakes (including not choosing to take money from Microsoft) during its course and also caught hostile attention of the Netherlands’ central bank (De Nederlandsche Bank) which led to its eventual bankruptcy in 1998.
The second wave of web based money sprung from the previous failures in the space. Startups created payment solutions and virtual money systems with little tweaks here and there. But PayPal emerged a clear winner because it understood what the users actually wanted: a money on the already familiar web browser. PayPal offered a seamless peer-to-peer transfer mechanism and a neat way of accepting payments for the merchants. We all know where PayPal is today.
A significant attempt in parallel to PayPal was e-Gold, which accepted physical gold deposits from users and issued gold credits (or e-Gold) to their accounts. This facilitated a good volume of cross-border trades and payments. However, e-Gold was shut down after emergence of Ponzi schemes, fraudulent high-yielding investment programs and scams.
Good Samaritan Nakamoto’s gift
The 2008 economic crisis in the USA became a checkpoint in the historical timeline of world economy because it brought a much needed eyeopener for the callous behaviour that had seeped into the evangelists of global finance. This incident saw the emergence of an anonymous Good Samaritan who went by the name Satoshi Nakamoto (it is still unclear whether this was an individual or a group of people because the identity is yet to be confirmed). Nakamoto published a white paper in 2009 elucidating the concept, technology and source code for implementation of blockchain. Along side, he introduced Bitcoin, the world’s first cryptocurrency.
Nakamoto’s invention was not incremental or disruptive, but it was a foundational technology. Blockchain inherently challenges to replace all forms central authority with a decentralized, peer-to-peer, and open source trust protocol. Here is a TED Talk demonstrating the immense potential of blockchain.
There are over 16 million Bitcoins in circulation as of today which generate a total market capitalization of around $50 billion. It is gaining popular support and acceptance from developer, user and business communities alike. Countries like Japan, Canada and Australia have already regulated Bitcoin under their law and taxation frameworks.
A world of coins
Upon the surge in interest in Bitcoin and blockchain since 2009, a number of other cryptocurrencies (or tokens) have come into existence. There are over 850 cryptocurrencies currently being traded across the globe. Litecoin, Dash, Ripple, Stratis, ZCash, and Monero are some examples of the popular coins. The total market capitalization of all cryptocurrencies combined crossed $100 billion in June 2017, a much welcome milestone in the cryptocurrency journey. Here is a list with interesting details about active cryptocurrencies.
As an obvious outcome of this, a completely new industry of cryptocurrency trading has emerged globally. Blockchain-based apps will intrinsically make use of a cryptocurrency. To that extent, an exchange plays the role of a provider of access to cryptocurrencies, which the common people will utilize to use such blockchain based apps.
The new rage called Ethereum
A relatively new cryptocurrency called Ethereum (ETH) is competing in a race with Bitcoin for world dominance and popularity. Proposed in late 2013 by Vitalik Buterin, the Ethereum Project (parent for the ETH coin) went live in July 2015. Ethereum is basically an open source, blockchain-based distributed computing platform, whose major highlights include smart contracts (scripting functionality for contractual agreements), the Ethereum Virtual Machine (Turing-complete virtual machine), and a set of programming languages to build blockchain apps (or dApps for ‘Decentralized Applications’) among others.
In a short time of existence, Ethereum has shown tremendous promise and received unparalleled support from developers, users and businesses. The total market capitalization of the currency is already around $30 billion. Being an open source blockchain project has enabled tons of startups to develop their own cryptocurrencies built on the Ethereum platform.
The ease of development, the size of the developers community, the technological edge over other blockchain platforms, and its signature Enterprise Ethereum Alliance (a consortium of world’s leading businesses which employ and help the Ethereum platform) are some of the main reasons why it is getting so popular.
What the future looks like
The philosophy of cryptocurrencies is to break all borders and barriers, at least in the context of finance and trade. Nearly a thousand coins are competing with each other in these early stages of blockchain development. The future may see a single leader while others are rendered obsolete, or the future may see 3–4 leading coins which define the entire payments, lending, trading and banking infrastructures globally.
Within the next few years, cryptocurrencies may become popular enough for mainstream adoption of blockchain-based apps. It will be a new world, in a new light, in a new era.