In our first blog, we delved into the blockchain technology and how it changed the way global market moves. Blockchain allowed Bitcoin and Ethereum, both digital currencies, to become global successes and instant attractions for investments.
Just like any piece of technology, the central principle of blockchain was developed by various inventors through the years. The idea of digitizing currency — and removing third-party systems like banks and other financial institutions — dates back to the 1980s with inventor David Chaum. Chaum invented DigiCash, a secure digital currency that aimed to prevent double spending by utilizing cryptographic protocols that made its transactions anonymous.
But the Internet was too young for the technology: at that time, e-commerce was not yet fully integrated with the Internet. It was also a concept too advanced for consumers who still prefer to deal with banks for transactions. Eventually, DigiCash failed; it had to declare bankruptcy in 1998. By the time the Internet was more accommodating to digital currency,DigiCash was already acquired by another digital currency company.
Pre-Bitcoin Digital Currencies
After DigiCash, there were other startups that tried to replicate its technology and attempted longevity. Some succeeded, while some failed for some reasons:
- CyberCoin in 1994
CyberCash, a credit card payment processing company, wanted to provide small payment schemes for its customers through its own digital cash called CyberCoin. No matter the amount of payment, CyberCash could insure each account for up to $100,000, which made its digital coin successful. But in 2000, the Y2K bug crashed CyberCash’s computer systems that the company had to file for bankruptcy.
- E-gold in 1996
Douglas Jackson wanted to develop a gold-backed currency that allowed borderless transaction. Through Gold & Silver Reserve, Inc., he created E-gold that attracted over five million accounts, even merchants started accepting it. But because of the ease it offered, it became the favourite currency of extortionists and money launderers. U.S. federal government eventually forced E-gold, which ran on a centrally controlled system, to shut down under allegations of money laundering and operating without a money transmitting license.
- WebMoney in 1998
WebMoney is a Moscow-based company that developed one of the first decentralized digital currencies. It also offers a wide range of financial services such as peer-to-peer payment solutions, merchant services, online billing and payments, and Internet-based trading platforms. Like E-gold, WebMoney also attracted many users, including cyber criminals. Unlike E-gold, however, WebMoney already prepared for illegal activities and made some changes to prevent those from happening. WebMoney now supports currencies in pounds, dollars, rubles, and bitcoin.
- Liberty Reserve in 2006
Liberty Reserve also attempted to create a system that allows centralized anonymous money transfer. Users could create accounts on the platform and transfer money to anyone without verification. But just like its predecessors, Liberty Reserve also attracted many cyber criminals that authorities from different countries forced it to shut down.
- Perfect Money in 2007
Perfect Money became popular after the demise of Liberty Reserve. It is another digital platform that allowed multiple currencies and is more secure since the platform requires verification. Perfect Money, however famous it is, is not available in the United States or to any of the country’s citizens, wherever they may be located.
- Bitcoin: The Current Star
It was in 2009 when a group of programmers under the pseudonym Satoshi Nakamoto launched Bitcoin (BTC). Unlike other predecessors that came before it, Bitcoin has so far become the most bankable digital currency to date – already reaching $10,000 per BTC – because of its blockchain technology. Through blockchain, it was able to successfully merge two unique features:
1. A Decentralized System – Bitcoin works on a decentralized system so there is no central point of control to make it vulnerable to attacks.
2. Better Algorithms – It solves issues on anonymity and double-spending because of its algorithms.
These features allow Bitcoin to support user-to-user transactions — eliminating the intermediaries — and making it so that government authorities will have a harder time trying to shut it down.
Our Forecast for 2020
With more people turning to their smartphones and computers for transactions, it is foreseen that individuals will start adopting digital currency on a larger scale, too. With this development, Bitcoin and Ethereum — along with other emerging digital currencies — may continue to have rising prices.
It also comes with a disadvantage, however. Digital currencies attract cyber criminals although Bitcoin and other popular digital currencies are yet to be seriously attacked. Another thing to consider is blockchain’s scalability. Computers – or nodes — record the same transaction into a blockchain. All these computers have the same transaction history, meaning this would require storage larger than 100GB. The world would need to upgrade storage size to accommodate more nodes for many years — and transactions — to come.