BC = Before Crypto
For many decades prior to the emergence of Bitcoin and other cryptocurrencies, computer scientists sought a way to make digital cash work. The idea was, if we could make money move as fast as bits, we could radically transform the nature of economic exchange, unburdened from physical and social constraints. David Chaum was one of the first pioneers in the space when he delivered the first “ecash” implementation in the 1980s. He founded a company, Digicash, to pursue the idea further. It had some similarities to today’s cryptocurrency because transactions could be conducted without the user having to divulge any personal information and it allowed users to trade with cyberbucks, a digital currency which was not connected to a bank. However, it remained a centralized company, and did not have lasting success, declaring bankruptcy in 1998.
Over the years, many building blocks of a workable cryptocurrency would come to light, but no one managed to figure out how to build a working decentralized system, that is, a system without a central chokepoint. But in the rubble of the 2007-08 Financial Crisis, something novel emerged…
On October 31, 2008, one Satoshi Nakamoto posted a paper to a cryptography mailing list, describing a “a new electronic cash system that’s fully peer-to-peer, with no trusted third party.” The Bitcoin network launched on January 3rd, 2009, and embedded in the first block of the first blockchain–known as the genesis block–was a quote from the front page of The Times for that day: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”. Bitcoin was and remains an attempt to create a new currency, separate from the government-issued currencies. Bitcoin benefited from obscurity in its early years, and as more people began working on the project, Satoshi walked away from the project, leaving Bitcoin’s development to an open source community eager to pursue the development of the software: “It’s in good hands”.
Ethereum: a Crypto-Cambrian Explosion
After the creation of Bitcoin, other cryptocurrencies began to emerge such as Litecoin (2011), Dogecoin (2013), and finally Ethereum (2015). Most cryptocurrencies seek to differentiate themselves from Bitcoin in one way or another, like scripting language, security models, choice of consensus mechanism, target audience and so on.
Ethereum arguably has had the largest impact of them all because it went further and developed a way for anyone to issue their own currency on the Ethereum blockchain. Combined with its friendly programming language, big ambitions, and fast-growing community, Ethereum became the focal point for innovation in the cryptocurrency space, ushering a wave of experimentation in online community governance and financial architectures. For the first time in history, we were seeing thousands of concurrent experiments in digital economies play out in real time. Many scammed, many failed; the rest continue to reshape our understanding of what digital economies and currencies can bring to the world.
Down to Earth… and Back to the Moon
Post the late 2017 rally in cryptocurrency prices, valuations quickly came down to earth: Bitcoin went from almost $20,000 USD to $6,000, then ~$3,000; Ethereum went from ~$1000 to ~$100. Naysayers rejoiced, feeling validated that the bubble they had warned about had finally popped. Except, it wasn’t a bubble – oops – and Bitcoin and Ethereum today secure north of $1T in assets on decentralized, peer-to-peer digital cash systems.
In the past few years, regulators have begun to sense the threat involved if these systems continue to exist unopposed, and yet we also see legislators grasping the opportunity, whether for a more inclusive financial system, a hedge against inflation, or more resilient cyber and energy infrastructure. As we write this, governments have begun to go public with plans to issue their own cryptocurrencies, dubbed CBDCs (Central Bank Digital Currencies). While it’s anyone’s guess where the cryptocurrency space will go from here, its impact continues to grow across macroeconomics, energy policy, digital privacy, digital speech, and the future of technology itself. We get the sense that it’s like the Internet in 1995: hard to understand, uneven in its adoption, but almost completely inevitable, in one form or another. Whatever happens, remember, friends: WAGMI.
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