The first attempt to create cryptocurrency occurred in the Netherlands in the late 1980s. Nighttime robberies at remote gas stations were a significant issue for operators facing risks to guards and financial losses.
It was during this time that the idea emerged to use new smart cards for payments, replacing cash. Truck drivers were issued these cards, making gas stations less vulnerable to robbers.
Simultaneously, retailer Albert Heijn pushed for banks to develop direct payment methods from bank accounts, which later evolved into point-of-sale (POS) systems.
Digital Cash
David Chaum, an American cryptographer, was researching electronic money at the time. He believed tokens, akin to physical coins and paper money, were necessary for secure and confidential transactions.
In 1983, Chaum developed a “blinding” formula that expanded the capabilities of the RSA algorithm in cryptography. This formula allowed changing the account number of the transmitted coin so that the recipient could alter this number while preserving the mint or bank's signature. Known as “blind signatures,” this invention enabled anonymous and secure transactions.
Chaum founded DigiCash in the Netherlands in the late 1980s to realize his idea of internet money. Over time, notable figures in cryptography such as Stefan Brands, Niels Ferguson, Nick Szabo, and others joined him.
However, DigiCash faced financial difficulties and despite interest from companies like Microsoft and Deutsche Bank, it went bankrupt in 1998 due to its inability to scale its products.
Second Wave: Web Money
Following DigiCash's failure, hundreds of startups worldwide began emerging in the digital money sphere. However, by the mid-1990s, attention shifted from Europe to North America for two main reasons. Firstly, Netscape's IPO caused a massive stir in the tech world, attracting a multitude of investors. Secondly, in Europe, the first regulatory framework for digital cash came in the form of the EU's 1994 report on prepaid cards, significantly limiting DigiCash's possibilities.
Nevertheless, despite the brief success and downfall of the first wave of cryptocurrencies, the world swiftly transitioned to the second wave — web money.
First Virtual was the initial serious attempt in this direction, but it was soon overshadowed by PayPal, offering a more flexible system for person-to-person money transfers. While First Virtual required the recipient to be registered as a merchant, often causing dissatisfaction among users and regulators, PayPal introduced its system as “money from hand to hand” — a simple and convenient way to transfer money through a web browser.
Initially starting on Palm Pilot devices, PayPal quickly realized users preferred using it through web browsers. Gaining popularity among eBay users, PayPal rapidly built its audience and managed to attract the attention of major financial institutions and regulators.
E-gold and Further Development
Founded in the USA with a legal entity in Nevis (Caribbean Sea), e-gold offered an innovative approach to digital money — using physical gold or silver to back its digital assets. Users could send their physical precious metals and receive e-gold in their accounts, or buy e-gold by sending money to Florida, where the company ensured the purchase and custody of physical gold reserves.
Thanks to its international nature and offshore structure, e-gold initially bypassed the need for approval from US regulators, allowing the company to garner significant attention from both national and international investors and users in need of cross-border fund transfers.
Regulatory Crackdown
As e-gold's popularity grew, independent e-gold exchanges thrived in 2000, seeming assured of a prosperous future. However, e-gold encountered serious issues due to its libertarian approach, which allowed anyone to open accounts.
Despite the theoretical appeal of this idea, the emergence of pyramids, scams, underground gambling operations, and other fraudulent activities drew the attention of the FBI. In 2005, the Federal Bureau of Investigation conducted raids on e-gold's offices in Florida, marking the beginning of the end for this currency. Operations with other competitors and exchangers were banned, leading to the end of the “Second Wave of New Money,” but not to the disappearance of the idea itself.
Until September 2001, the US had been fairly lenient towards alternative currencies, viewing them as a potential innovation for future business. However, after the September 11 terrorist attacks, opinions began to change, and all cryptocurrencies became associated with shadowy operations, complicating e-gold's position.
Meanwhile, Europe underwent different changes. The introduction of strict legislative norms regarding electronic money led internet businesses to prefer basing themselves in the US. These laws also created a favorable environment for the development of new technologies. All of this set the stage for the emergence of Bitcoin in 2008 and Satoshi Nakamoto's publication of the White Paper.
The Emergence of Bitcoin
In his White Paper, Nakamoto wrote:
“I think in the 90s there were a lot of people who were interested in this idea, but after the multi-year failure of ‘trusted third-party systems' (e.g., Digicash), they seemed hopeless.”
Years later, we have a fully decentralized peer-to-peer payment system that laid the foundation for all existing cryptocurrencies and tokens. This is the result of years of research, mistakes, and people's desire for financial independence.