The History of Cryptocurrency & the Importance of Nakamoto

Jun 28, 2019 10:00:00 AM Blake Ford 0 comment(s)

The history of cryptocurrency began with Bitcoin and Satoshi Nakamoto—almost everyone knows that, right?

That’s not a false statement, but it is surface-level knowledge at best. In this article, we’ll go deeper beyond the familiar history of cryptocurrency into the question of Satoshi Nakamoto’s influence over its development—how important was he, really? Would cryptocurrency still have happened without him? Finally, we will close off with a quick look at where this whole thing might take us.

Let’s begin with a quick history recap.

The History of Cryptocurrency You are (Probably) Already Familiar With

The concept of cryptocurrency was first introduced through the original Bitcoin whitepaper, titled Bitcoin: A Peer-to-Peer Electronic Cash System, which Satoshi Nakamoto posted to a cryptography mailing list in October 2008. Less than three months later on January 3, 2009, Bitcoin’s genesis block (the first block of every cryptocurrency in existence) was mined.

The next two cryptocurrencies created were the now-defunct Namecoin in April 2011, and the still-popular Litecoin in October 2011. Although crypto continued to gain popularity over the next few years, it was slow going, and remained on the periphery of mainstream consciousness. Even the notorious Mt. Gox hack in 2014, which resulted in the theft of 850k BTC (over USD$8.5 billion as of June 23, 2019) garnered relatively little attention.

That is, until 2017 when the price of Bitcoin rapidly increased and peaked in December of 2017—the now infamous crypto bubble of 2017. During this bubble, it was not only the market cap of cryptocurrency that spiked—the number of cryptocurrencies did too, which is why we have over 2,000 types of cryptocurrency today.

This was of course followed by the equally infamous crash in 2018. Many believe the crash was precipitated by the introduction of Bitcoin futures on the CBOE and CME, which allowed investors, for the first time ever, to short Bitcoin.

As for the rest of the cryptocurrency story, it continues to unfold this very moment. 

Who is Satoshi Nakamoto?

Even until today, the identity of Satoshi Nakamoto eludes us. While many have claimed to be him, none have provided conclusive evidence. What is far more conclusive is the amount of BTC he owns—estimated at about a million, which is worth over USD$10 billion as of June 23, 2019.

While this isn’t enough to put him on the Forbes Top 100 Billionaires list, it’s an impressive number. Especially considering that besides inventing Bitcoin, he didn’t have to do much to achieve the wealth he holds today—the crypto community (which created all the crypto markets) did the rest.

This brings us to the next question.

How Important was Satoshi Nakamoto to the History of Cryptocurrency?

When it comes to the history of cryptocurrency, there are two competing theories—the great man theory and the zeitgeist theory. The 19th century philosopher Thomas Carlyle sums up the first theory in a single sentence: “The history of the world is but the biography of great men.”

The zeitgeist theory, on the other hand, asserts the ‘spirit of the ages’ is of greater importance. If we follow this theory, it means that even if men like Alexander the Great or Napoleon (or Satoshi Nakamoto) didn’t exist, the changes they brought about would still have happened because the time and sentiment of that moment were ripe for those changes to occur.

The current consensus is that the truth is likely a mix of both, although which one is more dominant is still a matter of debate. When we ask which theory holds precedence in relation to the history of cryptocurrency, we can boil it down to a simple question—would cryptocurrency even exist without Satoshi Nakamoto?

To answer that question, we must look back to before the creation of Bitcoin and blockchain technology.

The Pre-History of Cryptocurrency

Before cryptocurrency, there were other forms of other digital currencies. The most popular was DigiCash, which was active in the 90s for micropayments, but was first conceived in 1983 by its founder, David Chaum. Of all the early digital currencies, it was the closest to achieving mainstream success. DigiCash also pioneered the use of cryptography and anonymity in digital currency, making it an important ideological predecessor to cryptocurrency.

However, there is an important distinction between DigiCash and cryptocurrency—decentralization. Although cryptographically secured like today’s cryptocurrency, DigiCash was not decentralized. Without decentralization, DigiCash would not have met today’s criteria for what makes a cryptocurrency. All cryptocurrencies are digital currencies, but not all digital currencies are cryptocurrencies.

The missing ingredient? Blockchain technology, which is what allows for decentralization and is central to how cryptocurrency works. No discussion of the history of cryptocurrency would be complete without discussing the history of blockchain technology.

The History of Blockchain Technology (and the Answer to the Previous Question)

The first work on blockchain technology dates to the early 90s, with its intended application being tamper-proof document timestamps. However, this nascent technology still required a trusted party to add new blocks to the chain, making it unsuitable for large scale application.

Satoshi’s innovation was making the blockchain trustless—there is no trusted party adding new blocks to the chain. Instead, blocks are added using Proof of Work mining, where parties compete to solve a cryptographic puzzle and are rewarded for doing so. Without this, there would be no decentralization and no cryptocurrency as we know it today.

So, going back to the question of Satoshi’s importance, the evidence seems to point toward the great man theory taking precedence over the zeitgeist theory. Although the zeitgeist of the times—the ever-increasing fiat money supply and the pervasive governmental control over it—made things ripe for cryptocurrency’s emergence, it’s safe to say it was unlikely to happen without Satoshi Nakamoto.

Cryptocurrency and the Future of Money (Where do We Go from Here?)

No one can predict the future, and anyone who confidently says otherwise is trying to sell you something. For reasons already mentioned—the increasing fiat money supply, governmental control over capital flows, and a lack of anonymity—there are many who believe cryptocurrency is the future of money.

As of today, that belief has yet to be proven. Cryptocurrency has entered mainstream consciousness, but it is still quite a way off from mainstream adoption. There are still substantial challenges to overcome and cryptocurrency in its current form is far from a perfect form of money.

But as Stephen Hawking eloquently put it in his seminal book, A Brief History of Time, “The universe doesn’t allow perfection.” Nonetheless, “There should be no boundaries to human endeavor.” The history of cryptocurrency is but an infant compared to the history of modern fiat money. It is still evolving, and the future looks very exciting indeed.