Over the past decade, cryptocurrencies have persistently edged their way into mainstream financial markets and transactions. The previously little-known world of crypto is constantly becoming part of everyday conversations and lifestyles. As the world steps into the new decade of the 2020s, many eyes are fixated on the cryptocurrencies to see how they evolve, and whether they will continue to withstand the test of time. Multiple players, including individual economic agents, households, governments and regulators are keenly watching this space to see what the new decade has in store for cryptocurrencies and what this means for the world. As we head into the new decade, let’s take a moment to understand the origins of cryptocurrencies.
The origins of cryptocurrencies begin with the introduction of the first cryptocurrency, Bitcoin, in the year 2008. On 31st October 2008, an unidentified individual (or perhaps a group of individuals) using the pseudonym Satoshi Nakamoto, posted a link to a paper on a cryptography mailing list. The paper was entitled “Bitcoin: A Peer-to-Peer Electronic Cash System”. The paper laid out a framework describing methods of using a peer-to-peer network to generate a system of digital currency transactions without relying on trust”. This paper is commonly referred to as the Bitcoin Whitepaper. When the paper was posted on the cryptography mailing list, most of the recipients in the mailing list down-played it at best. However, the best was yet to come.
On 3rd January 2009, the Bitcoin network came into existence when Satoshi Nakamoto mined the first block of Bitcoins. This block is commonly referred to as the Genesis Block and it had a reward of 50 Bitcoins. The actual platform for Bitcoin transactions came into being through the release of the first open-source Bitcoin Client which was released on 9th January 2009 and hosted on an open software hosting website called Source Forge. A US-based computer scientist by the name Hal Finney downloaded the Bitcoin software and received 10 Bitcoins from Nakamoto. This became the world’s first Bitcoin transaction.
Each Bitcoin is basically a computer file that is stored on a digital wallet app on a smartphone or computer. People can then send Bitcoins (or parts of Bitcoins) to digital wallets of other users, and vice versa. Bitcoin wallets keep a secret piece of data called a private key or seed, which is used to sign transactions and provide a mathematical proof that they have come from the owner of the wallet. Every transaction gets recorded in a public list called a blockchain . The blockchain makes it possible to trace the history of Bitcoins to stop people from spending coins they do not own, making copies or reversing transactions.
The open source code of Bitcoin helped other cryptocurrency developers to create alternative coins based on its code. Today, there are over 6,000 cryptocurrencies in the world. Among the top cryptocurrencies by market capitalization are Ethereum, XRP, Tether, Bitcoin Cash and Litecoin.
Cryptocurrencies continue to become popular. Some countries are already in the process of creating their own national cryptocurrencies including China, Ecuador, Tunisia, Venezuela, Senegal, Estonia and Singapore. Cryptocurrencies also appear to be gaining more acceptance as a growing number of service providers and retailers continue to accept them as a method of payment. Peer-to-peer Bitcoin transactions are on the rise across the African continent, powered though platforms such as Paxful.
As with any nascent technology, cryptocurrencies have their fair share of challenges. These include price volatility, security, conceptual technicality and regulatory bureaucracies. This new decade will definitely be a defining moment for cryptocurrencies, and many are watching this space keenly.