Before the meteoric rise of Bitcoin, and the rush of cryptocurrencies that followed, it was the invention of Blockchain technology back in 2008 that laid the foundations on which most cryptocurrencies operate today.
Far from being a sudden disruption to the industry, Blockchain – or Distributed Ledger Technology - had been quietly revolutionising the financial world for a long time. The key principles of the Blockchain, such as digital signatures, linked timestamps (a method to securely track the time at which a document is created and modified), peer-to-peer communication and consensus (a digital proof-of-work confirmation), actually appeared over twenty years ago.
It wasn’t until the early nineties that cryptocurrencies emerged on the scene, but they only really caught the attention of early adopters, who understood their potential to tackle increasing concerns over privacy, autonomy and liberty within the mainstream financial system.
Precursors to Bitcoin such as B-Money and Bit Gold were formulated at this time but were never fully developed. It wasn’t until the global financial crisis in 2008, that cryptocurrencies became a serious, mainstream consideration. The crisis caused a paradigm shift in national consciousness, from unquestioning trust in the financial system to one of intense scrutiny, which consequently increased public willingness to consider alternative financial solutions.
In a matter of weeks following the collapse of Lehman Brothers, the fourth largest investment bank in America, Satoshi Nakamoto, the illusive figurehead of the Bitcoin movement, released the Bitcoin White Paper. This described Bitcoin and its underlying blockchain technology, and ultimately became the holy grail of the crypto-community. It saw Bitcoin become official just one year later in 2009 and valued for the first time the year after that, when someone sold 10,000 Bitcoins for two pizzas.
The financial crash was essentially the catalyst for the blockchain and cryptocurrency revolution. It was this event that first fuelled the adoption of Bitcoin in the financial sector, and cryptocurrency technology has, although relatively silently, been on an upward projection ever since.
Bitcoin marched on quietly unrivalled through 2010, but in 2011 other cryptocurrencies began to emerge. These alternative cryptocurrencies, or altcoins, aimed to improve on the original Bitcoin foundations. Namecoin and Litecoin were two of the first to arrive, shortly followed by SwiftCoin, Bytecoin, Peercoin and, later, the game-changing Ethereum platform.
In varying levels of importance and sophistication, these new cryptocurrencies brought to the market increased speed, anonymity and scalability.
The cryptocurrency movement then entered a constant and rapid evolution. Just five years after it was created, a new, more sophisticated blockchain, developed by organisation Ethereum, arrived on the market. In 2013, this new blockchain provided a platform on which to build and issue new crypto-coins – or initial coin offerings (ICOs), allowing the creators to attract funding for their currencies. Discovering this cheap and quick alternative to venture investment or public offerings, the market saw another surge of new digital currencies, and, as the platform that made it happen, Ethereum’s value increased.
Since Bitcoin’s official arrival less than a decade ago, the number of cryptocurrency options has grown exponentially, and currently stands at around 1,600. But this rapid growth has not come without cost. Challenging the traditional banking and financial system in such a big way, and so shortly after a global crisis, cryptocurrencies are viewed with intense scrutiny and suspicion.
Exacerbating public reticence to adopt cryptocurrencies, this new market has naturally been prone to volatility. In the likely event of government regulation, it’s also unclear how the value of cryptocurrencies would respond as a result.
However, in the relatively short time they’ve been around, cryptocurrencies have attracted considerable interest and investment, and their total market value has now risen to over $330 billion.
Cryptocurrencies have provided access to capital for over 1,600 businesses who are building organisations in many different industries around the world. They are challenging not only the way capital can be raised in equity and bond markets, but also offering an alternative to company loyalty schemes and even paving the way for central governments to create digital currencies.
The future of cryptocurrencies largely depends on how the market recovers from its recent dip, how government regulations will limit or propel certain cryptocurrencies, and how fast cryptocurrency solutions are adopted across commerce and by institutions.
Thomas Power is a Board Member of Team Blockchain Ltd and 9Spokes PLC. He has published seven books, including Ecosystem: Living the 12 Principles of Networked Business, and spoken at over 1000 conferences in 56 countries. His work focuses heavily on AI, Big Data, Blockchain and cryptocurrencies.