Failed attempts before Bitcoin paved the way for its eventual success. Each attempt contributed valuable lessons to the cryptocurrency ecosystem.

1

DigiCash by David Chaum (1989)

DigiCash pioneered the concept of digital currency through its Cyberbucks system, which gave new users 100 units of digital money upon registration. This innovative approach to electronic payments emerged in the 1990s as part of DigiCash’s broader mission to revolutionize digital transactions. The system was particularly noteworthy for laying important groundwork in digital payment technology, implementing features like micro-chipped smart cards and secure cryptographic keys that would later become standard in digital wallets and electronic payment systems.

DigiCash came at a time when e-commerce wasn’t fully integrated within the internet. Lack of merchants led to Digicash filing for bankruptcy in 1998.

Reason for failure: Timing

2

E-gold by Gold and Silver reserves (1996)

Backed by real units of gold and silver. Allowed users instant transfers over the internet. By 2006, there were 3.5 million active e-gold accounts, processing $5.9 million in daily transactions. Innovated micro payments allowing users to pay one ten-thousandth of a gram of gold and developer APIs. Merchants accepted e-gold as form of payment alongside regular credit and debit cards.

Because of its centralized nature, there was no way to tie accounts to real world identities. Used for nefarious purposes such as money laundering, online scams and other illegal activities. The US government shut down the company in 2006, seizing assets and establishing systems of redemptions for users.

Reason for failure: Lack of KYC (Know Your Customer protocols), unlicensed money transmission, centralization issue

3

Hash Cash by Adam Back (1997)

Introduced proof of work to verify validity of digital funds. Proof of work computers produce verifiable computationally intensive output for electronic money to have value. Used cryptography (SHA1 encryption). In inception, Back referenced DigiCash, proposed fee for transactions to prevent spam. Would impose economic cost to limit spam. Cryptography solved the double spend problem which enables digital units to be copied like a file and be spent more than once. Used by Microsoft and Apache but never took off.

Reason for failure: Not intended for widespread adoption, solved spam issues

4

B-Money by Wei Dai (1998)

B-money introduced the idea of computer science to generate currency outside of governmental systems. Like Hash Cash, he proposed that digital currency would be produced through computation. Digital money would be priced based on other real world assets. Limited in supply to protect against inflation. B-money broadcasted transactions across a network. System would be enforced by digital contracts, which would be used to resolve disputes. Used cryptography instead of centralized authority enabling users of the network to be anonymous. Applied idea of contracts to enforce order to distributed system and proof of work to produce money.

This was more of a thought experiment by Wei Dai to explore the concept of non-governmental money that couldn’t be subject to inflation through a controlled money supply.

Reason for failure: Just a thought experiment

5

Economic Climate + Housing Market Bubble (2008)

E-commerce was popular via credit cards, debit cards and PayPal. People wanted a tamper-proof distributed way to send money across the globe and that still hadn’t been created.

TLDR: The Housing Crisis

  1. Investors want alpha + low risk
  2. They turn to real estate
  3. They didn’t want to buy specific homes
  4. They bought mortgage-backed securities
  5. They performed really well
  6. They wanted more
  7. Banks were running out of credible debtors to give mortgages to
  8. They start giving out mortgages like Oprah
  9. People start defaulting on their mortgages. Banks reclaim homes and list again
  10. More people start defaulting. Home prices start plummeting
  11. The mortgage-backed securities were then worth nothing
  12. Investors lost all their money and were sad