The Complete History of Cryptocurrencies

Cryptocurrencies are coming of age. But how did we get there? How is our future guided, and from what vortex does this new understanding of value emerge? Onomy Protocol elaborates on the complete history of cryptocurrencies as follows.

Hash and Peer-to-Peer Electronic Cash System

Hash, generally translated as hashing, hashing, or transliteration as hashing, is to transform an input of any length into a fixed-length output through a hashing algorithm, and the output is the hash value. There are hashes at the beginning, any set of data is ground into an encrypted output, each block is connected to the backbone of the block, and the miner verifies each block by solving the hash issued by each block, thus proving that the previous block is accurate .

Satoshi Nakamoto believed that these connected blocks could be used for a direct peer-to-peer currency whose governance and authenticity could be overseen by a decentralized and extensive computer network, free from the control levers that national governments exercise over typical fiat currencies. In 2008, Satoshi Nakamoto published a paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System”, describing a system he called “Bitcoin: A Peer-to-Peer Electronic Cash System”. “Coin” electronic currency and its algorithm.

Crucially, it will also solve the double-spending problem through its proof-of-work mechanism, which also ensures the mathematical “impossibility” of breaking the transaction ledger. It will be a people’s currency, overseen by everyone involved, and can never be manipulated. And so Bitcoin was born, and the age of cryptocurrencies—a giant neon arcade, tech labyrinth, and once-in-a-lifetime gold rush—began.

Birth of the Genesis Block

The first block to be constructed is called the genesis block and has a unique ID number. Except for the genesis block, each subsequent block contains two ID numbers, one is the ID number of the block itself, and the other is the ID number of the previous block. Through the forward and backward pointing relationship between ID numbers, all blocks are connected in sequence to form a blockchain.

In 2009, Satoshi Nakamoto released the first Bitcoin software and officially launched the Bitcoin financial system. On January 3, 2009, Satoshi Nakamoto created the first block on a small server in Helsinki. Satoshi Nakamoto dug up the Bitcoin genesis block and signed it by writing: “The Times 3 January 2009 Chancellor of the Exchequer on the verge of a second bailout for banks”, underscoring the inspiration that inspired him to invent Bitcoin Some financial turmoil, the official launch of the Bitcoin network.

In 2010, he faded out and handed over the project to other members of the Bitcoin community. Satoshi Nakamoto is believed to hold about one million bitcoins. These bitcoins will be worth more than $40 billion by the end of 2021.

How Bitcoin Became a Port in a Financial Storm

The aggressive fiscal leverage used to ease the 2008 crisis never stopped. The Fed has printed more than half of all dollars in the past two years. Bitcoin designed by Satoshi Nakamoto is both deflationary and a full-reserve (rather than fractional-reserve) system. Since only 21 million bitcoins are currently available, the money supply has a hardcoded terminal. What’s more, each block is getting harder and harder to mine.

Bitcoin proponents believe that this creates a dual stability where the wealth of the people is not eroded by the dictates of the state, the currency is not created by magic, and all wealth is lent with the conscious consent of the owner of the wealth , instead of your $100 being used as collateral by the bank, borrowing $1000 and then betting on Indonesian housing futures, or something like that. The second stability is decentralization. With Bitcoin, no chancellor of the exchequer can unilaterally adjust the money supply.

Decentralization, and a monetary system that works without going through a financial institution, is the second-biggest innovation in cryptocurrencies. It is this innovation that has spawned thousands of new use cases. If we could decentralize money, what else could these distributed ledger technologies be used for? Evidence suggests that much of this is still being researched, but we’ll see some examples of how cryptocurrencies have grown to cover far Beyond the broad possibilities of value transfer.

Decentralization is also the source of crypto’s libertarianism. It is known that some of the biggest early proponents, including Satoshi Nakamoto himself, were strong advocates for reducing the role of the state in individual lives.

With the birth of Bitcoin, we have the cryptocurrency market. It consists of things like smart contracts and the Metaverse where geek kids turn into huge winners and even dice rolls get huge wins, but for what purpose?

Fortunately, we’ve gotten rid of the casino talk. Cryptocurrencies are building a new social contract, a new way of distributing value among us all, and by doing so, by creating a “peer-to-peer electronic cash system,” rearranging social ties and the overseers who govern them.

Buy Pizza, Gamers and Holders

The early days of crypto were filled with smart people, HODLs, and people who just wanted to access Silk Road, buy game items, or hack. The real early adopters, though, are consumers. Amid all the laughs, the man who paid 10,000 bitcoins for two pizzas has done far more to grow the crypto market than any whale investor today.

There are many more stories: hard drives burned out, mnemonic phrases forgotten, etc., resulting in lost passwords. Some of them are now worth hundreds of millions of dollars. There’s this tragic story of a guy whose hard drive was thrown into a landfill who was willing to share half of the money if the hard drive could be found. So far, parliament has refused to let him seek. The libertarian spirit of encryption means personal agency for your funds in the form of private keys. In fact, the depletion effect is built into the deflationary model from the start, and the lost currency drives the overall price up.

The term HODL comes from a typo on an early Bitcoin forum. A man had bad luck after a hard day’s work, got drunk and smashed his keyboard during a lemming operation in the early days of Bitcoin. Not only did he create a meme, but he also offered savvy investment advice that penetrated the consciousness of many young people buying and investing in cryptocurrencies today. Despite massive volatility and trader bros, cryptocurrencies have strong retail investors who are happy to hold on to their currencies and enjoy the occasional 10,000% return.

Early trades, exchanges and Mt Gox hacks

Buying and selling Bitcoin was difficult in the early days. If you don’t mine yourself or make money by doing surveys on random sites, you either wire your money to an anonymous PayPal and hope to get bitcoins in return (to be fair, you almost always do ), or use an exchange.

A centralized exchange is a bit out of tune with the original vision of cryptocurrencies, as it is a peer-to-peer exchange mechanism without financial institutions in the middle. CEXs hold your crypto (or your fiat) and allow you to buy and sell crypto at instant speed. This opens the door to the more familiar day trading, speculation and options trading you see in traditional markets.

If you can trust CEX, many people think it’s fine. Others will say that if Satoshi Nakamoto did die, he would roll in the grave. However, here comes a brutal reminder of the importance of self-custody of your wealth on-chain.

Mt Gox is the largest Bitcoin exchange. From 2010 to 2013, it processed 70% of the world’s bitcoin transactions. Before that, Bitcoin itself was in the midst of one of its biggest bull markets, with Mt Gox being the destination for trades. The future looks bright.

until hackers. The key to handing over the keys is that, while trusting them, you have to trust that they will keep the keys for you and be prepared for anything that may happen. In Mt Gox’s case, they didn’t. Their user database was leaked and hackers started buying Bitcoin for as little as 1 cent by manipulating the exchange’s central computer. The hacker also stole Mt Gox’s central account and burned the coins by sending a large amount of the coins to a non-existent address. Mt Gox was eager to get its money back in time, but it was too late.

Thousands of users lost their investments and the price of Bitcoin collapsed on the back of the event – people lost trust in the ability to trade securely, especially considering how popular and important Mt Gox was on the trading scene at the time. This was the first major “crypto winter” when confidence in the market was young and the overall collapse was a serious blow to the early adoption of cryptocurrencies.

The rise of stablecoins

The perpetual volatility of early crypto markets, and the confidence friction created by trying to trade assets with daily price fluctuations, led to the need to somehow store crypto value in a notional “pegged”, a holding currency that would allow People move assets to a safe store of value without the need to “exit”, i.e. exchange crypto assets back to fiat.

Tether was the first widely used stablecoin and is by far the largest stablecoin by market capitalization. Tether’s goal is to create a reserve-backed cryptocurrency, where each issued token has a corresponding real-world asset — like a stock, bond, or fiat currency — to back its redemption value. Tether proved to be very popular and was the main catalyst for the creation of stronger trading markets on early cryptocurrency exchanges.

Since the inception of Tether, and the emergence of alternatives such as USDC and BUSD, there have been other movements aimed at creating a “pegged” value cryptocurrency that does not require fiat backing and retains the spirit of decentralization, prominent examples include MakerDAO, which uses Various crypto collateral issues DAI, a dollar-pegged token, and TerraLuna, which links its stablecoin UST with LUNA, its collateral currency, to mint and burn algorithms.

Ethereum: “Smart Contracts,” Oracles, and Decentralized Exchanges

Ethereum is considered the dawn of a second wave of crypto adoption. Building on the work of Nick Szabo, who proposed the concept of smart contracts in 1994, Vitalik Buterin and his men formulated Why should a decentralized, trustless ledger only be used for cash? The ability to generate trust through random parties through a trustless network and have blocks hold data in such a way that “contracts” can be formed as a result if certain preconditions of the arrangement are met and their authenticity is verified by the blockchain – No third-party enforcement required.

This concept opens the door to complex arrangements, such as raising funds for a specific goal without having to hold the funds in an escrow account or trusting that preconditions have been set. In fact, the Ethereum Virtual Machine (EVM) is a massive decentralized supercomputer that processes complex contracts on a distributed ledger.

Smart contracts transform blockchain and distributed ledger technology from simple “currency” to something more complex. With smart contracts, the possibility of more complex financial instruments on the blockchain becomes a reality.Ethereum was the first major cryptocurrency to implement this as part of its codebase. This feature means that the blockchain can host DApps rather than a single function of transactions — decentralized applications can perform a wide range of operations, as long as their contracts and tokens meet established standards.

This includes, but is not limited to, decentralized value exchange, gaming ecosystems, and artwork verification (in the form of NFTs). It also opened the door to the yield-generating tools with which DeFi was born — but it took years to unlock its full capabilities.

The scars of the Mt Gox hack have made people more acutely aware of the importance of on-chain transactions. With smart contracts, decentralized exchanges (DEXs) are possible. Smart contract technology can be used to create automated market makers (AMMs). By creating a “liquidity pool”, a pair or group of tokens whose price is adjusted according to the ratio of the two in the pool, users can trade without a central authority.

These on-chain transactions bring cryptocurrencies back to the vision of “peer-to-peer” value exchange, while also giving token holders the opportunity to become market makers themselves and earn from their tokens, opening up the possibility of financial instruments to institutions Enthusiasm for crypto in 2022. Like the early pioneer Uniswap, DEXs are not without their problems. Ethereum’s smart contracts and ERC-20 standard as the basis for this activity are expensive to use, and the lack of gatekeepers (where anyone can create a pool) means anyone can create tokens and sell them.

Still, for many in the cryptocurrency space, it’s a better way to trade, and once DEXs are able to offer this feature at a lower price while also offering the exchange’s order book functionality, what will happen from A full migration of cex, bringing billions of people into cryptocurrency.

Smart contracts require data to execute. On-chain data is relatively “easy”, you can simply read another smart contract and enter the data – as long as it conforms to the blockchain’s standards. Even more difficult is putting “off-chain” data on the blockchain in the same trustless, decentralized way as cryptocurrencies.

It’s much harder to do this if you have a smart contract that can be properly triggered when the winner of the horse race arrives, or when the weather reaches a certain temperature. How do you trust this information? This is where the “oracle” comes in. An oracle is a network of computers that collaborate to verify off-chain information and enter it into the blockchain.

Despite these advances, they are still in their infancy in 2017. At the time, people were still buying Bitcoin, and their “magic internet currency”. Bitcoin’s extraordinary investment returns from less than $1 to over $22,000 between 2009 and 2017 led to a flood of imitators, which subsequently sparked a second crypto winter.

The ICO Boom and the Birth of the Meme Token

An ICO or initial coin offering is a process in which cryptocurrencies are minted (called a coin generation event) and then sold to the public through a website or other portal. Bitcoin’s stellar returns have many retail investors looking for the “next big thing.” “It didn’t take long for a large number of tokens to be released, setting off a token boom through the media and forums.

The difference is that instead of being mined over time, these coins are dumped on the market in large quantities. Famous examples like Waltonchain, Big Brain Chain, and Verge have sent their supporters into a frenzy to replace Bitcoin as the “currency of the future.” The frenzied hype that accompanies these launches has led to a vertigo-inducing surge — egged on by their favorite internet celebrities — of retail consumers looking for the “next Bitcoin.” In 2017, there was an “ICO boom”. Mainstream interest in cryptocurrencies reached a fever pitch in 2017.

Of course, it ended in tears. While the technology of these blockchains is often on par with or better than Bitcoin (the dirty secret of cryptocurrency is that it’s actually not that hard to create a simple, efficient currency in a matter of weeks), there is no in principle. Their early token supply is usually held by a select few individuals who either created the project or hyped it up and then dumped their tokens on the retail market. The enormous unhappiness and pain this caused in the retail market caused serious damage to many people’s confidence in this bright new technological innovation and created a mistrust of cryptocurrencies that persists to this day (at a certain point in time). extent is correct).

Meme tokens — tokens that have no “intrinsic value” (whatever that actually means) but exploit the human ability to laugh at themselves — still exist today. Some are benign, a simple joke that people can buy and share. Others are carefully designed to deceive any unpretentious investor who encounters them. And others, like Dogecoin, just to prove a point or “a joke” built rampant inflation into the token as the clear antithesis of Bitcoin’s deflationary economics.

Of course, the Metaverse is not without its ironies, with Dogecoin soaring in popularity since its inception in 2013. Its success remains. By 2022, it remains a top 20 cryptocurrency and spawned a slew of altcoins (some of which, like the Shiba Inu, have been hugely successful). Of course, Doge wouldn’t be where he is without a cheerleader like Elon Musk. Sadly, the lessons it was trying to teach us are lost. To this day, nefarious “canvassing” like the Squid Game token continues unabated in the crypto market, with investors finding themselves unable to sell their tokens and founders getting rich.

Today, ICOs are not commonly used. The possibility of manipulation is too great. There are all kinds of new ways to supply money to the market. IDOs, IEOs and airdrops to users came into being. With IDOs, tokens are sold at a specific price and then pooled on decentralized exchanges where users can interact, quickly establishing a fair market price for new tokens.The IEO gives control of the sale to CEX, which holds the liquidity to ensure the token sale goes smoothly. Airdrops mean that active users of the protocol get tokens for free and put them into circulation in the market, the most notable of which is Uniswaps’ airdrops to users who have used DApps.

DeFi and Layer 2 Technologies

After the ICO boom and the damage it caused, and Bitcoin plummeted from a high of $22,000 in 2017 to a low of $3,000, public interest in the crypto market cooled. The media still refers to cryptocurrencies as a “scam” (after the ICO boom, for good reason), and the prevailing view is that the days of Bitcoin are over and cryptocurrencies are about to disappear.

DEXs, oracles and smart contracts started to grow rapidly between 2017 and 2019. Bitcoin, despite a massive drop in asset value, has started to climb again—albeit slowly—in these two years. As the crypto community gets used to the new technology and starts to use it better.

This is most evident when DeFi (decentralized finance) enters the crypto market. If cryptocurrencies can replace cash, why not replace the entire banking system altogether? That’s the idea behind DeFi, where a decentralized network of users can become a bank – by collaborating to issue loans, credit, and finance projects to earn interest as the target.

The economic efficiency of blockchain creates a method of financing without the enormous waste inherent in international banking networks, thereby unlocking more yields for lenders, better savings rates for depositors, and better savings for borrowers. interest rate. Institutions are no longer afraid of this emerging technology and are starting to notice that their own pools of assets can be outsourced more efficiently thanks to these advancements in blockchain technology.2020 is the year of DeFi, an innovation many believe has propelled Bitcoin to all-time highs in 2021, and it remains the flagship currency of the crypto market and a market mover.

DeFi is still developing. The current “Defi 2.0” claim has been criticized. The original DeFi projects leveraged efficiency to deliver incredible gains, while recent DeFi projects have given users thousands of APY percentages. If you don’t spend all your money, there is no efficiency at all. There is a real concern that the new so-called DeFi initiatives and their high-yielding farms are nothing more than glossy Ponzi schemes in the guise of blockchain.

scale problem

However, the resulting strain on the Ethereum network has been catastrophic — and has largely “locked out” modest investors from the possibilities of DeFi. This is due to the expensive gas fees on Ethereum, and the transaction speed of this ancient monolithic architecture is completely unsuitable for the sharp financial world. This in turn has led to a proliferation of Layer 2 protocols. These protocols are designed to increase transaction speed and reduce the cost of using Ethereum by moving transaction volume off-chain.

There are many ways to do this, all with varying degrees of success. Layer 2 chains like Polygon and Arbitrum are touted as the saviour of Ethereum, which is currently in a position to disrupt general usage when demand and usage surge. Layer 2 solutions attempt to remove the main pain of Ethereum mainnet verification by using “sidechains”. The sidechain computes all transactions and securely verifies their authenticity, then sends them to Ethereum for verification within a block.

They have been successful so far, but we have recently seen brand new layer 1 chains built on different architectures and thus able to efficiently compute large numbers of transactions without relying on extra layers.

The rise of Layer 2 is a direct response to the “blockchain trilemma” proposed by Ethereum founder Vitalik Buterin. In a nutshell, the trilemma states that Ethereum can have both scalability, security, and decentralization at the same time — but not all three, because increasing scalability (with decentralization) way) would put security at risk. Most projects adopting current technology are focused on two-thirds-layer 2 solutions for blockchains that help to scale secure, decentralized blockchains that enhance their utility without sacrificing.

Of course, in order to deliver on Ethereum’s promise, a “secondary blockchain” is needed, leading competitors to try to replace Ethereum by solving the trilemma. These “ETH killers” are trying to create layer 1 solutions that solve the blockchain trilemma without the need for layer 2. Prominent examples include cosmos-based application-specific blockchains that are built for a clear purpose and thus able to adapt to the needs of any protocol, or the famous NEAR, Avalanche, Solana, which rely on different consensus and availability Scalability mechanisms such as sharding, subnetting, and proof-of-history.

Some argue that Ethereum is still the only institutional chain, while other L1s are only for retail traders looking to escape high fees. We believe that in the future, most blockchain ecosystems are connected to each other by bridges, and inter-chain transactions and cross-chain asset storage become the norm, and the chain you interact with will become less important.

NFTs and the Metaverse

If 2020 is the year of DeFi, then 2021 is the year of NFTs. The ability to “mint” artwork—that is, generate ownership codes that can persist on the blockchain—has taken many by surprise. NFTs were the first wave of tokenized asset holdings, moving beyond simple “fungible” assets like currencies into a more obscure category. With the ability to write ownership of anything imaginable onto the blockchain—regardless of the “real world” value it may have—it has given rise to a new concept of cryptocurrency as a reference to a variety of initial asset classes The opportunity to tokenize, which has led to a new speculative gold rush, similar to the ICO boom.

Because that may be the future. While still speculative, the “Metaverse” — first created by Neil Stephenson’s legendary cyberpunk novel “Avalanche” — will create a thriving stage for NFTs. Their ability to represent avatars, virtual lands and video game skins creates a new way of putting value into the hands of cryptocurrency users. Play-to-Earn gaming is a new trend that promises to use NFTs and the ownership they confer to create value for the people who spend their time in the ecosystems they support.

Multi-chain, cross-chain

Vitalk says the future is multi-chain, not cross-chain. Others will strongly disagree. The fact remains that blockchains do not communicate well with each other. The next challenge for cryptocurrencies is to be able to connect information (or data value) more efficiently between the vast number of blockchains currently on the market. By creating effective, secure bridges, the opportunity for exponential growth is evident as blockchain utilities are effectively paired.

If these bridges are centralized, Web3’s ability to maintain user builds is at stake, and a single point of failure attack vector is created. However, decentralized bridges with widely dispersed responsibility for data value transfer can lead to healthy cross-chain blockchains chain economy.

What’s next?

People have talked at length about the moment when cryptocurrencies gain “mass adoption,” speculation meets real-world usage, and cryptocurrencies become a fundamental pillar of our daily lives. We’re not there yet, but we’re getting very close.

We believe that the golden opportunity for mass adoption is within our grasp. First, DeFi can shake up the sloping foreign exchange market and provide a way to trade foreign currencies on-chain, opening up new ways to interact with your capital. Second, a decentralized user experience needs to outperform a centralized enterprise while providing its own fund custody, efficiency, on-chain transactions, and support for advanced features. Then, we need a better wallet. Not every blockchain has one, but all blockchains have one, and all assets are stored on any chain. Only then can we expect the world’s trillions of dollars to flow into DeFi, unlocking new opportunities for the unbanked and driving out traditional institutions that refuse to grow. Think of it as the golden ratio, the ultimate formula that equals success regardless of external pressure.

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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