So why was there a need for Bitcoin? To answer that question we have to ask ourselves, what is one of the key characteristics of Bitcoin? Security? Pseudonymous? Decentralization!
The biggest reason why we should use Bitcoin or any other cryptocurrency is the decentralization aspect. Gone are the days that we need to trust the big bad government. Well... that's not exactly true. But you know what I mean. Centralization often leads to time consuming faulty processes and corruption. Just look at your own job. At my work, everything is getting more and more centralized which is a disaster! People at the top are making bad decisions either due to corruption or just having no clue about what's really important. It is really frustrating but hey who am I to complain? I'm a nobody. At least in the centralized system.
Of course not all centralized organisations are bad. I trust a bank to take care of my money. My funds are much more secure than owning bitcoins. But I like the aspect that I'm in full control of my bitcoins. I and only I decide what will happen with them. In essence, banks are the real owners of our money. They decide which transaction will go through and which will not. Most of the time, if not all the time you will not notice this because everything goes according to plan. Even the banks love it when a plan comes together. ;)
But the poor people in Greece and Cyprus were not so lucky. When their country was going bankrupt, people were running to banks and ATMs to withdraw their money. Unfortunately for them, banks refused this and closed their services for 2 weeks.
You have to imagine this. Knowing you have money on your account but not being able to get it.
I do understand why the banks in Greece made this decision at the time. Banks only have a limited supply of money. If you put money on your bank account, the bank will use this to invest elsewhere.
If all the people would reclaim their money at the same time, banks would only have an average of 3 days before they go down due to a lack of liquidity.
But enough about that. Let's head back to where Bitcoin all started. It was created out the idea of Libertarianism. Someone who believes in this ideology thinks that "any central authority should be as minimal as possible."
The Cypherpunk Movement is a group of people that are true Libertarian dreamers. Privacy, freedom and anonymity are key within their beliefs. They hated big banks and governments which are are the pinnacle of centralization.
So they felt a need for a new digital currency where your identity should remain hidden. Unless you want to reveal yourself.
There were some early attempts at creating a cryptocurrency but they all failed due to several reasons. Centralization being the biggest one. Here are Bitcoin's precursors.
- Digicash
- Hashcash
- B-money
Each of these coins were an inspiration for Bitcoin.
Digicash assured users that they would have complete privacy when doing online payments. But the coin failed due to centralization. Digicash was directly linked to the company that created the currency. So if they go down, the coin would go down with it.
Hashcash was created to counter email spam. In order to send an email, you would have needed to solve a cryptographic puzzle. When you proved that you solved this puzzle(proof of work), your email would get a Hashstamp. This stamp proves the validity. This process would be very expensive for spammers to do. It would require an incredible amount of rescources.
B-money used some key characteristics that were very similar to Bitcoin. Cryptographic puzzles had to be solved in order to create money. Everyone in the community would have had a copy of the (distributed)database and transactions were signed with digital signatures.
So if we would summarize:
Digicash was known for it's privacy, Hashcash had it's proof of work and B-money had a distributed database. Sounds familiar?
Finally in October 2008, Satoshi Nakamoto published his white-paper, titled, "Bitcoin: A Peer-to-Peer Electronic Cash System"
The world was introduced to the first working cryptocurrency. I think it is safe to say it would become a huge succes. Probably exceeding Satoshi Nakamoto's wildest dreams.