A cryptocurrency is a digital currency that is created and managed through the use of advanced encryption techniques known as cryptography.
- Cryptocurrencies have soared in popularity since 2008, with more than 1,000 in existence today and an aggregate value greater than the market capitalization of IBM. But we are highly doubtful whether they will ever become mainstream currencies. The need for companies and individuals to pay tax receipts in government-issued currency, and the potentially unlimited crypto-money supply, pose significant barriers to widespread adoption. We think the sharp rise in cryptocurrency valuations in recent months is a speculative bubble.
- But while we are doubtful cryptocurrencies will ever become a mainstream means of exchange, the underlying technology, blockchain, is likely to have a significant impact in industries ranging from finance to manufacturing, healthcare, and utilities.
- Investing in the blockchain wave is akin to investing in the internet in the mid-nineties. Blockchain could lead to significant disruptive technologies in the coming decade. But for the time being, technological shortcomings still need to be resolved, it remains unclear which specific applications will prove most useful/profitable, and actual revenue and profitability associated with the industry is currently limited. Despite these challenges, investors seeking long-term opportunities from blockchain technology can start to position in two broad groups: technology enablers – in software, semiconductors, and platforms; and early & successful adopters – in finance, manufacturing, healthcare, utilities, and the sharing economy.
- 1983: Berkeley programmer David Chum invented Blind Signature technology – an untraceable payment system that separated a person's identity from their transaction.
- Late 1980s: Self-proclaimed libertarian anarchist group 'Cypherpunks' outline some mainstays of modern cryptocurrency (pseudoanonymous protection of identity, proof-ofwork systems, private/public-key encryption and separation from government-backed currency) in their memorandum The Crypto Anarchist Manifesto.
- 1997: Adam Beck introduces first successful proof-of-work algorithm, such algorithms would become an important means of controlling the money supply of a given cryptocurrency.
- 1997: Wei Dei – another member of the Cypherpunks and a researcher for Microsoft – released B-money, indulging the concepts of decentralization and digital contracts.
- 2004: Hal Finney – a computer scientist and Cypherpunk – developed the first successful reusable proof-of-work (RPOW) protocol based on Beck's earlier work. RPOW allowed users to transfer digital tokens by destroying and creating tokens during each transfer. This process constituted the first proof-of-work digital cash system.
- 2004: Nick Szabo – a computer scientist and cryptographer – launched a protocol that merged Wei Dei's concept of decentralization and Hal Finney's RPOW to create Bit Gold, the cryptocurrency that served as the predecessor to Bitcoin.
- 2009: The first popularized cryptocurrency – Bitcoin – is launched following the release of a paper titled, Bitcoin: A Peer-to-Peer Electronic Cash System, by someone writing under the pseudonym Satoshi Nakamoto.