Lesson 1: A Short History of Cryptocurrencies

Welcome to the first lesson in Kriptomat’s Introduction to Cryptocurrencies. In this lesson, we’ll focus on the history of cryptocurrencies.

First of all, let’s get clear on what cryptocurrency is:

• Cryptocurrency is a kind of money that exists only in the digital world. There are no paper bills or metal coins associated with it.

• That sounds crazy at first, but these days most financial transactions take place only in computer networks. When you buy a house, the sellers don’t get a wheelbarrow full of currency. An entry is made in their bank account ledger that adds the proceeds of the sale to their balance.
  
• That’s how cryptocurrency works. There are no paper bills or coins, just ledger entries to indicate transactions and balances.
  
• The blockchain database that holds all the ledger entries for a particular cryptocurrency is sometimes known as an “open ledger” for just that reason.

When was crypto invented?

• Launched in January 2009, Bitcoin is the first modern cryptocurrency.
  
• It was invented by an anonymous person or persons using the name Satoshi Nakamoto. Bitcoin and its underlying technology were defined in a 2008 academic paper that has come to be known as Satoshi’s whitepaper.

• The whitepaper was released to technical discussion groups on the internet. It showed how a virtual currency could be created and operated without a national or corporate authority behind it.

A blockchain and a Bitcoin are not the same thing

• The database – the Bitcoin blockchain – is like a spreadsheet with no data in it yet.
  
• The cryptocurrency – Bitcoin – exists as data stored in the blockchain database. Spreadsheets use cells to hold data, while blockchains use blocks.
  
• The blockchain records transfers of Bitcoin from one anonymous address to another. All transactions are recorded, but all users are anonymous. All we know of users are their virtual addresses on the blockchain.
  
• Technically, a blockchain is a decentralized distributed database. “Distributed” means that copies of the database are stored on multiple computers. “Decentralized” means that none of those is the master copy. All the copies are equally valid.

Bitcoin is not the only cryptocurrency

• Thousands of cryptocurrencies have been created since Bitcoin.
  
• Most of these other blockchains work slightly differently. Some are faster, some use alternative security measures, and so on.
  
• One of the most notable of these cryptocurrencies is Ethereum, which is able to store executable programs on the blockchain in addition to data about coin transfers. This has made it possible for developers to create applications that run on the blockchain using blockchain data.

How many different cryptocurrencies are there?

• Today, there are more than 20,000 different cryptocurrencies. Most are associated with particular applications or projects. Unlike Bitcoin, which was created to serve as a general-purpose electronic replacement for euros and pounds, and rubles, most cryptocurrencies are used only within a single project or family of projects.

How does a new cryptocurrency get launched?

• When a cryptocurrency is introduced, it is often offered for sale to the public for the first time in an Initial Coin Offering, or ICO, which is much like the IPO, or Initial Public Offering, that happens when a private company first begins trading stock to the public. Investors buy some coins. Some are reserved for the team that created the currency, and some are set aside for maintenance expenses and other costs.

That’s the end of this lesson! Test your understanding and earn points toward a Kriptomat Academy certificate of achievement by taking the test!

Why do we remember the name Satoshi Nakamoto?

He invented the blockchain decentralized database structure.

He made the first commercial purchase with cryptocurrency.

He initiated and managed the project that became Bitcoin.

He invented public-key cryptography.

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When did modern cryptocurrencies come into existence?

When Europe abandoned the gold standard.

When the first Bitcoin was minted in 2009.

When Amazon made its first electronic sale online.

When the treasury first minted paper and metal Bitcoin currency.

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What is Satoshi’s white paper?'

A blueprint for creating a blockchain-based virtual currency.

A detailed criticism of government-issued currencies and the restrictions they impose on citizens.

The online hackers publication that announced the introduction of Bitcoin.

A contract specifying that the source code of Bitcoin must be published under an open-source license so anyone could study it or contribute to it.

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How many cryptocurrencies are there?'

Just one – Bitcoin.

About a dozen.

More than 20,000.

One for every Bitcoin ever created up to a maximum of 21 million.

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'What is an ICO?

The Interrupt Controller Operating System that ensures distributed blockchain databases remain secure.

The Inherent Control of Satoshi principle, which governs interactions between and among different cryptocurrencies.

The Integrated Circuit OS that allows apps to run on blockchains instead of ordinary PCs or mobile devices.

The Initial Coin Offering, in which a new cryptocurrency is first available for public purchase.

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