Attempts at creating digital currencies for e-commerce stretch as far back as the late 80s. The online community has always desired a safe, fast and secure means to transact online.
To understand cryptocurrencies of today, you may have to look back at the time Before Bitcoin (BB). Indeed, insights from the success and failures of past e-currencies have informed their design and development.
Here are four digital currencies that came before Bitcoin:
Beenz was a centralized digital currency that Charles Cohen built in 1998 on a website (beenz.com). From the outset, he intended it to be used as a medium of exchange in online commerce.
Beenz tokens were purchasable by individuals and companies. Customers could also earn them for visiting a web site or login in through an Internet service provider. In turn, they would use them for online shopping.
Unfortunately, wide adoption necessary to establish its own free floating exchange rate did not materialize. Despite VC backing of up to $100 million, it ran into cash flow problems just as the dot-com bubble imploded. It was sold off in 2001, but never to be revived.
Flooz launched online in 1999, deriving its name from the Arabic word for money ‘fuloos’. Like beenz, it worked as a centrally issued currency comparable to virtual points, loyalty points or airline miles.
You could either purchase the currency or get it through promotional giveaways. Customers could spend them at online stores that accepted them as a means of settlement.
Like all other e-currencies, flooz’s take off hinged upon widespread adoption by both users and merchants. This, however, failed to happen, and it was forced to wind up operations in 2001.
In 1996, co-founders Douglas Jackson and Barry Downey, came up with the digital gold approach to the online currency. Unlike others before them, theirs was 100% backed by physical gold held in trust and whose reserves were transparently published. Anyone could acquire e-gold from the company by opening a pseudonymous account and setting up to receive and send payments. All accounts balances were denominated in grams of gold.
Because it enabled an application programming interface, the currency was able to gain widespread user and merchant adoption. At its peak, it was able to process $ 2 billion.
Unfortunately, its successful business model would be the source of its demise. It attracted abuse by criminals, Ponzi schemers and hackers. It closed shop in 2008 when it could not withstand action from regulators, especially the requirement to get licenses from states across the US.
Digicash was a pioneer of modern-day cryptographic money. It was founded by David Chaum, a reputable American cryptographer, in 1990. He believed in emulating the qualities of physical cash with virtualized tokens, which would be peer to peer sharable.
He came up with blind signatures, a cryptographic encryption technique. This unprecedented feature was remarkable enough at the time that Microsoft offered $ 180 million to embed it on their Windows platform.
Instead, David Chaum settled for bank funding to launch the product as e-cash for financial institutions. Nevertheless, Digicash ran out of money and became a victim of infighting amongst the team that was running it. Infospace s acquired it in 2002, but it was too late.
Today, cryptocurrencies borrow some aspects of Digicash especially on matters of privacy and safety.
It is easy to forget the evolution of digital currency through time. However, Cryptocurrencies have built their foundations on the mistakes of digital currencies that came before them.