The name “Bitcoin” was engraved in the minds of the online collective in 2008 when it was first announced. The actual cryptocurrency itself was making the rounds one year later. Many people believe it was the first digital currency of our time. They would be sorely mistaken.
What Bitcoin can claim as a first is a technology it has behind it: it was the first cryptocurrency of decentralized nature whose transactions were all handled using a blockchain. While the blockchain is the real power behind the success of modern digital currency, back when the first digital currencies were tried, they had a hard time catching on.
Before Bitcoin was a thing, two separate initiatives tried to capitalize on the concept and failed miserably.
Their names were: Digicash and E-gold. Both cryptographic currencies that were born and gone before the age of Bitcoin even came to occur.
This is how it went for them…
The Story of DigiCash
DigiCash was conceived by David Chaum, a man who published a scientific paper about the concept in 1983. His idea described the concept of anonymous digital money. In 1989, Chaum made his project a reality. In the year it was created the Internet was taking baby steps out of military networks and barely finding its way to households as a novelty.
With no Internet, DigiCash didn’t have the luxury of a blockchain, and it relied heavily on a centralized organization to issue it. The company created by Chaum was aptly named DigiCash, and they handled the backstage management of the logistics. When a user received DigiCash, the currency was supposed to be very secure and of anonymous nature, since everything was handled using blind digital signatures.
How It Went Wrong
The downfall of DigiCash occurred after a series of missteps. The first one was the fact that the product launched way too early into the internet era. E-commerce was not a thing until the latter half of the ’90s and customers simply preferred to use credit cards over DigiCash since anonymity wasn’t a priority for anyone. Somehow the company managed to gain enough traction to get the attention of big businesses.
Bank of America tries to make a deal with Chaum to buy a share of the company. Months in the negotiation, Chaum refuses to sign. It was the first red flag. After that, no other than Bill Gates offered $100 million to Chaum to integrate DigiCash on Windows 95. Chaum feels the offer falls short and refuses it too. A mutiny ensues in the company’s board of directors and results in the fall of the company in 1999.
The Aftermath of the DigiCash Failure
If we could list a single reason behind the failure of DigiCash, it would be the greed of its creator. His way of handling business was secluded and surrounded in secrecy. To this day, no one knows exactly how the platform worked because he locked the secrets behind copyright and a trademark.
Unlike Bitcoin founders, who released the secrets behind blockchain technology to the world and gave the means to anybody to compete against them by creating something that worked better. Even with more functional platforms out there, Bitcoin still reigns supreme.
The Story of E-Gold
E-Gold was created in 1996 by Douglas Jackson and Barry Downey. These guys had the great idea to stash a reasonable amount of gold in a vault in Melbourne, Florida and create a customized digital currency backed by the stashed gold. The premise was basic and practical. It was so simple that is gained the traction of 1 million users in just four years. Unlike DigiCash, E-gold was immediately integrated into e-commerce shops and became a common payment method among traders of commodities, casinos, political organizations, and non-profit NGOs.
E-gold was unique in every sense. It was the first digital currency that allowed micro-payments by dividing the 1/1000 of a gram of gold. A user-friendly business model and good structure always brings more partners. A lot of online foreign currency exchanges launched and supported their operations using e-gold, allowing the digital currency to be transferred using stable fiat currencies. The company was big by 2000 with a market cap that reached $2 billion. E-Gold was considered a dominant global currency.
How it Went Wrong
The big volume of transactions and the massive wealth accumulated by the creators of E-Gold made the platform susceptible to attacks by criminals and hackers. The company got stricken on all fronts as many users lost their earnings, and the company had to invest some heavy cash to increase their security. Surprisingly this is not what made E-gold sink. By late 2000, most USA agencies stated on the record that E-gold did not need a license to operate since gold was considered an asset, not a currency.
By that token, digital gold was not considered real money. After 9/11 hit, America did a thorough investigation into the means of the financing of terrorism. E-Gold was involved to some extent in the way Al-Qaeda financed their operations. Many laws were changed to prevent “money laundering scams” and that included through digital means.
In a twist that has been regarded as one of the dirtiest ploys by the US government to take an inconvenience out of the way, the federal government froze all the assets of E-gold as well as their gold reserves. Jackson by that time already had bought out Barry Downey and was the sole owner of the operation.
The Aftermath of E-Gold’s Failure
Douglas Jackson was offered a deal where he had to plead guilty to money laundering and apply for a license. His sentence was a symbolic fine of $200 and 300 hours of community service. When he asked for the permit to jump start E-gold again, he found out the hard way that tried “criminals” can’t get a business license. That was the end of the road for E-gold, and a good lesson in what power government holds over everyone, and how it is abused to ruin people.