History of Cryptocurrency: Changpeng Zhao on Crypto's Rise

Cryptocurrency is a type of digital asset people use to conduct transactions over the internet. The term derives from how cryptography helps encode each transaction and account with private keys in a ledger (a concept called the blockchain). In other words, as you trade cryptocurrencies for goods and services, encryption protects them from outside hacking at the same time they become traceable on a peer-to-peer electronic cash system.

Unlike traditional fiat currencies, cryptocurrencies operate without any central authority. These decentralized tokens reside on a blockchain, which millions of different computers host, and derive their value in a spread-out manner rather than from a central bank’s power.

It takes a substantial amount of computing power to “mine” these coins. Many cryptocurrencies require their miners (the people and computers cracking algorithms to acquire more coins) to submit proof of work to ensure their efforts are legitimate.

Cryptocurrency works a lot like a credit card, except you exchange digital assets for goods and services instead of US dollars (USD). To make a transaction with cryptocurrency, you must exchange currency with a peer using a digital wallet.

These wallets enable you to transfer funds from one account to another. To complete a transaction, you need access to a private key (password). These keys function a lot like bank accounts. The transactions show up as nodes on a public ledger, displaying totals without revealing the identities of the parties involved.

Cryptocurrency mining is the process required to verify transactions. It involves a massive amount of computing power and complicated algorithms, but those who successfully solve problems through mining can earn reward coins, tokens, or transaction fees.

Digital assets are reshaping the modern world. This brief history of cryptocurrency will help get you up to speed on how these new technologies are changing everything:

• The advent of digital currency: Ideas about digital currency began to spread in the 1980s and ’90s. Early adopters and proponents of digital currency included cryptographer David Chaum (ecash and Digicash), programmer Wei Dai (b-money), and computer engineer Nick Szabo (bit gold). These prototype efforts had a hard time getting off the ground. Over the ensuing decades, open-source software and innovation made it more plausible to build the foundation for a truly workable digital currency.
• The appearance of Bitcoin: The history of Bitcoin (BTC) began shortly after the 2008 financial crisis. Changpeng Zhao, cofounder of one of the world’s largest cryptocurrency exchanges, explains, “Satoshi Nakamoto published the Bitcoin white paper, and in 2009, that was deployed onto a live blockchain [the Genesis Block]. I do believe that this whole Bitcoin, blockchain, crypto, Web3 industry was triggered by that.” It became the first cryptocurrency to achieve widespread usage.
• The arrival of new cryptocurrencies: The Bitcoin network took off in 2010 and continues to grow to this day. While it remains the largest cryptocurrency, many altcoins began to explode in popularity over the 2010s, too. These included Ether (ETH, sponsored by Ethereum blockchain technology), Dogecoin (DOGE), Cardano (ADA), Ripple (XRP), and Litecoin (LTC). These new blocks and coins fluctuate in relation to fiat currencies, but stablecoins tether themselves to the value of legal tender more strictly.
• The ascent of crypto’s value: In 2010, it took ten thousand Bitcoin to purchase two pizzas—the first real-world transaction featuring a cryptocurrency. At the time, many onlookers treated this Bitcoin exchange as a joke. “That pizza transaction actually was a milestone,” Changpeng says. “At some point, it reached $1. People were like, ‘This is impossible. This is magic internet money.’ And then it went to $10, went to $30, and then there was FOMO … so people were rushing in.” By the end of the decade, the virtual currency achieved a market cap (or market capitalization) worth hundreds of billions of dollars.
• The evolution of DeFi: Cryptocurrencies’ initial coin offerings (or ICOs) soon branched off into various other decentralized finance (DeFi) innovations. People began to experiment with ways to use these online coins in real-world scenarios rather than through intermediaries like cryptocurrency exchanges. NFTs and smart contracts became additional mediums of exchange.
• The increase in business interest: Cryptocurrency transactions were an online niche phenomenon until the wider business community began to take notice of them. “Now you don't have to be a blockchain developer to be part of the ecosystem,” Changpeng says. “Now you can be any entrepreneur.” Startups began to invest or take payments via Bitcoin transactions. Some companies started to hold reserve funds in cryptocurrency. Credit card companies started to experiment with ways they could use crypto for the first time, too.
• The interest of governments: As cryptocurrency use became more common, governments around the world reacted differently. For instance, El Salvador accepts Bitcoin as legal tender, while China has put a moratorium on the entire crypto market. Regulators of the overall financial system are still trying to figure out how to protect consumers from scams and hackers on blockchains.
• The volatility of markets: While cryptocurrency experienced years of explosive upward growth, it’s also experienced a high degree of volatility. For example, Bitcoin price valuation both skyrocketed to an all-time high and then halved in the early 2020s. This is just one use case, but the value of Bitcoin is a decent indicator of the volatility other virtual currencies also experience during this period.

From the rise of blockchain technology to the dawning of NFTs and Web3, the world of cryptocurrency has undergone dynamic changes and continues to innovate. With the MasterClass Annual Membership, get access to exclusive lessons from Hunch cofounder Chris Dixon, Binance cofounder Changpeng Zhao, Coinbase’s Emilie Choi, and economist Paul Krugman to learn about the ever-changing landscape of cryptocurrency and its place in the global economy.