One of the most important aspects to the success or failure of cryptocurrency is accessibility, something that has become far easier thanks to crypto cards and easy-to-use digital wallets that mean you do not need to be a programmer or a chartered accountant to spend your digital currency.
For people who are not using cryptocurrency as a speculative instrument, this is a key determiner for whether they will use their wallet once and leave decentralised finance behind or will realise the benefits and not only buy more, but also tell friends and family to give it a try as well.
The key to the survival of cryptocurrency and its wider use is in its utility, and a lot of lessons can and have been learned by a sharp rise and precipitous fall of the first ever successful digital currency ever made.
Web Of Gold
Whilst there were a few prototypical and small-scale attempts to make a digital currency as far back as 1983 and David Chaum’s groundbreaking work on blind signatures, the first successful example beyond the failed startup DigiCash was e-gold.
Unlike DigiCash, which relied heavily on the central banking sector to adopt it as a payment method, and unlike Bitcoin’s core principle, e-gold was a digital currency that effectively operated using the gold standard.
Founded by oncologist Douglas Jackson and lawyer Barry Downey, the idea behind e-gold to simplify precious metal assets and speed up their use to the point that they could be effectively treated as a currency.
Fiat money was exchanged for a certain weight in gold or silver, but unlike most currencies where the value is backed by a central institution, or cryptocurrency where tokens in your wallet are the actual asset you own and not a representation, this represented an actual weight of gold, silver or another precious asset.
If you had a holding of e-metal, you could cash out into an actual precious metal, which the company claims every holding is backed on a 1:1 basis in a secure storage facility.
Initially, this was a safety deposit box owned by Mr Jackson and Mr Downey in Melbourne, Florida, but this would later move to secure bank vaults in Dubai and London by the time e-gold hit its peak in 2006.
The system worked in a manner similar to a rudimentary smart contract; holders of a weight of e-gold could sell it, trade it, exchange it for goods and services or cash it out and receive the weight of their holding in gold.
This made it very popular, very quickly. Whilst there were questions in the early days of digital currency when it came to how much ecash or beenz were actually worth, e-gold kept it simple; if you had 1 ounce of gold, you could spend one ounce of e-gold.
By 2000, in the wake of the dotcom boom and subsequent burst bubble, e-gold only seemed to grow, aided by its ease of use, ease of understanding and the benefits of achieving a critical mass of users. By 2001, over 200,000 accounts were circulating $14m worth of digital gold.
Just three years later, the number of accounts quintupled and reached over a million. It looked like it would be a breakthrough moment for digital currency, until it wasn’t.
Expensive Lessons
Many of e-gold’s core principles, such as treating its central metal as money and working under the same sorts of ownership and non-repudiation rights as cryptocurrency would later use, were beneficial in a lot of ways but also painted a target on the company as a potential avenue for thieves.
Security is a critical aspect of Bitcoin and of the blockchain more broadly, and one of the big reasons for this was that e-gold was rife with issues when it came to hackers and social engineering attacks.
This was an internet that still used Microsoft Windows 98 and Internet Explorer, both of which were infamously unsafe to use online when more sophisticated virus attacks started to be used.
It took until 2004, eight years after the launch of the company, for e-gold to use one-time passwords.
However, what became the biggest issue was that it was a centralised financial product that operated using a pseudonymous ledger, similar to what cryptocurrency would eventually use.
This meant that, in the eyes of the law, it was responsible for the actions of its users, including identity theft and money laundering.
The end of e-gold came when a grand jury in the United States indicted e-gold on multiple criminal counts, including operating an unlicensed business for transmitting money, and alleged that it knew that criminals used the service but did not do enough to stop them.
Whilst there were attempts to revitalise the site after it had been forcibly shut down and Douglas Jackson took a plea deal to avoid potentially spending 20 years in prison, e-gold was ultimately reopened just to allow account holders to access existing funds.
The next year, Bitcoin launched, taking the lessons learned from e-gold’s success but with the understanding that a digital currency that has any chance of success must be decentralised.