Home > Articles

A Short History of Bitcoin

📄 Contents

  1. Virtual Currency Before Bitcoin
  2. Then Came Bitcoin
  3. Bitcoin Today
So Bitcoin is a virtual currency. But how did Bitcoin come about? How did Bitcoin evolve from concept to the most popular virtual currency today? Michael Miller explains the history of virtual currency and Bitcoin in this chapter from The Ultimate Guide to Bitcoin.
This chapter is from the book

This chapter is from the book

Virtual Currency Before Bitcoin

Although Bitcoin is the best-known virtual currency, it wasn’t the first. In fact, Bitcoin is just the latest of a multitude of schemes designed to supplement or replace traditional money.


One of the first virtual currencies was E-gold, founded in 1996. E-gold was unique in that its virtual currency was backed by real, honest-to-goodness gold bullion. In essence, trading E-gold was basically the same as swapping gold ownership, but anonymously.

At its peak, in 2008, E-gold claimed more than five million user accounts. However, the anonymous nature of the currency made the service very attractive to crime syndicates looking to launder their dirty dollars into cleaner cash. Weak security systems also contributed to an influx of hacking and fraud from these same crime syndicates.


Click to view larger image

E-gold’s calling card.

All of this led the U.S. government to get involved, and in 2008 the company’s management pleaded guilty to money laundering and operating an unlicensed money transfer business. The Feds froze all user accounts, amounting to more than $86 million in E-gold. The company itself closed its doors the following year.

By the way, E-gold was just one of several similar virtual gold payment systems back in the day. Competitors included GoldMoney and e-Bullion, which appeared equally shady. (E-Bullion’s owner was eventually arrested on charges of running an illegal money transfer business and of paying three hit men to stab his wife to death. Good folks there.)

Beenz and Flooz

In 1998, an interesting new website called Beenz.com was launched. The idea behind Beenz.com is that you could earn virtual currency (called Beenz) for performing a variety of online activities, such as visiting certain websites or shopping online. The Beenz you earned could then be spent on various online goods and services.

The site tried to position itself as “the web’s currency” that would challenge the world’s traditional currencies. That it didn’t succeed is now obvious. In fact, Beenz had a very short life, closing its virtual doors in 2001. It never got past the challenge of convincing governments around the world that it really wasn’t establishing a new currency, or of convincing users that it wasn’t all a big scam.

Similar to Beenz was Flooz, which was promoted by none other than comedian Whoopi Goldberg. Flooz was as big a joke as Beenz was, and operated in much the same fashion, trying to establish a unique online currency for use with Internet merchants. Flooz launched in 1999 and closed in 2001, never having attracted much of a user base.

Q Coins

The Chinese Internet service provider Tencent has a very successful instant messaging service called QQ. Back in 2002, QQ developed its own internal virtual currency, called Q Coins, that customers could use to purchase various virtual goods and services, such as extra storage space, virtual pets, and online game avatars.

Over the next few years, various non-QQ online merchants began accepting Q Coins for real-world goods and services. More than 100 million Chinese ended up using Q Coins, generating a trading volume in Q Coins of several billion yuan a year. Eventually, Q Coins ended up being so popular that they were being traded on China’s black market for whatever it is that the Chinese trade on the black market. This so concerned the Chinese government that it eventually cracked down on the real-world trading of Q Coins—although they’re still used today within the QQ service.

(China’s experience with Q Coins no doubt led to their recent crackdown in Bitcoin trading. They’ve been through all this before.)

Linden Dollars

The concept of virtual currency makes a lot of sense within online virtual worlds. Case in point, the virtual world of Second Life and its very popular virtual currency, Linden Dollars.

For those unfamiliar with virtual worlds, these are online communities that take the form of interactive simulated environments—kind of like a massive multiplayer video game. Users inhabit the world’s graphical three-dimensional environment and interact with one another via cartoon-like avatars, often participating in virtual activities and—this is important—economies.

The economy part comes in when users want to buy things within the virtual world, such as virtual clothing for their avatars, virtual housing, virtual entertainment, you name it. For this reason, most virtual worlds have their own unique virtual currencies that can be spent only within the confines of the online world.

Thus it was with Second Life, which was one of the—if not the—most popular virtual worlds. Second Life was developed by a company called Linden Lab back in 2003, and its proprietary virtual currency was dubbed Linden Dollar. Users could purchase Linden Dollars (abbreviated L$) using U.S. dollars and other real-world currency on Second Life’s LindeX exchange, or from other users or independent brokers.


Buying Linden Dollars in Second Life.

Second Life and its Linden Dollar currency became so popular that tons of real-world companies, including American Apparel, Reebok, and Ford, established presences within Second Life. These companies accepted payment for both virtual and real-world goods and services in Linden Dollars.

The growth in Second Life and its virtual currency eventually led serious investors to speculate in Linden Dollars. In fact, virtual investment banks arose to facilitate Second Life currency trading.

All good things come to an end, however. In 2007, Second Life virtual investment bank Ginko Financial collapsed, leaving users unable to retrieve approximately $750,000 worth of Linden Dollars that had been invested. This led to Linden Labs officially banning all virtual banks in Second Life, as well as removing all objects related to in-world virtual banking.

Over the next several years, interest in Second Life began to wane. Second Life is still around, but it’s a shadow of its former self. You can still trade Linden Dollars for U.S. dollars (and other currency), but you’d be hard-pressed to find many buyers.

Facebook Credits

In-world virtual currencies are not the sole province of online games and virtual worlds. Many bit-time social media sites have at least experimented with the concept of their own proprietary virtual currencies.

Take Facebook, for example. In 2009 Facebook began testing the concept of Facebook Credits, which could be used to pay for in-game goods and services on the Facebook site. Facebook Credits went live in January 2011, and users could purchase 10 Facebook Credits for one U.S. dollar.


Click to view larger image

Purchasing Facebook Credits in 2011.

Much to Facebook’s chagrin, Facebook Credits never really took off. Facebook killed the project in June of 2012, converting all remaining Facebook Credits into standard dollar (or other currency) credits to users’ accounts.

And More...

As you can see, a plethora of various virtual currency schemes have been floated (and mainly sunk) over the past 15 years or so. In addition to the currencies already mentioned, you run across others such as Dexit, DigiCash, eCache, eCash, InternetCash, Pecunix, and WebMoney. (Google them if you’re interested.) What all these virtual currencies have in common is that they are failures. For one reason or another, none of these virtual currencies managed to make it into the mainstream; at best, some existed within their own virtual worlds, but that’s the extent of it.

That doesn’t mean that all virtual currencies are destined to fail, however. Which brings us to the next stage in our history lesson: the birth of Bitcoin.

InformIT Promotional Mailings & Special Offers

I would like to receive exclusive offers and hear about products from InformIT and its family of brands. I can unsubscribe at any time.


Pearson Education, Inc., 221 River Street, Hoboken, New Jersey 07030, (Pearson) presents this site to provide information about products and services that can be purchased through this site.

This privacy notice provides an overview of our commitment to privacy and describes how we collect, protect, use and share personal information collected through this site. Please note that other Pearson websites and online products and services have their own separate privacy policies.

Collection and Use of Information

To conduct business and deliver products and services, Pearson collects and uses personal information in several ways in connection with this site, including:

Questions and Inquiries

For inquiries and questions, we collect the inquiry or question, together with name, contact details (email address, phone number and mailing address) and any other additional information voluntarily submitted to us through a Contact Us form or an email. We use this information to address the inquiry and respond to the question.

Online Store

For orders and purchases placed through our online store on this site, we collect order details, name, institution name and address (if applicable), email address, phone number, shipping and billing addresses, credit/debit card information, shipping options and any instructions. We use this information to complete transactions, fulfill orders, communicate with individuals placing orders or visiting the online store, and for related purposes.


Pearson may offer opportunities to provide feedback or participate in surveys, including surveys evaluating Pearson products, services or sites. Participation is voluntary. Pearson collects information requested in the survey questions and uses the information to evaluate, support, maintain and improve products, services or sites, develop new products and services, conduct educational research and for other purposes specified in the survey.

Contests and Drawings

Occasionally, we may sponsor a contest or drawing. Participation is optional. Pearson collects name, contact information and other information specified on the entry form for the contest or drawing to conduct the contest or drawing. Pearson may collect additional personal information from the winners of a contest or drawing in order to award the prize and for tax reporting purposes, as required by law.


If you have elected to receive email newsletters or promotional mailings and special offers but want to unsubscribe, simply email information@informit.com.

Service Announcements

On rare occasions it is necessary to send out a strictly service related announcement. For instance, if our service is temporarily suspended for maintenance we might send users an email. Generally, users may not opt-out of these communications, though they can deactivate their account information. However, these communications are not promotional in nature.

Customer Service

We communicate with users on a regular basis to provide requested services and in regard to issues relating to their account we reply via email or phone in accordance with the users' wishes when a user submits their information through our Contact Us form.

Other Collection and Use of Information

Application and System Logs

Pearson automatically collects log data to help ensure the delivery, availability and security of this site. Log data may include technical information about how a user or visitor connected to this site, such as browser type, type of computer/device, operating system, internet service provider and IP address. We use this information for support purposes and to monitor the health of the site, identify problems, improve service, detect unauthorized access and fraudulent activity, prevent and respond to security incidents and appropriately scale computing resources.

Web Analytics

Pearson may use third party web trend analytical services, including Google Analytics, to collect visitor information, such as IP addresses, browser types, referring pages, pages visited and time spent on a particular site. While these analytical services collect and report information on an anonymous basis, they may use cookies to gather web trend information. The information gathered may enable Pearson (but not the third party web trend services) to link information with application and system log data. Pearson uses this information for system administration and to identify problems, improve service, detect unauthorized access and fraudulent activity, prevent and respond to security incidents, appropriately scale computing resources and otherwise support and deliver this site and its services.

Cookies and Related Technologies

This site uses cookies and similar technologies to personalize content, measure traffic patterns, control security, track use and access of information on this site, and provide interest-based messages and advertising. Users can manage and block the use of cookies through their browser. Disabling or blocking certain cookies may limit the functionality of this site.

Do Not Track

This site currently does not respond to Do Not Track signals.


Pearson uses appropriate physical, administrative and technical security measures to protect personal information from unauthorized access, use and disclosure.


This site is not directed to children under the age of 13.


Pearson may send or direct marketing communications to users, provided that

  • Pearson will not use personal information collected or processed as a K-12 school service provider for the purpose of directed or targeted advertising.
  • Such marketing is consistent with applicable law and Pearson's legal obligations.
  • Pearson will not knowingly direct or send marketing communications to an individual who has expressed a preference not to receive marketing.
  • Where required by applicable law, express or implied consent to marketing exists and has not been withdrawn.

Pearson may provide personal information to a third party service provider on a restricted basis to provide marketing solely on behalf of Pearson or an affiliate or customer for whom Pearson is a service provider. Marketing preferences may be changed at any time.

Correcting/Updating Personal Information

If a user's personally identifiable information changes (such as your postal address or email address), we provide a way to correct or update that user's personal data provided to us. This can be done on the Account page. If a user no longer desires our service and desires to delete his or her account, please contact us at customer-service@informit.com and we will process the deletion of a user's account.


Users can always make an informed choice as to whether they should proceed with certain services offered by InformIT. If you choose to remove yourself from our mailing list(s) simply visit the following page and uncheck any communication you no longer want to receive: www.informit.com/u.aspx.

Sale of Personal Information

Pearson does not rent or sell personal information in exchange for any payment of money.

While Pearson does not sell personal information, as defined in Nevada law, Nevada residents may email a request for no sale of their personal information to NevadaDesignatedRequest@pearson.com.

Supplemental Privacy Statement for California Residents

California residents should read our Supplemental privacy statement for California residents in conjunction with this Privacy Notice. The Supplemental privacy statement for California residents explains Pearson's commitment to comply with California law and applies to personal information of California residents collected in connection with this site and the Services.

Sharing and Disclosure

Pearson may disclose personal information, as follows:

  • As required by law.
  • With the consent of the individual (or their parent, if the individual is a minor)
  • In response to a subpoena, court order or legal process, to the extent permitted or required by law
  • To protect the security and safety of individuals, data, assets and systems, consistent with applicable law
  • In connection the sale, joint venture or other transfer of some or all of its company or assets, subject to the provisions of this Privacy Notice
  • To investigate or address actual or suspected fraud or other illegal activities
  • To exercise its legal rights, including enforcement of the Terms of Use for this site or another contract
  • To affiliated Pearson companies and other companies and organizations who perform work for Pearson and are obligated to protect the privacy of personal information consistent with this Privacy Notice
  • To a school, organization, company or government agency, where Pearson collects or processes the personal information in a school setting or on behalf of such organization, company or government agency.


This web site contains links to other sites. Please be aware that we are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of each and every web site that collects Personal Information. This privacy statement applies solely to information collected by this web site.

Requests and Contact

Please contact us about this Privacy Notice or if you have any requests or questions relating to the privacy of your personal information.

Changes to this Privacy Notice

We may revise this Privacy Notice through an updated posting. We will identify the effective date of the revision in the posting. Often, updates are made to provide greater clarity or to comply with changes in regulatory requirements. If the updates involve material changes to the collection, protection, use or disclosure of Personal Information, Pearson will provide notice of the change through a conspicuous notice on this site or other appropriate way. Continued use of the site after the effective date of a posted revision evidences acceptance. Please contact us if you have questions or concerns about the Privacy Notice or any objection to any revisions.

Last Update: November 17, 2020