The History Of Digital Currencies Part 2: Early Cryptocurrencies, Early Cryptocurrency Exchanges, The ICO Craze, And Institutional Investment

VegaX Holdings
10 min readApr 13, 2021


image of money, bitcoin, and a hand, an institution, and an ICO
The History Of Digital Currencies Part 2 — VegaX Holdings

In Part 1 of this series, we covered the early digital currencies that were developed before bitcoin until the creation of bitcoin and the first bitcoin transaction. Here is the continuation of our look back at the history of digital currencies.

Early Cryptocurrencies: Altcoins and More

In the years following the creation of bitcoin, more digital currencies, specifically cryptocurrencies, were developed by early adopters of the blockchain who saw it as an innovative new technology. Some early altcoins, such as Litecoin and ethereum, are still considered to be in the top tier of cryptocurrencies today. Litecoin has often been referred to as the “silver” of cryptocurrencies since bitcoin is the “gold” of cryptocurrencies. Ethereum, on the other hand, is known for utilizing and popularizing smart contracts and for the vast network of dapps that run on top of the ethereum blockchain.


Although they have played a significant role in the development of the cryptocurrency space, neither of those two early cryptocurrencies was the first altcoin. The first of the early cryptocurrencies and the first altcoin to appear after the creation of bitcoin was namecoin (NMC). It was first revealed on the Bitcointalk forum on April 18th, 2011. It was originally developed as a naming system with only a few modifications from bitcoin. Name or value pairs were stored in the namecoin blockchain and were set to expire after 12,000 blocks unless they were updated.

Today namecoin is considered a dead coin. As a sort of sign for what was to come in the altcoin world, the first altcoin ceased to be regularly traded and is now essentially useless. Some of the altcoins that exist today will not exist in the future. There is a lot of competition in the space which means that some projects never materialize. That’s why when investing in altcoins, it’s important to read the whitepaper for the project and research the team of people who created the coin before investing.

The OneCoin Scam

You definitely don’t want to make the mistake of investing in a coin that doesn’t really exist. That’s what happened to thousands of people who combined invested a total of more than $4 billion in a currency called OneCoin between 2014 and 2017, only to watch the founder mysteriously disappear with their money just as questions started to be asked.

Note: OneCoin was not a real cryptocurrency and did not operate on a blockchain.


Another high profile fraud that gained negative attention was Bitconnect, a coin that achieved a $2.6 billion valuation in 2016 on a promise to investors that they could achieve a 1% return on investment per day only to be eventually labeled a ponzi scheme by critics. This negative press caused a 96% drop in value for the coin, which was shut down soon after.

Innovative Crypto Projects

Despite a few bumps in the road along the way, however, and a few bad actors in the space, there are a number of real, innovative projects with the potential to improve the world that make cryptocurrencies, blockchain technology, and decentralized finance worth investing in.

Early cryptocurrency exchanges also dealt with difficulties and negative press, just like early cryptocurrencies did, but the industry has come a long way as it has developed and grown to include hundreds of active exchanges. Let’s start from the beginning.

Early Cryptocurrency Exchanges

The first recognized Bitcoin transaction between people occurred on January 12th 2009 between Satoshi Nakamoto and Hal Finney, a computer scientist. In February 2010 a Bitcointalk user named dwdollar created bitcoin market, where bitcoins could be bought and sold from person to person including support from Payment systems like PayPal. However, many traders started to claim they hadn’t received anything in exchange for what they paid for bitcoins, causing PayPal to stop supporting bitcoin market in order to avoid dealing with these types of claims.

Early Cryptocurrency Exchanges: The Story Of Mt. Gox

Enter Mt. Gox. Mt. Gox was one of the early cryptocurrency exchanges. It was actually originally founded back in 2007 by a programmer named Jed McCaleb as an online trading platform for Magic: The Gathering cards. The name stood for “Magic The Gathering Online Exchange (MT. GOX). Jed was also the Co-Founder of Stellar Development Foundation and had been the CTO of Reddit. In 2010, Mt. Gox became a cryptocurrency exchange, and at one point in its history was handling almost three-quarters of all Bitcoin transactions.

Mt. Gox was the first place to convert USD into Bitcoin, thus its popularity skyrocketed. As the popularity of bitcoin grew, Mt. Gox’s user base went from a few thousand to 60,000 people over just a few short weeks. In 2011, Jed McCaleb sold Mt. Gox to Mark Karpeles, a French citizen living in Japan. Mark is often blamed for what happened to Mt. Gox due to his poor management of the exchange and disregard for financial rules.

Unfortunately at this time, Mt. Gox began to become associated with the Silk Road, the online darknet marketplace for all things illegal where customers could buy illegal drugs with bitcoin. Many people would buy bitcoins on Mt. Gox which they would then use to buy illegal drugs on Silk Road. According to some reports, ⅓ to ½ of transactions on Mt. Gox were linked in some way to Silk Road. The illegal marketplace soon brought negative attention to Mt. Gox.

The First Mt. Gox Hack

Mt. Gox was first hacked in 2011. The hackers broke into a computer used by someone who audited Mt. Gox. They changed the pricing of Bitcoin to one penny, gained access to private keys of Mt. Gox users, created selling orders on those accounts, and bought bitcoins at the fake price that they had set, eventually acquiring 2000 bitcoin. It was determined that they stole an estimated amount of $30,000 worth of bitcoin. This was discovered after a number of suspicious transactions took place.

The Second Mt. Gox Hack (And The First Major Cryptocurrency Exchange Hack)

The second hack accounted for the largest amount of bitcoins ever stolen; 850,000 bitcoins with a total price at the time of $460 million. 750,000 of those bitcoins were owned by Mt. Gox’s customers. It was later determined that the bitcoins that Mt. Gox held had been stolen over time, starting in 2011, and by May 2013 most of Mt. Gox’s bitcoin holdings had disappeared. A short time later, Mt. Gox filed for bankruptcy.

The U.S. Government Gets Involved

Another contributing factor to the downfall of Mt. Gox was the fact that the U.S. government seized $5 million from the exchange after a Judge found probably cause to suspect that Mt. Gox was engaged in money transmitting without a license due to its U.S. subsidiary failing to register with FinCEN. After the U.S. government got involved, the Japanese government became concerned and began to impose regulations on Mt. Gox.

Although the $460 million hack was primarily responsible for the downfall and bankruptcy of Mt. Gox, each of the problems that Mt. Gox faced combined to form a perfect storm that no company could survive from.

In 2015, Japanese police arrested Mark Karpeles after allegations that he manipulated Mt. Gox’s computer system to increase the balance in one of the company’s accounts.

Mt. Gox is sometimes remembered for the trials that it faced, but it should also be remembered as an early pioneer in providing a way for people interested in cryptocurrency to gain access to it. There are now hundreds of cryptocurrency exchanges that traders can choose from, and they wouldn’t be here without Mt. Gox leading the way as the main exchange of the early cryptocurrency exchanges, where the majority of the bitcoin transactions took place.

Early Cryptocurrency Exchanges Get A Second Life

In 2011 VirWoX, a currency exchange for trading Linden Dollars, the currency of virtual reality game Second Life, started allowing trades between Linden Dollars and bitcoin. Another exchange, Tradehill, allowed users to purchase bitcoin quickly rather than having to submit limit orders.

Some of the other early cryptocurrency exchanges that were founded in 2011–2012 such as Coinbase (founded in 2012), Kraken (founded in 2011), and Bitfinex (founded in 2012) are still some of the most widely used cryptocurrency exchanges today.

The ICO Craze

As cryptocurrencies became easier to buy, sell, and trade through the development of more early cryptocurrency exchanges, more people began to start cryptocurrency startups. The funding model of these startups began to be based on the Initial Public Offering (IPO) funding route of other tech startups.

However, instead of offering shares and ownership in a startup via listing your company publicly on the stock market, this new funding route for cryptocurrency startups offered the company’s native cryptocurrency token to investors in exchange for funding. Due to their similarities with initial public offerings (IPOs), this funding route for cryptocurrency companies was referred to as an initial coin offering (ICO).

However, unlike IPOs, ICOs were not regulated. This meant that anyone could write a whitepaper with an innovative sounding name, create a cryptocurrency token, and sell that token which initially was worth almost nothing to investors who hoped that the company would do well and the price of the cryptocurrency would increase.

ICOs became popular in 2016 and that popularity increased into 2017. All of the money flowing into cryptocurrency projects through ICOs helped to increase demand in the tokens, causing the price to increase, but the unregulated aspect of ICOs caused them to also be subject to fraud.

Some projects that offered ICOs never materialized, with the investors taking the money they raised and not providing a way for investors to get a return on their investment. Due to the high risk and occurrence of scams, ICOs began to gain attention from regulators. Investors put $256 million into ICOs in 2016, $5.5 billion in 2017, and $3 billion+ in just the first two months of 2018, but by the end of 2018 the ICO craze had ended. More than 86% of projects that raised money through ICOs were worth less than when they started.

Some cryptocurrency projects still received funding through ICOs but not at the same rate as before. Investors had become wary of investing in cryptocurrency startups through ICOs due to earlier well funded projects failing, an increasingly more negative reputation of this funding route in the tech industry, the high degree of speculation involved in investing through an ICO, and an increased push for more regulations. The craze was also led in large part by hype, and as the hype died down, so did the number of ICOs and the amount raised through them.

From ICOs To STOs And IEOs

With claims that 80% of ICOs conducted in 2017 were scams, the blockchain/cryptocurrency space needed a new path forward. It became clear that the lack of regulation in ICOs was the primary reason for ICOs being popular with scammers as well as the reason for their eventual decrease in popularity.

Security Token Offerings (STOs) were expected to be the next progression of ICOs, but they required investors to be accredited by the SEC, and the SEC regulations turned out to keep many people from investing in them and ultimately kept them from taking off immediately after the ICO craze subsided.

Now, in 2021, STOs have become popular as security tokens have finally begun to receive more attention, however, immediately after the ICO craze they didn’t receive the attention they deserved, thus IEOs became the popular option for going public in 2019.

Initial Exchange Offerings, or IEOs, became popular immediately following the ICO craze. An IEO is orchestrated by a crypto exchange on behalf of a startup that wants to raise funding. In return, the startups are required to pay listing fees and a percentage of the tokens sold in the IEO.

In this process, due diligence and vetting of the project was left up to the exchanges, and the process of raising funds was managed by the exchanges rather than the cryptocurrency company that was raising funds leading the token sale themselves. This added a sort of regulatory level to the process, allowing investors to feel more confident that they were not going to get scammed.

As STOs have seen a resurgence due to the increasing popularity of security tokens, the strict regulations involved with STOs have helped to further legitimize the process of raising funds for a cryptocurrency startup.

Increased Interest From Institutional Investors

In late 2020 and early 2021, thanks in large part to bitcoin reaching record prices, institutional investors started to pay attention to the cryptocurrency market, and the investment in bitcoin by well-known companies such as Square, Tesla, and others pushed the price even higher.

Digital currencies have been on quite a journey to reach the point where more mainstream institutions and well known figures in finance are starting to consider them to be viable additions to the financial landscape. The journey hasn’t been without difficulty, but digital currencies emerged from each challenge more influential than before.

As always, please reach out to us with questions, comments, and suggestions!

VegaX Holdings:

VegaX Holdings is the “BlackRock” of the Crypto Asset Industry. We provide investors globally with one-stop access to sophisticated and secure crypto asset management. The asset management industry is the largest in the world representing more than $80 trillion dollars in investments through investment products like ETFs, mutual funds, and indices that outperform investments in individual stocks. VegaX is the first to create similar investment products for Crypto providing investors outperformance versus buying individual cryptocurrencies. On average, investors buying VegaX products make 30% more profit versus just holding Bitcoin.

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