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.

 

E-gold

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.

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.