NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Tuesday, May 12, 2015

After almost 20 years in the payments industry, I’ve learned to appreciate its history. That’s why, with the growing popularity of virtual currency over the past couple years, I decided to do some digging into its past.

What I found changed my thinking on where the cryptocurrency market is going.

A turbulent path

Do you remember Digicash? It started 25 years ago as an anonymous cryptocurrency. It partnered with major European banks and created some of the technology still used for encrypting transactions. The problem was the banks wouldn’t allow anonymous account holders, and Digicash went bankrupt after eight years.

In ’94, CyberCash made a splash with a $300 million public offering that jumped 79 percent on its first day. But the company lost millions as it tried to market itself as an anonymous payments alternative to credit cards, and it fell victim to Y2K and other technical problems. It went bankrupt in 2001, and part of it was sold to Verisign, which itself later sold to PayPal.

A company called Beenz sprouted up in ’98 and withered in 2001. It was a global online couponing program calling itself “virtual currency” and raised $100 million from big-name investors. It failed because not enough Beenz (Beenzes?) made it into circulation.

Flooz had an even shorter life span, from ’99 to ’01. This online currency’s claim to fame was Whoopi Goldberg in its TV ads. But it sank when cyberthieves in Russia and the Philippines stole hundreds of thousands of dollars worth of coupons.

Internetcash.com lived and died during the same time, dissolving during the dot-com collapse. The company developed Web-based electronic cash that verified transactions without using credit cards.

E-Bullion launched in ’01 and was backed by real-world gold and silver, complete with its own currency exchange. The service managed to survive for eight years before shutting down without warning when owner James Fayed was arrested for running an illegal money transfer business, and of orchestrating the murder of his wife and business partner. He was found guilty of paying three hit men to stab her to death and is currently sitting on death row. All of E-Bullion’s assets were seized by the government, and users wound up empty-pocketed.

And then there was E-gold, which emerged a few years after E-Bullion, and was also backed by gold and silver. When its founder was convicted of money laundering in 2009, the whole thing shut down.

Starting in ’03 in Toronto, Dexit was a rechargeable, contactless, stored-value smart key tag used for electronic payments. Although it formed several partnerships with banks, retailers and mobile companies, the currency never caught on, and in 2006, Dexit removed its payment terminals from stores and gave back all funds.