Before Bitcoin was established as a groundbreaking proof of concept and became a major investment instrument that inspired a huge number of people to set up a crypto wallet app so they could invest, there was a need for electronic money and a way to easily buy and sell over the internet.
In the late 1990s, right as people were starting to go online, people also wanted to be able to spend their money online in a way that was as safe and as easy as handing over cash in a physical shop.
Eventually, payment processor systems would start to emerge to slightly simplify the process rather than having to enter bank details each time, but a better system was possible, one where you could convert the money you wanted to spend into a liquid digital currency and easily transfer it that way.
Ecash and e-gold attempted this concept to varying degrees of success, but both ultimately inspired cryptocurrency as we know it today.
However, whilst e-gold was specifically focused on precious metals trading and Ecash never got off the ground, there were three companies at the end of the 1990s and right in the middle of the dot-com bubble that tried very hard to make an online currency a reality.
All three would be out of business by the year 2001.
Spilling The Beenz
The first of these was beenz.com, founded by young entrepreneur Charles Cohen and his friend Neil Forrester, at the time best known for starring in the British version of American reality TV series The Real World.
Coasting on the momentum of the dotcom boom in late 1998 and throughout 1999, Beenz started to take shape aided by $100m in venture capital, with the goal of being an incentive-based universal online currency that would reward positive consumer behaviour and act as a money substitute.
This conceptually is remarkably similar to a lot of cryptocurrency projects that are built around incentivising actions as much as buying tokens directly, such as decentralised autonomous organisations (DAOs) or the play-to-earn model of blockchain games best epitomised by Axie Infinity.
However, one complication is that Beenz needed to be categorised as a virtual loyalty points system rather than a currency, even though the intention was that Beenz could be traded for goods, services or even potentially cash.
The latter would be extremely difficult, so initially the Beenz model was based on a sort of digital arbitrage; companies would buy Beenz at a local exchange rate (initially pegged at 100 beenz for 1 USD) and then give them away to customers for doing certain actions.
These could be making online purchases, visiting sponsored parts of websites, subscribing to mailing lists, sending invites to friends and whatever the company placed value on as a conversion metric.
These actions would be tracked by an applet the user logged into (powered by Java) and collected and used through this.
However, investigations by institutions such as the Financial Conduct Authority, a mishap where a million beenz (worth $10,000) were given away by accident and their rather problematic recall, and greater challenges by simpler payment processors put Beenz into trouble.
When the dot-com bubble burst in 2000, no more capital was available and the company was quietly sold to CRM company Carlson Marketing Group and Beenz faded from existence.
It was a major flop, but it could get worse.
InternetCash
Unlike Beenz, which aimed to be a currency of its own, InternetCash was intended to be a prepaid card that could be used for online shopping by using an electronic currency at participating retailers.
In effect, it was traveller’s cheques for the internet, but the system quickly fell flat once PayPal emerged and big banking authorities such as Visa and Mastercard adopted a secure payment system initially known as 3-D Secure.
Flooz
One of the most infamous failures in digital currency history, Flooz.com became not only a classic example of the pitfalls digital currency providers need to avoid, but one of the companies that became the face of the dotcom bubble bursting.
Part of this was a high-profile marketing campaign starring Hollywood actress Whoopi Goldberg which described Flooz as a “gift currency”, although it was also described as similar to a loyalty points system or a frequent flyer programme.
The problem with Flooz started, as it does with many gift voucher systems, with limited adoption by merchants. None of the adverts featuring Whoopi Goldberg mentioned any stores it could be used in, but this would be the least of the company’s problems.
In 2001, just before the company went bankrupt with the highest number of creditors in the history of the United States bankruptcy courts (roughly 325,000), it turned out that 19 per cent of transactions made using Flooz came from a crime syndicate based in Russia and the Philippines.
The points were unwittingly used as part of a money laundering scheme where the syndicate stole credit card numbers, bought Flooz and then redeemed it, with the FBI claiming $300,000 of stolen money was laundered in this way.
In the end, with debts of up to $50m, Flooz went bust in 2001, and it would take another eight years for a decentralised option to make digital currency a serious option.