Indeed, I think it's assumed most, if not all, life were 'obligate anaerobes' - organisms that are poisoned by oxygen. Some forms of life still are.
Oxygen is a very reactive element, and as well as reacting with inanimate materials such as iron, can also cause a lot of problems for living cells if they haven't evolved molecular defences against it.
But researchers have long been puzzled as to how the cyanobacteria could make all that oxygen without poisoning themselves. To avoid their DNA getting wrecked by a hydroxyl radical that naturally occurs in the production of oxygen, the cyanobacteria would have had to evolve protective enzymes. But how could natural selection have led the cyanobacteria to evolve these enzymes if the need for them didn’t even exist yet?
Now, two groups of researchers at the California Institute of Technology offer an explanation of how cyanobacteria could have avoided this seemingly hopeless contradiction. Reporting in the December 12 Proceedings of the National Academy of Sciences (PNAS) and available online this week, the groups demonstrate that ultraviolet light striking the surface of glacial ice can lead to the accumulation of frozen oxidants and the eventual release of molecular oxygen into the oceans and atmosphere. This trickle of poison could then drive the evolution of oxygen-protecting enzymes in a variety of microbes, including the cyanobacteria. According to Yuk Yung, a professor of planetary science, and Joe Kirschvink, the Van Wingen Professor of Geobiology, the UV-peroxide solution is “rather simple and elegant.”
...
Before there was any oxygen in Earth’s atmosphere or any UV screen, the glacial ice would have flowed downhill to the ocean, melted, and released trace amounts of peroxide directly into the sea water, where another type of chemical reaction converted the peroxide back into water and oxygen. This happened far away from the UV light that would kill organisms, but the oxygen was at such low levels that the cyanobacteria would have avoided oxygen poisoning.
“The ocean was a beautiful place for oxygen-protecting enzymes to evolve,” Kirschvink says. “And once those protective enzymes were in place, it paved the way for both oxygenic photosynthesis to evolve, and for aerobic respiration so that cells could actually breathe oxygen like we do.”
http://www.universetoday.com/1002/how-did-early-bacteria-survive-poisonous-oxygen/(That's from 2006 - later research, like this new stuff, may have invalidated some of it. But it shows that, in general, oxygen is seen as a problem for early life, not a useful substance)
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