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What is Bitcoin? Bitcoin Explained Simply for Dummies - YouTube
Channel: 99Bitcoins
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Welcome to 99Bitcoins.com.
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I'm Nate Martin and I'll be your guide
through this video series
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Bitcoin Whiteboard Tuesday.
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We're going to cover a lot of topics such as
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Bitcoin mining, Bitcoin wallets,
how to trade Bitcoin and a lot more.
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Today we're going to start from scratch
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and answer the third most searched term
on Google today, what is Bitcoin?
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If youâre worried that
weâre going to get too technical
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and use a lot of complicated words, donât.
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Here at 99Bitcoins
we translate Bitcoin into plain English
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so even if you have
no technical background
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youâll be able to understand everything.
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By the end of this course,
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youâll know more about Bitcoin
and how it works
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than 99% of the population.
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So letâs get startedâŠ
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Before we talk about Bitcoin
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I want to take a moment
and talk about money.
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What is money exactly?
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At its core, money represents value.
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If I do some work for you,
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you give me money in exchange for
the value I gave you.
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I can then use that money
to get something of value
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from someone else in the future.
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Throughout history,
value has taken many forms
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and people used a lot of
different materials to represent money.
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Salt, wheat, shells and of course gold
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have all been used as
a medium of exchange.
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However, in order for something
to represent value
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people have to trust that
it is indeed valuable
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and will stay valuable
long enough for them to
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redeem that value in the future.
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Up until a hundred years ago or so
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we always trusted in someTHING
to represent money.
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However something happened
along the way
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and weâve changed our trust model
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from trusting someTHING
to trusting in someONE.
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Let me explain.
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Over time, people found it
too cumbersome
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to walk around the world
carrying bars of gold
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or other forms of money,
so paper money was invented.
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Hereâs how it worked:
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a bank or government would offer to take
possession of your bar of gold;
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letâs say worth $1000,
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and in return, that bank would
give you receipt certificates,
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which we call bills,
amounting to $1000.
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Not only were these pieces of paper
much easier to carry,
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but you could spend a dollar
on a cup of coffee
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and not have to cut your gold bar
into a thousand pieces.
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And if you wanted your gold back,
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you simply took $1000 in bills
back to the bank
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to redeem them for
the actual form of money,
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in this case that gold bar,
whenever you neededâŠ
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And so, paper began its use as money
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as an instrument of practicality
and convenience.
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However as time progressed,
and due to macroeconomic changes,
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this bond between the paper receipt
and the gold it stands for was broken.
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Now, to explain the path that
led us away from the gold standard
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is extremely complex,
but suffice to say that
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governments told their people that
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the government itself would be liable
for the value of that paper money.
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Basically we all said
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âletâs just forget about gold
and trade paper insteadâ.
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So people continued to
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trade with receipts that are backed by
nothing but the governmentâs promise.
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And why did that continue to work?
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Well, because of trust.
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Even though there is no actual commodity
backing paper money,
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people trusted the government
and thatâs how fiat money was created.
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Fiat is a Latin word that means âby decreeâ.
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Meaning the dollars, or euros
or any other currency for that matter
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have value because
the government orders it to.
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Itâs what is known as âlegal tenderâ -
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coins or banknotes
that must be accepted
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if offered as payment.
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So the value of todayâs money
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actually comes from a legal status
given to it by a central authority,
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in this case, the government.
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And so the trust model has changed,
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from trusting someTHING
to trusting someONE,
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in this case, the government.
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Fiat money has two main drawbacks:
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1. It is centralized:
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You have a central authority
that controls and issues it.
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In this case the government
or central bank.
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And two, it is not limited by quantity:
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The government or central bank
can print as much as they want
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whenever needed and inflate
the money supply on the market.
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The problem with printing money is that
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because youâre flooding the market
with more money
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the value of each dollar drops,
so your own money is worth less.
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When you see prices rising
throughout the years
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itâs not necessarily that
prices are rising as much as that
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the purchasing power of
your money is dropping.
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You need more dollars to buy something
that used to âcost lessâ.
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Once fiat money was in place,
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the move to digital money
was pretty simple.
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We already have a central authority
that issues money,
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so why not make money mostly digital
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and let that authority
keep track of who owns what.
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Today we mainly use credit cards,
wire transfers, Paypal
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and others forms of digital money.
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The amount of physical money
in the world is almost negligible
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and is getting smaller
with each year that passes.
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So if money today is digital,
how does that even work?
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I mean, if I have a file
that represents a dollar,
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whatâs to stop me from
copying it a million times
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and having a million dollars?
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This is called the âdouble spend problemâ.
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The solution that banks use today is
a âcentralizedâ solution;
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they keep a ledger on their computer
which keeps track of who owns what.
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Everyone has an account
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and this ledger keeps
a tally for each account.
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We all trust the bank
and the bank trusts their computer,
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and so the solution is centralized
on this ledger in this computer.
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You may not know this,
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but there were many attempts to create
alternative forms of digital currencies,
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however none were successful
in solving the double spend problem
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without a central authority.
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Whenever you give a anyone control
over the money supply
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youâre giving them enormous power
and this creates three major issues:
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The first issue is corruption;
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power corrupts, and absolute power
corrupts absolutely.
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When banks have a mandate
to create money, or value,
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they basically control
the flow of value in the world,
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which gives them
almost unlimited power.
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A small example of how power corrupts
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can be seen in the Wells Fargoâs scandal
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where employees secretly created
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millions of unauthorized
bank and credit card accounts
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in order to inflate
the bankâs revenue stream,
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without their customers
knowing about it for years.
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The second issue of a centralised
system is mismanagement.
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If the central authorityâs interest
isnât aligned with the people it controls
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there may be a case of
mismanagement of the money.
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For example, printing a lot of money
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in order to save a certain bank
or institution from collapsing,
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as what happened in 2008.
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The problem with printing
too much money is that
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it causes inflation and basically
erodes the value of the citizenâs money.
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One extreme example
for this is Venezuela,
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where the government has printed
so much money,
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and the value of it
has dropped so much,
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that people are no longer counting money
but are weighing it instead.
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The last issue is control.
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You are basically giving away
all control of your money
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to the government or bank.
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At any point in time
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the government can decide to
freeze your account
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and deny you access to your funds.
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Even if you use only cold hard cash
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the government can cancel
the legal status of your currency
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as was done in India a few years back.
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This was the state of things until 2009.
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Creating an alternative to
the current monetary system
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seemed like a lost cause.
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But then everything changedâŠ.
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In October 2008
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a document was published online
by a guy calling himself Satoshi Nakamoto.
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The document, also called a whitepaper,
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suggested a way of creating a system
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for a decentralised currency
called Bitcoin.
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This system claimed to create
digital money that solves
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the double spend problem
without the need for a central authority.
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At its core Bitcoin is a transparent ledger
without a central authority,
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but what does this confusing phrase
even really mean?
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Well, letâs compare Bitcoin to the bank.
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Since most money today
is already digital,
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the bank basically manages its own ledger
of balances and transactions.
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However the bankâs ledger
is not transparent
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and it is stored on
the bankâs main computer.
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You canât sneak a peek
into the bankâs ledger,
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and only the bank has
complete control over it.
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Bitcoin on the other hand
is a transparent ledger.
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At any point in time
I can sneak a peek into the ledger
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and see all of the transactions
and balances that are taking place.
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The only thing you canât figure out is
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who owns these balances
and who is behind each transaction.
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This means Bitcoin is pseudo-anonymous;
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everything is open,
transparent and trackable
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but you still canât tell
who is sending what to whom.
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Letâs explain this with an example.
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You can see on your screen
certain rows from Bitcoinâs ledger.
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We can see that
a certain Bitcoin address
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sent 10,000 Bitcoins
to another Bitcoin address
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in May of 2010.
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This specific transaction
is the first purchase
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that was ever made with Bitcoin
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and it was used to buy 2 pizzas
by a guy named Laszlo.
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Laszlo published a post back in 2010
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asking for someone to sell him 2 pizzas
in exchange for 10,000 Bitcoins.
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Well, someone did,
and now the price of these two Pizzas
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is worth well over
100 million dollars today.
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Bitcoin is also decentralized;
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thereâs no one computer
that holds the ledger.
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With Bitcoin, every computer
that participates in the system
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is also keeping a copy of the ledger,
also known as the Blockchain.
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So if you want to take down the system
or hack the ledger
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youâll have to take down
thousands of computers
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which are keeping a copy
and constantly updating it.
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Like most money today,
Bitcoin is also digital.
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This means thereâs nothing physical
that you can touch in Bitcoin.
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There are no actual coins,
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there are only rows of
transactions and balances.
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When you âownâ Bitcoin
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it means that you own
the right to access
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a specific Bitcoin address record
in the ledger
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and send funds from it
to a different address.
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So what does all of this mean?
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Why is Bitcoin such big news?
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Well for the first time since
digital money came into existence
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we now have an alternative to
the current system.
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Bitcoin is a form of money that
no government or bank can control.
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Think about the time before the Internet,
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how centralized
the flow of information was.
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Basically if you wanted information
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you could get it from a few major players
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like the New York Times,
The Washington Post
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and others like them.
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Today, thanks to the Internet,
information is decentralized
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and you can communicate
and consume knowledge
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from around the world
with the click of a button.
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Bitcoin is the Internet of money
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and itâs offering
a decentralized solution to money.
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Bitcoin has several advantages
over the current system.
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First, it gives you complete control
over your money.
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With Bitcoin, you and you alone
can access your funds.
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How you actually do this
will be explained in a later video.
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No government or bank
can decide to freeze your account
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or confiscate your holdings.
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Bitcoin also cuts a lot of the middlemen
from the process of transferring money.
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This means that in many cases
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Bitcoin is cheaper to use than
traditional wire transfers or money orders.
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Also, unlike fiat currencies,
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Bitcoin was designed to be
digital by nature,
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this means you can add additional
layers of programming on top of it
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and turn it into âsmart moneyâ,
but more on that in later videos.
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Finally, Bitcoin opens up
digital commerce to
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2.5 billion people around the world
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who donât have access to
the current banking system.
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These people are unbanked
or underbanked
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because of where they leave
and the reality that they have been born into.
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However, today, with a mobile phone
and a click of a button
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they can start trading using Bitcoin,
no permission needed.
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Today there are several merchants
online and offline that accept Bitcoin.
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You can order a flight or book a hotel
with Bitcoin if you like.
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There are even Bitcoin debit cards
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that allow you to pay at almost
any store with your Bitcoin balance.
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However the road toward acceptance
by the majority of the public
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is still a long one.
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As we continue in this video series,
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we will break down exactly
how Bitcoin works and how to use it.
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We will learn about Bitcoin mining,
Bitcoin wallets, how to buy Bitcoins
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and much more.
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The revolution of money began in 2009
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and these days we are seeing it
change money as we know it.
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You may still have some questions.
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If so, just leave them
in the comment section below.
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And if you're watching this video on YouTube
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and enjoy what you've seen,
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don't forget to hit the like button.
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Then, make sure to subscribe
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for notifications about new episodes.
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Thanks for joining me here at the Whiteboard.
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For 99Bitcoins.com, Iâm Nate Martin,
and Iâll see you⊠in a bit.
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