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How Does BitCoin Work? - YouTube
Channel: BrainStuff - HowStuffWorks
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hi I'm Jonathan this is brainstuff and
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I've got some bad news for you
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money is imaginary now I don't mean that
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this printed piece of paper is
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make-believe I can feel its texture and
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the ink even smudges off on my fingers
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but when you compare it to this other
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piece of paper what's really the
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difference well one is a recognized
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currency and the other isn't and the
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reason why
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well people agree that this piece of
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paper is a dollar and has value that's
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where money's worth comes from we all
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pretend it's a currency this is one
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reason why the digital currency Bitcoin
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appeals to some people see it's not tied
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to any political system or government so
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it's not vulnerable to any of their
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failings like the economic collapse in
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2008 all it needs is for people to
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believe in it but lately well some
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people are having a crisis of faith
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that's why today on brain stuff we're
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going to quickly establish some facts
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about Bitcoin to better inform your
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beliefs about it now basically it's
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virtual money you can use to buy and
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sell things online and it mimics real
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world limited resources like gold for
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instance it's also a crypto currency
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meaning that it's encrypted in a way
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that prevents it from being copied see
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every Bitcoin transaction is recorded
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using a blockchain now that information
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acts like a ledger that is encoded onto
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the Bitcoin itself this prevents people
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from spending the same Bitcoin more than
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once since everyone else on the
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currency's peer-to-peer network knows
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that it just was spent it's essentially
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just a number associated with an
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Internet address you can store it on
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your phone or a hard drive until it's
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used again now here's some ways you
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could acquire bitcoins accept them as
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payment for goods and services exchange
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them for a more traditional form of
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currency or you can mind them that's
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right like gold bitcoins are mined not
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by old time a grizzled prospectors but
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by powerful computers and like gold
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the more people mined bit
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the less there are to be found so they
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become harder to find so instead of
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physically mining with a pickaxe you can
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attempt to solve math problems for the
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computer imagine the problem is
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something like X plus y equals 15 now if
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you can figure out what x and y are
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congratulations you get a Bitcoin with
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little competition the problems are
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easier to solve
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but when more people join the search
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you've got a race and the problems get
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way more difficult but as Bitcoin miners
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dwindle
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the math problems will get easier again
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to ensure the flow is steady their value
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is boosted and they remain inflation
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proof not all have been mined yet and we
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expect they won't be until around 20 140
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so let's say you heard all this and
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thought you know I want to grow up to be
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a professional Bitcoin miner and trader
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well there are a few risks you should
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probably know about first for instance
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because there's no regulatory agency
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setting a bitcoins value it tends to
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fluctuate wildly another Bitcoin problem
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is security now actually the format
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itself is fine but that doesn't protect
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it from hackers who target the banks and
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exchanges that deal in bitcoins again
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this isn't the fault of the currency if
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a bank were robbed you wouldn't blame
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the dollar bill for getting stolen right
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so bitcoin has its lumps and for it to
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become widely used its volatility needs
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to settle down quite a bit it's
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currently a high risk currency that's
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totally unpredictable
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and we didn't even get into the
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mysterious identity of bitcoins founder
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Satoshi Nakamoto now personally I think
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the biggest drawback to Bitcoin is that
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you just can't make it rain if you'd had
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experiences with Bitcoin let's know in
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the comments below and let us know if
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there any topics you'd like us to cover
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I actually have another pile of them
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right over there really I mean it's just
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off-screen so uh best part about this is
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I don't even have to pick it up we have
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interns to do that see you guys later
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