The vast majority of people in the world don’t hold Bitcoin. Yet. But even among those who do, there are many who don’t truly understand exactly what it is. As Bitcoin continues to grow and ever more people begin to accumulate it, those who have this knowledge will have an edge over the rest of humanity.
So, in this video, we’re going to go back to basics and explain in simple terms what Bitcoin is and how it works. In just a few minutes time, Bitcoin, along with all the terms associated with it, like blockchain, mining, proof of work and private keys, will all make sense. Perhaps the simplest way to think about Bitcoin is to begin with an example.
So, let’s say I owe you $10. How am I going to pay you? Well, the simplest way for me to do that would be for me to give you $10 in cash. Now, there are a few things which make this a good way to do it. For a start, it’s instant. The moment I hand over the cash, our debt is settled. You have your money and can then do whatever you need to do with it.
There’s also no third party involved. It’s just me giving you the money directly. This is known as a peer-to-peer transaction. We don’t need to involve anyone else, and most importantly, we don’t need to involve anyone else and, most importantly, we don’t need to trust anyone else. There’s no need for a bank or any other sort of middleman to get involved.
Which means that it’s a private transaction as well. The only people who need know that it has taken place are you and me. But of course, there’s one rather big problem with my paying you in cash. We have to be in the same place. Sure, I could put the cash in the post, but then we’d have to trust the postal service to deliver it.
It would also take time, and I’d have to pay the postage costs too. So perhaps we could wait until we are in the same place. Well, if you happen to live in a different country, you might be waiting a while for your money. If you need the money quickly, that’s no good. Assuming our paths aren’t going to be crossing anytime soon, how do I get you your $10? In today’s world, there are, of course, a lot of ways of sending money electronically.
I could send it to you via a bank transfer, though it might take a while, especially if we’re in different countries and using different currencies. Anyone who’s tried to do an international bank transfer before will know it ain’t straightforward or quick. You could end up waiting several days for the money to arrive, and in the meantime, you won’t have the use of that money. Meantime, you won’t have the use of that money. We could use a money transfer service like Western Union or MoneyGram and pay a hefty fee to do so. I could pay you using a debit or credit card if you have the facility set up to receive those sorts of payments, or we could use PayPal or a similar such service.
There are, in short, a number of ways to do it, but they all involve a middleman of some kind, be it a bank, card network, money transfer service, or a platform like PayPal. We’ve had to trust at least one other entity to ensure the transfer happens at all. So, the ideal solution to this problem is a form of digital cash that can be transferred peer-to-peer without having to trust any third parties and that can settle a payment quickly between two people in two different places.
Well, that is essentially what Bitcoin is. Let’s delve a little deeper into this. Bitcoin is a software program, an online network that enables value to be transferred across the internet between individual users without the need for an intermediary. This software program has a built-in currency, also known as Bitcoin, with a small b.
You transfer value using Bitcoin, small b, on the Bitcoin, capital B, network. The currency is often referred to by its ticker symbol, BTC. So from here on, I’ll use BTC to describe Bitcoin, the currency, as opposed to the network the currency exists on.
Now, this network was created by an unknown individual who went by the name of Satoshi Nakamoto. His real identity, assuming he’s a he, is unknown. Satoshi published the Bitcoin White Paper, which explained in depth how Bitcoin works and why it was created, on the 31st of October 2008. It was titled, Bitcoin, a Peer-to-Peer Electronic Cash System, and its opening line reads, quote, peer-to-peer electronic cash system, and its opening line reads, quote, A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.
All of which brings us to the tricky problem Satoshi had to solve. How do you create a system that allows people to transact over the internet, but which doesn’t have some form of centralized authority in the middle keeping track of everything? How do you cut financial institutions out of the equation and allow everyone to just transact peer-to-peer? It’s an incredibly difficult problem because if you don’t have a third party keeping track of everyone’s spending, then how do you make sure everyone is only spending what they have?
If there’s no one keeping a record, how do you stop people spending their digital money many times over? In short, how do you engineer something that doesn’t require trust? It’s no use expecting people to be honest and only spend the digital money they actually have because, well, they’re people and will eventually act out of self-interest.
There has to be a way to prevent them from acting dishonestly. Otherwise, there’s no point in even trying to make the system work. Now, in everyday life, there are ways to stop us doing this. Cash is hard to forge, and you can expect to be punished if you try. When transacting electronically, banks keep a tally of how much everyone has and when they spend or receive money.
When you spend on your card or make a bank transfer, your bank updates your balance to reflect that and will make sure you’re not able to spend beyond a certain agreed amount. So again, we have to rely on a third party to keep track of things. We have to trust that third party to keep honest records.
And we also have to trust that the central bank issuing the currency in question won’t devalue it by printing more and more of it, which is pretty much what every central bank around the world has been doing in recent years. Satoshi figured out the answer to this problem, and it’s one of the things which makes Bitcoin so revolutionary. Rather than have one centralized entity keeping track of all transactions and balances, one centralized entity keeping track of all transactions and balances, Bitcoin is engineered so that anyone running a node on its network keeps a record of all transactions and balances. Now a node is basically a computer that has downloaded and is running the Bitcoin software. You can think of each node as being like an individual bookkeeper. So imagine a big accounts ledger distributed across all nodes on the network that’s being constantly updated in real time.
It’s constantly being checked and verified by these nodes to keep everyone honest. You see, that’s the thing with a ledger or database kept by a bank or other financial institution. These databases are centralized. All the records are kept in one place. The problem with this is that with all that data in that one place, just imagine what could happen if, for example, someone with bad intentions were to gain access to it.
Imagine if a hacker managed to gain access to the database of a big bank and alter or destroy all its records. The results would not be pretty. So Satoshi’s way of enabling people to transact on the Bitcoin network was to use a distributed ledger system like that just described. Every transaction that takes place on the network gets checked and validated by the nodes.
Every few minutes, the records of these validated transactions are grouped together into a block. These blocks get linked together to form a chain of blocks, or, as it’s more commonly known, a blockchain. Here’s the thing, though. Each block is linked to the one before it using an encoding process known as hashing.
Without getting into too much detail here, this means that if someone were able to alter the information in a block, say to award themselves more BTC than they actually had, then this would mean having to alter all the information in all the blocks that come after it.
In other words, the network would notice that something fishy was going on and reject the change. This feature helps to make the Bitcoin blockchain an immutable record of transactions. Not only is there no central authority overseeing it all, but it’s virtually impossible to tamper with the record. But you might be wondering how the network is maintained. After all, if there’s no central authority overseeing things, then who exactly is? And what’s in it for them? As we’ve seen, the network is made up of nodes. Now, running a Bitcoin node is actually a pretty straightforward process
and can be done on a basic computer running the Bitcoin software. It doesn’t require vast amounts of processing power, and the only really specialized requirement is a decent amount of storage in order that the node in question can store Bitcoin’s full transaction history. There aren’t really any rewards for running a node as such, other than knowing that you’re playing your part in helping to maintain the network and contributing to its decentralization.
After all, the more nodes there are, the more bookkeepers there are overseeing the network. But there is another type of node that’s a lot more involved with running the Bitcoin network and is financially incentivized to do so. These nodes are known as miners. Now, you might have wondered what mining has to do with an asset that exists only in digital form.
Well, it relates to the way Bitcoin is designed. The number of units of BTC the software will issue over time is fixed at 21 million. No more than this will ever exist. Now, these coins aren’t issued all at once. Their release is pre-programmed by the code Satoshi wrote.
Every time a block is added to the blockchain, a predetermined number of coins are released in the form of a block reward. This block reward diminishes over time, slowing BTC’s issuance and inflation rate. All the miners on the network compete for these block rewards. And this entire method of maintaining and keeping the network honest is called proof of work.
Now, here’s where things get a bit crazy. Bitcoin miners all want to be the one to add the latest block containing all those recent transactions to the blockchain and claim the block reward of freshly issued BTC. to the blockchain and claim the block reward of freshly issued BTC. To do so, they all compete to be the first one to essentially guess a random number.
Now, this massively oversimplifies what’s going on, but we don’t need to make it too complicated. The number all these miners are trying to guess is made up of a lot of digits, and that means they have to submit a lot of guesses as to what it might be.
And I mean a lot of guesses, as in trillions of guesses, all while the rest of the miners on the network are doing the same. One miner eventually gets lucky, and the process begins all over again. And if you’re wondering, yes, submitting all those guesses does indeed require a lot of computing power, which in turn uses a lot of electricity. This is why many say that Bitcoin mining is bad for the planet.
Well, not if the energy being used is coming from renewable sources, as much of it now does, but that’s a topic for another video. One last thing to note about Bitcoin for the purposes of this introduction, though. You might imagine that in order to use Bitcoin, you need to download and run the software, that is, be a node or a miner.
Not so. Anyone with an internet connection can use Bitcoin to send BTC to any other Bitcoin user, no matter where they are on the planet. One of the fundamental ways in which Bitcoin functions as the most secure payment network on earth is through the use of public key encryption.
Now, there are three components to this, and they work together to enable anyone to use the network to transfer BTC. The first component is a private key, randomly generated for a new user by the Bitcoin software. This private key, as the name suggests, needs to be kept secret. Without it, you can’t access your BTC, and if someone else gets hold of it, they can access your BTC.
It’s analogous to the password for your online banking service. Now, I’ll tell you how private keys are stored in a minute. This private key is then used to generate a public key. Both of these keys, by the way, are rendered as long strings of letters and numbers. The private key is subjected to a mathematical process, too complex to go into here, which generates the public key.
Note that this process is irreversible. A public key can be generated from a private key, but not the other way around. This ensures your private key remains private. Your public key, meanwhile, again, as the name suggests, can be made public. It’s analogous to your bank account number and it’s required for anyone to send you BTC.
However, the public key itself undergoes one more set of mathematical processes before it can be shared with anyone wanting to send you BTC. The result is your Bitcoin address, which is again represented as a sequence of letters and numbers that can be copied and pasted in order to send BTC over the network.
This address can also be represented by a QR code, which can then be scanned to obtain the receiving address. Now, back in Bitcoin’s early days, the process of generating private keys, public keys, and addresses was a little more complicated than it is today. There were various sites that would do this process for you, or you could download and use the Bitcoin Core wallet.
And there’s another bit of Bitcoin-related jargon that it’s important to understand. A Bitcoin wallet is another piece of software with two main functions, holding your private keys and holding your address. This then allows you to interact with the Bitcoin network to send and receive BTC. Nowadays, wallets have a little more functionality than this, but these two main functions are what’s most important.
So with the core wallet downloaded and set up, the only thing left to do was to get yourself some BTC. Which brings us to today. Now these days, by far the easiest and most popular way of getting some BTC is to buy it through an exchange like Coinbase or Binance, for example. When you create an account on an exchange, it creates a wallet for you.
And if you want to do this, then the link in the description will get you a nice bonus at some of the top-rated exchanges out there. Once you’ve set up an account, you then send regular money like dollars, euros, pounds, etc. to the exchange, buy BTC with it, and that BTC is recorded as being in your wallet on that exchange. Here’s the important thing to remember, though.
Because your wallet is hosted by the exchange, it means that the exchange also holds your private keys. Now, it wouldn’t be very good business for the exchange to use these private keys to send your BTC elsewhere, although dodgy exchanges have done just that in the past. But even the biggest exchanges can be hacked or, like FTX, be rotten behind the scenes. So one of the most important things any Bitcoin holder can do is practice self-custody.
That is, store your private keys yourself. This means that only you have access to your BTC. And here’s a really important point to understand. When you hold your BTC balance in a wallet, what you’re really doing is holding those private keys. The coins themselves exist as account balances on the blockchain.
No one, not miners, nodes, exchanges, regular people like you and me, or even Satoshi himself, ever actually holds any coins. Everyone merely controls the means to access whatever amount of BTC the blockchain records them as having. Now, there’s a lot of information about Bitcoin to take in there, records them as having.
Now, there’s a lot of information about Bitcoin to take in there, so I’ll close this introduction with the most important thing you need to be aware of if you are planning to get your hands on some BTC, now that you’re familiar with the basics. Using a good exchange is the first step, but the next step should always be taking custody of your private keys yourself.
The best way to do this is to use a wallet that you control, i.e. not one hosted by an exchange or any other third party. Remember, Bitcoin is designed to be trustless, which means if you’re trusting someone else to hold your private keys, you’re going against what Bitcoin itself stands for. Sure, trusting an exchange is convenient and the best exchanges have strong security protocols in place, but you can never be sure.
So your options are either to download a software wallet, which will enable you to hold your keys securely on your laptop or mobile device or get yourself a hardware wallet which stores your keys on an encrypted device that never interacts with the Internet. Software wallets are good and I have a video on the best ones in the description for you. However, a hardware wallet is the best level of security you can get. And so I advise checking out my video on the best ones of those two.
Link to that is also in the description. Well, I hope you found this video useful. And believe me when I say the inner workings of Bitcoin go a lot deeper and get a lot more complex than what I talked about here. But this should have given you a basic understanding of what this amazing technology is and how it works.
And if you want to learn more, then I’ll leave links to some brilliant resources below that will help you dig even deeper into Bitcoin. Thank you for watching and if you found this useful then a like and a subscribe are always appreciated. If you know of others who would get value from this video, then please also feel free to share it with them. Check out my deals page below for those exchange offers I mentioned earlier, as well as discounts on hardware wallets too.
Bitcoin For Beginners
https://www.youtube.com/watch?v=IQHLpdWvyK4
Transcript:
Now, today that 10,000 Bitcoin would be worth over $200 million. So I really missed out big time. But here’s the good news. We’re still really, really early here in 2023. And I think that Bitcoin will continue to appreciate quite a bit in value for the rest of our lives. I think you’re going to become quite wealthy buying Bitcoin in 2023. But as we’re going to see in this video, that’s actually the least interesting part of Bitcoin.
Bitcoin is a lifeline for humanity and has much larger and more interesting social implications. So why didn’t I buy Bitcoin in 2011? Well, for one thing, I thought I was too smart for this kind of thing. I’d already been in the markets for over 15 years and I had a strong finance background having worked for a prominent the markets for over 15 years. And I had a strong finance background having worked for a prominent multi-billion dollar hedge fund.
So I knew a lot about finance and I considered myself just too smart, quote unquote, too smart to be fooled by something like Bitcoin. It sounded scammy. It sounded like a Ponzi scheme. It was definitely too volatile for me. And I was certain that it would never succeed.
So unfortunately I passed judgment on something without putting in even a few hours of research and learning exactly how Bitcoin works and how the Bitcoin ecosystem works. And that was, in retrospect, obviously a big mistake. So here’s the thing. Bitcoin has had a market cap in the hundreds of billions of dollars for many years now. It keeps crashing and dying. And you can read an obituary of Bitcoin almost every day in your local newspaper or website.
But the funny thing about Bitcoin after it crashes and quote unquote dies, it keeps rising from the ashes and then coming back and eventually hitting new all-time highs again, usually within a couple years. Now, people compare Bitcoin to the tulip bubble, but the thing about tulips and the tulip bubble back in Europe was the tulip bubble popped and never came back.
Bitcoin keeps coming back, which suggests that there might be something there. It looks actually a lot like Amazon, for example, which basically crashed, went down 90% from 2000 to 2002. And then unlike the tulip bubble, Amazon came back and obviously went on to hit many multi-year new highs for many, many years.
So Bitcoin too keeps coming back, which suggests that there is something there. It’s a little bit more like Amazon than like tulips. And so I think we all need to be humble. And this is what my past with Bitcoin has taught me in rejecting Bitcoin in 2011. We all need to be humble in the face of things that we don’t understand, especially if something is a new technology like Bitcoin.
And the fact that Bitcoin is still worth hundreds of billions of dollars, even after the brutal bear market that we’ve been experiencing, suggests that there might be something there that is worth looking into. But if Bitcoin is this fraudulent thing, it just for some reason never goes to zero. It can’t seem to go to zero. So I think that’s an interesting thing to investigate.
So what is Bitcoin exactly? Bitcoin is a new kind of money that is very special for three reasons. The first reason is that Bitcoin was not issued by a government or by a corporation. And if you think about it, almost every money you’ve ever encountered was issued by usually a government, but in some cases a corporation as well.
Bitcoin is a new neutral form of money that cannot be manipulated by government officials or corporate insiders or insiders of any kind or anyone else. There’s nothing else like this out there, not Ethereum, not Cardano, not these other cryptocurrencies that try to say that they are neutral and decentralized like Bitcoin. And when you do the work, you’ll see that this is the case.
So that’s the first reason that Bitcoin is a very special new kind of money. The second reason is that anyone can send Bitcoin to anyone else in the world. In other words, peer-to-peer or peer-to-peer without using a third party like a bank or other financial services company. And this is also very, very unusual.
We’re used to having to ask permission from Wells Fargo or Bank of America, for example, to move our money around, or PayPal or Venmo, etc. But with Bitcoin, anyone can send money to anyone else in the world without using a third party. And the applications of this are almost infinite, as we’re going to see.
The last really interesting thing about Bitcoin is that its supply, its future maximum supply is capped at 21 million coins or 21 million Bitcoin. Now it’s first difficult to understand this, how this cap is enforced, but you have to trust me on this for now. It has a credibly enforced future supply.
And so Bitcoin is in many ways scarce, like something like gold, like a precious metal. But the interesting thing is you can also zap it anywhere in the world over the internet, which you can’t do with physical gold or silver. Because Bitcoin is not issued by governments or controlled by governments, we don’t have to worry about them printing a lot more of it as well.
So when central banks print more US dollars, more euros, or more Australian dollars, or Canadian dollars, or other fiat currencies, it makes all the existing money worth less, including the money that’s in your pocket and in your bank account. And this is why things cost more over time. You’ve probably seen this chart of the falling purchasing power of the US dollar. Back in 1913, a dollar, the equivalent of a dollar today, was worth $26.14.
And as the dollar has been devalued through central bank money printing, we experience this as inflation. So again, a dollar in 1913 had the same buying power as $26 in 2020. So for example, back in 1913, you could buy 30 Hershey’s chocolate bars for just a dollar. Today, that will cost you $26.
So we can see how fiat currencies, even very strong, relatively safe fiat currencies like the US dollar fall in value over time in terms of purchasing power. So for example, when I was a kid in the 1970s, a Big Mac cost about 50 cents. Today, it costs about 10 times that or close to $5, maybe a little bit less, maybe a little bit more, depending where you are.
And this is not because the burger is that much higher quality today. In fact, it’s probably the opposite. It’s actually because the US dollar always loses purchasing power over long periods of time, over multi-year periods of time or over decades. In 20 years from now, it’s quite likely that a Big Mac will cost more than $30.
So this becomes a question for people who want to retire. How do you protect your retirement savings from inflation like this? None of us can work forever, so we need to set aside some money for our future selves or maybe for our descendants, our children or grandchildren.
So how do we make sure that that $5 that we set aside today in our savings or in our retirement savings will still buy us a Big Mac in our old age? Now you could put that $5 into gold, but gold has not been a good inflation hedge for the past 14 years, really since 2010 or so. You could invest that $5 into real estate, but then you have to deal with tenants, maintenance costs, insurance, property taxes, etc. Also, it’s impossible really to buy any real estate for small amounts of money like $5.
And we want retirement savings to be opened up to all the people of the world. You can invest that $5 into bonds, but they don’t pay enough interest to keep up with inflation. The interest rate on the bonds is always below CPI or whatever. You can invest that $5 into stocks, but there’s no guarantee that the companies that you invest in will still be around in 20 years.
What if you buy the next Xerox or the next Kodak or Blockbuster or some other company whose products have become obsolete over time due to technological change? Now, you could buy a stock index fund or a stock mutual fund, but there’s no guarantee that the US stock market will still be around in 20 years.
So for example, in the 20th century, the German and Russian stock markets went to zero a few times. And so even holding an index fund in one of those countries at that time, if they’d existed, would not have helped you there. But if you cannot trust the stock market, which is so volatile, the question always is, then why would you want to trust something even more volatile like Bitcoin? Well, Bitcoin is volatile over shorter periods of time, but it actually has a very different path over longer periods of time, thanks to its fundamentals. And those fundamentals are Bitcoin is scarce.
There’s just 21 million coins that can be made or mined. Bitcoin cannot be seized if you hold it the right way. Bitcoin cannot be censored. Bitcoin cannot be controlled by anyone except you. If you hold bonds or stocks or money in a bank, those things can all be frozen, especially during a crisis.
Even if you haven’t done anything wrong, bad things can happen like that. But when you hold Bitcoin, it’s a bearer asset like gold and you can hold it yourself. You don’t have to hold it in an account somewhere or you don’t have to hold it in a bank vault. For example, I could put a million dollars worth of Bitcoin into what we sometimes call a brain wallet and walk across any border.
All I need to do is memorize 12 words and I can access my Bitcoin on the other side of that border. I can also zap some Bitcoin to people who need it in South America or Africa and not have to deal with Western Union and the huge fees that come with remittances. I can send Bitcoin to my future self by holding it and rest assured that it will keep its purchasing power over long periods of time due to its scarcity.
So Bitcoin is a wonderful asset to hold for retirement if you live in a relatively stable part of the world like the US, Europe, Canada, Australia, Japan, etc. Bitcoin is also a wonderful asset to hold if you live in a part of the world that has less strong property rights, higher inflation, more political instability.
And as we’ve seen, and as we may see these more relatively stable parts of the world like the US, Europe, Canada, Australia, Japan, things can always change, especially over decades. And these could become places that have less strong property rights, much higher inflation, more political instability. But if you are already living in one of these countries like Nigeria, for example, Nigerians are finding Bitcoin extremely useful in the economic crisis that they’re going through and the money crisis.
And I’ll link to this article below if you want to read more about that. As we said, Bitcoin is an easy and low cost way to send remittances to other countries and you can bypass greedy companies like Western Union. Bitcoin is a life raft for refugees who no longer need to leave their savings behind when they flee their country.
They can bring their savings in Bitcoin in a brain wallet and they don’t have to carry anything. They can just have it in their head. And so you can think of all the instances in history where this would have been very, very useful, especially the exodus out of Germany and the exodus out of Russia during the world wars.
Bitcoin is also a life raft for those who choose to remain in an unstable country, and they want to hide their savings from an authoritarian ruler who wants to confiscate it or protect it, or they want to protect it from high inflation. We saw a recent example of that in late 2022 and early 2023 with the Lebanese pound collapsing. And if you were holding your wealth, your savings in Bitcoin as opposed to Lebanese pound collapsing and if you were holding your wealth your savings in Bitcoin as opposed to Lebanese pounds you were able to weather this crisis quite well Whether you left the country or whether you chose to stay behind we can see here a chart of Bitcoin
Denominated in Lebanese pounds and even though Bitcoin has been going down in terms of currencies like the Canadian dollar in the US dollar in The euro we can see how much it spiked during the Lebanese pound during their financial crisis. So this was a very good life raft for the Lebanese who were able to use it.
Now you may have heard people say bad things about Bitcoin. Bitcoin wastes energy. It’s bad for the environment. It can be destroyed by a quantum computer. It’s not scarce because it can be cloned. It’s for criminals. It’s a Ponzi scheme or a pyramid scheme. It’s too volatile. It’s a bubble. It has no intrinsic value. It’s manipulated by whales.
It’s controlled by XYZ government. It’s controlled by the Bitcoin miners. It’s controlled by the Bitcoin developers. Governments can ban Bitcoin. And the list really goes on and on. Now, these are all objections that I used to have as well. But I can assure you that if you put in the time, you will see how ridiculous each of these critiques actually is.
They sound pretty smart when you first encounter them, but almost all of them are completely ridiculous. There’s this tendency for people new to Bitcoin, and I was the same way, to think that they are seeing something that no one has ever seen before. But you have to understand that some of the smartest minds in the world have been trying to figure out how to break Bitcoin, trying to figure out how it fails for years and years and years.
And everyone has failed. There have been many attacks on Bitcoin, yet still it’s here. It’s extremely anti-fragile. It’s extremely robust. If you put in the time, you’ll see that Bitcoin cannot be stopped or destroyed by anyone, not by any individuals or group or government. And once you understand that Bitcoin cannot be stopped, it gets really, really interesting.
So for example, if you have objections, if you’ve heard things about Bitcoin, I’m going to give you a research resource here that you can use. I’ll put a link in the description notes below to all of my videos on YouTube. And there’s this search box right here. So for example, if you’re worried about whether quantum computing will destroy Bitcoin, you can just type in quantum and you’ll see all my videos about quantum.
If you want to read about intrinsic value of Bitcoin or hear about the intrinsic value of Bitcoin, you’ll just type that in here. And these videos, I have close to a thousand videos, I believe, that are on just Bitcoin. So you’ll be able to find your questions answered here. And this is one way to answer this long list of objections just Bitcoin. So you’ll be able to find your questions answered here.
And this is one way to answer this long list of objections to Bitcoin. Now, after you’ve put in some time doing your own research on Bitcoin, I would suggest that the best way next to learn about Bitcoin is just to buy a small amount, just buy a dollar, $2, $5, $10, whatever is a small amount of money for you.
Buy it on your phone using one of the apps that I’m going to recommend and start playing around with it, sending it to your friends and family seeing how it really works you can check out and again i’ll put links in the description notes below to all these companies strike has a very good app for ios and android take a look at swan bitcoin take a look at river financial and if you want two interesting wallets as well to hold on your phone and play around with there’s the moon wallet moon with two u’s, there’s the Moon wallet, Moon with two U’s, and there’s the Blue wallet, which again, I’ll link to these in the description notes below.
Now, here are some important concluding notes. When you’re first getting started, focus on Bitcoin, don’t focus on crypto. The reason for this is, as you’ll see when you’ve done the research as I have, is that crypto is mostly scams and unregistered securities.
And we saw this in 2022 with Do Kwon of Terraluna and Alex Mashinsky and Celsius, Sam Bankman-Fried and FTX was the other really big example. These crypto people will try to sell you their tokens or their coins by claiming that they’re harder, better, faster, stronger. They’ll say things like Bitcoin is slow, Bitcoin doesn’t scale, Bitcoin is old tech, Bitcoin is a pet rock that doesn’t do anything, that has no uses.
And as we’ve seen in this video, you can see that Bitcoin actually has many, many incredibly useful functions and features. But these people will say this because they want to sell you their coins. Now crypto, unlike Bitcoin, Bitcoin isn’t issued by anyone. It’s not issued by a corporation or government.
But crypto, by contrast, is always issued by a small group of insiders who are pretending not to be a small group of insiders, pretending not to be a corporation, for example. And they’ll do this by hiding behind complicated legal structures like foundations or by doing their activity in another country and then bringing their tokens to the US or Europe.
Governments are in the process of shutting down these schemes as they should be, but they can’t stop Bitcoin. No one can stop Bitcoin and Bitcoin doesn’t need to be stopped because it’s not scammy. It’s a very benevolent digital asset. So if you begin by focusing on Bitcoin and just avoid crypto for now, you will learn enough to be able to see for yourself why crypto, Web3, DeFi, NFTs, and all these other schemes should be avoided.
Bitcoin is the real revolution here. Next steps, explore my Bitcoin videos on YouTube. As we said, while you’re at it, I just ask you to hit that subscribe button if you have found this video helpful. And you can do that by going to this part of the screen right here and just clicking subscribe. Don’t forget all the videos I have on YouTube.
And again, that search, the search function that you can do here to have all of your different questions asked. And I think as you peruse these videos and browse them, you’ll find some very interesting things. For example, how Bitcoin will make housing affordable again, and various other things.
For example, how Bitcoin can survive an EMP attack. Bitcoin really touches because it’s the new future money. It touches on so many areas of our lives. And when you begin to go down the rabbit hole, as they say, I think you’ll learn some very interesting things.
Where Did Bitcoin Come From? – The True Story
https://www.youtube.com/watch?v=W15A7Lf0_fI
Transcript:
In 2009, a man by the name of James Howells proved himself to be a visionary. He started mining Bitcoin before anyone else had ever heard of it. James managed to stockpile 7,500 Bitcoins when they were just a fraction of a cent per coin.
Eventually his girlfriend made him stop. She thought that the computer doing the mining was quote, getting too noisy. James later ended up throwing the hard drive in the trash. And today, this mistake cost him over $400 million. To get your money, you would need that hard drive. Yeah, there’s a specific file on that hard drive called a wallet file, which the Bitcoin is stored in.
And and without that file there is no way of getting the money back because there is no central server that records a log of it. In 2010, Laszlo Hanyaks bought two pizzas for 10,000 Bitcoin or about $35 at the time. It wasn’t the first transaction in Bitcoin, but certainly the most widely publicized. Unfortunately today, these delicious pizzas cost him half a billion dollars. Is it true some people celebrate the anniversary of the day you bought the pizza? Yeah, May 22nd, Bitcoin Pizza Day, so I- It’s called Bitcoin Pizza Day? It is.
It’s stories like this that make Bitcoin such a fascinating phenomena. Its growth and adoption, at least over recent years, has been mind blowing. But the story of how Bitcoin came to be is just as interesting. Despite Bitcoin’s young age, when compared to traditional stores of value, the fundamental ideas behind crypto may be older than you think.
So the question has to be asked asked where did Bitcoin actually come from who is the mysterious individual who invented it sit back relax in this two-part series we’ll find out you are watching cold fusion TV for many Bitcoin is still considered a fad, a Ponzi scheme, something that will disappear as quickly as it materialized.
The cryptocurrency has had its fair share of bad reputation through fake crypto frauds such as BitConnect and OneCoin, not to mention payment for narcotics on Silk Road. What’s happening is there’s all these copycat cryptocurrencies that are going out there and there’s no regulation on the actual level of Bitcoin itself.
You’re talking, yeah, there’s futures regulation, but the underlying asset is completely unregulated. It’s a dark market. Bitcoin is worthless artificial gold, which if it succeeded would result in a lot of illicit activity. But the word is starting to get through that Bitcoin is much more than that.
People are starting to look at our economic system with increasing skepticism. Currency is continuously being created, food prices and bond yields are rising, hinting at inflation, and knowing that the long-term value of all fiat currencies over the last few thousand years has tended towards zero, it’s only natural to think that there may be some issues ahead.
I’ve outlined financial problems specifically in my How Money Is Created video, which all of you really enjoyed, but it clearly highlights that there’s a need for new thinking on the topic. Friedrich Hayek, winner of the 1974 Nobel Prize in Economics, stated the following in 1984, I don’t believe we shall ever have a good money again before we take the thing out of the hands the 1974 Nobel Prize in Economics stated the following in 1984, I don’t believe we shall ever have a good money again before we take the thing out of the hands of government. All we can do is by some sly roundabout way introduce something that they
can’t stop. End quote. While it’s undeniable that Bitcoin is not perfect, it broadly achieves this goal and as you’ll soon see, can’t be stopped so before we continue it’s probably wise to have a quick primer on bitcoin i first talked about bitcoin on this channel back in 2013 and since then we’ve done a whole bunch of episodes on bitcoin and blockchain but for those that are new here’s a quick summary when you pay a shop using a bank card the shop checks with the bank to see if you have money to make the purchase.
The bank checks its records, verifies that you have enough money, and deducts that amount from your card. It then updates its records and takes a fee for providing their services. If you wanted to remove the banks from this system, who would you trust to keep the records straight? No altering or cheating.
No one would ever trust a single person with that much power. But you may give your trust to a collective group of people, many millions in fact. The main idea is to not have a centralized record of transactions. Many copies of those transactions are distributed across the world. Every owner of each copy records every transaction.
In this new model, the shop, instead of checking with the banks, checks with everyone’s records to see if you have the money. When the purchase is made, all the record keepers update their records. If an individual transaction record is fraudulent, it doesn’t agree with the rest of the copies of the transaction records and gets rejected.
This large group of people checking record transactions aren’t people at all, but a network of computers. There is no need for third parties such as banks, because the decentralised network keeps itself in check. Amazingly, that means no bans, no server shutdowns or blocking of payments, because payments occur directly between people.
Although transactions can be tracked, they cannot be stopped. So-called miners keep the network running by solving complex equations on their computers. These people mine Bitcoin in chunks called blocks that contain all of the recent transactions. Blocks are kind of like a page in a record-keeping book. The miners receive payment in Bitcoin for their effort, much like mining gold.
Also like gold, there’s a finite supply of Bitcoin to stop it from being devalued, much like we’re currently seeing in fiat currency. There will only ever be 21 million Bitcoins and the final bitcoin will be mined in 2140.
So what gives bitcoin its value? In reality, it’s just worth what someone’s willing to pay for it. So could the price drop to zero? If confidence is lost, yes, it’s possible. But regardless, it is a pretty interesting idea. There’s an argument to be made that the value of Bitcoin is actually the trust and utility of the Bitcoin network itself. What the price is for that value, no one is sure yet.
So yeah, I think a really useful idea. A blockchain is just a type of database. It’s a distributed ledger that in some use cases, like for a banking back office, is kind of like a database upgrade. So massive improvements in efficiency, but probably not that transformative or disruptive. When you take a blockchain, you make it public and decentralized, and then you add money to that, you add a cryptocurrency, then you’re looking at something that is that first use case that offshore banking system that I think is fundamentally disruptive and disruptive
financially, economically, and even potentially politically so how is bitcoin maintained bitcoin is open source so anyone can edit the code it’s a misconception that the code has stayed the same for the past 10 years there’s maintenance carried out to ensure smooth functioning this is done through a bitcoin improvementment Proposal or BIP.
A BIP is just a document that proposes core changes, but to stop someone from inserting some code that says, say, give every cold fusion viewer a thousand Bitcoin, there needs to be 95% consensus across the last 2,000 miners. Basically it’s a digital voting system. On January 3rd 2009, the first block of Bitcoin was mined.
Within this very first block, a special message was written. It read, quote, The Times, 3rd of January 2009, Chancellor on the brink of second bailout for banks. This gives us a clue to Bitcoin’s purpose for existing, a response to a broken financial system.
Just nine days after the first block was mined, the first Bitcoin transaction is completed. It was between Bitcoin’s creator, Satoshi Nakamoto, and another cryptographic enthusiast, Hal Finney. It was a healthy sum of 10 Bitcoin, worthless at the time as there were no exchanges to determine a price. Satoshi Nakamoto would announce his invention of a new economic system on a cryptography mailing list on July 9th, 2009.
How Finney would help Satoshi fix bugs and improve security in those early days. While these steps mark Bitcoin’s creation and the first instance of application, this is by no means the beginning of Bitcoin’s story. For that, we must travel back over two decades to the year 1983. In 1983, American cryptographer David Chalm is already experimenting with the idea of electronic cash.
He was part of a movement known as the cypherpunks. There were activists who defended the idea of using cryptography and computers as a powerful tool to protect the privacy of individuals. If you were to put it into political terms, they were kind of like digital libertarians. David wanted to create a safer and more anonymous transaction system.
His efforts led to the invention of the Blind Signature Protocol, breaking ground on what would become known as the foundations for modern blockchain technology. I created a whole concept for how you could use e-cash to make your payments and then the blind signatures could be used to basically prove things about you without revealing who you are.
Classics, say, if a kid’s at a bar or somewhere they want to get in, they would say to prove that they’re old enough or they have a driving license or they’re from a different state or whatever, but they don’t want to give their address and all this other stuff. Well, that’s what you could do with a credential mechanism.
In the years that followed, David Chalm began building his idea of a workable cryptographic electronic money system, and in 1989, the company DigiCash was born. A notable employee at DigiCash was cryptographer Nick Sabo. Nick would go on to be influential in the early crypto space, but more on him later. In 1993, DigiCash launched their eCash system, a product that enabled the safe and anonymous transfer of money over the internet.
eCash was David’s answer to what he considered to be the extremely unsafe practice of using credit cards online. According to insiders at the time, eCash was a technically perfect product that resolved many of the issues that came with credit card payments, such as security concerns and fees.
Despite his good intentions, what David was doing was risky at the time because the US government sensed a threat. A number of my colleagues and friends had secrecy order placed on them by the United States government, which made it a federal crime to reveal what they were researching. But, you know, to apply that to cryptography seemed a bit out of range.
The National Security Agency, which is our main cryptographic authority in the United States, you know, for protecting secrets and breaking codes. They got a new director and he started writing letters to all the scientific associations telling them that they should not have conferences or even sessions at conferences that covered cryptography.
I felt it was just too important so I risked spending the rest of my life in jail to set cryptography free. Digital cryptography was so frowned upon that some early crypto enthusiasts had to smuggle code through shirts or tattoos. Much like Bitcoin, the eCash product began gaining incredible levels of attention from buyers. At the height of the hype, David Charm was contacted by none other than Bill Gates.
Gates wanted to integrate eCash into every copy of Windows 95. It’s rumored that he offered $100 million for the project. David Charm declined the offer and every other offer that came after that. According to ex-employees, David’s stubbornness and paranoia made it hard for him to trust the intentions of those interested.
He also assumed that there’ll be better offers around the corner. He wanted eCash to be perfect. He believed in the importance of his work. In 1996 he stated quote, the difference between a bad electronic cash system and a well-developed digital cash will determine whether we have a dictatorship or a real democracy.
Due to infighting, David eventually lost control of DigiCash, and the company fell into the hands of external investors. DigiCash began pitching their products to banks, several of whom were interested, but the vast majority of banks at the time were conservative and would rather stick to lucrative credit cards rather than an experimental product.
By 1998, DigiCash was bankrupt, signalling the end of the very first wave of digital currency. Before we continue, here’s a quick word from today’s sponsor, Discord. Discord is a place where our ColdFusion community can get together and chat. Setting up the server was really straightforward and only took a couple of minutes.
I’ve added separate chat categories for technology, business, finance, medicine, and future video suggestions. I’ve decided to do this because over time, I’ve noticed that I’ve received a lot of interesting emails from professionals in industry and just awesome people in general who tell me interesting stuff that’s going on in the tech world, so I’m sure bringing all of you guys together would generate some interesting and great conversation.
I’ve been meaning to create a Discord server for a while, so when Discord reached out to me, I thought it was perfect. So come over and have a chat. It’s free and takes just 15 seconds to join check the link in the description to get started it seemed like the world was just not quite ready for electronic crypto money but this did not stop progressive thinkers from seeing potential in the idea after all it wasn’t the idea that was bad, it was just well ahead of its time and had the added issue of having no strong leadership.
In 1999, famous economist Milton Friedman even said that quote, an electronic cash was necessary for the newly found internet and was also a logical tool for limiting government overreach. I think that the internet is going to be one of the major forces for reducing the role of government. government overage.
He would go on to say that the monetary supply and monetary policy should be set by a computer where it could not be corrupted by humans. In the mid-1990s, the market exploded with companies that were based around cryptographic money. They were all riding the wave of attention that DigiCash had generated.
In 1996, even the NSA got in on the action. They published a paper titled, quote, How to Make a Mint, the Cryptography of Anonymous Electronic Cash. They described their own fairly impressive version of a cryptocurrency, but it proposed the need for a centralized bank to keep tabs on transaction records going directly against the heart of the movement.
The movement did continue and before long some intriguing ideas began popping up on message boards. Some of these ideas were very valuable to what would later become Bitcoin. BeMoney for example was designed by University of Washington graduate Wei Dai. Published in 1998, BeMoney was designed as a way to enable online economies to exist entirely free from outside regulation.
Be Money was ultimately theoretical, and while popular, it never gained enough traction to become a reality. Other ideas within the online community were less helpful. Jim Bell’s Assassination Politics essay for example. In the essay, he proposed an encrypted currency system to be used by disgruntled citizens unhappy with their political representatives.
Money could be anonymously donated to a pool until the amount was high enough for someone to accept the bounty and assassinate a politician. It was a concept that eventually led to Bell doing some prison time. In all of this chaos the idea that stands out most in hindsight is Bitgold, proposed by ex-DigiCash employee Nick Szabo in 1998. Nick had the idea that instead of a digital currency being a token that represents fiat money, the digital currency itself could be a valuable commodity, and it would be awarded to miners for completing cryptographic equations.
Sound familiar? Where Bitgold differs from past attempts was the complete distancing from any reliance on banks. Nick Szabo explains, quote, I was trying to mimic as closely as possible in cyberspace the security and trust characteristics of gold and chief among those is that it doesn’t depend on a trusted central authority.” End quote.
If David Charm’s eCash was an early ancestor to Bitcoin, then BitGold was the missing link. Although it was an establishing building block for the future of cryptocurrencies, it was only theoretical and also flawed. For one, it had far less concern with privacy and also had some technical shortcomings when it came to mining. So along with b-money, Bitgold was never widely adopted.
So then, despite all of its exciting progress, the cryptographic money community fell relatively quiet for a decade. Then, in August of 2008, the domain name bitcoin.org was anonymously registered. In October, a paper titled Bitcoin, a peer-to-peer electronic cash system was posted to a cryptography mailing list, signed Satoshi Nakamoto.
In this paper, Nakamoto presented to the world the fundamental outline for Bitcoin. As it stands, this paper started a cryptographic chain reaction that changed the course of financial history. Today, nation states want to start their own digital currencies.
The city of Miami wants citizens to be able to pay bills in Bitcoin. To be able to offer our employees to get a percentage of their salary in Bitcoin allows our residents to pay for fees in Bitcoin and also would allow allow for taxes to be paid in Bitcoin. It also a request of the state legislature to make Bitcoin an acceptable currency for us to potentially invest in in the future.
PayPal, MasterCard and Apple Pay are now integrating Bitcoin. Tesla has bought $1.5 billion worth of Bitcoin and General Motors is contemplating putting Bitcoin on its balance sheet. Large financial institutions are now accepting exposure to Bitcoin. What separated Bitcoin from past attempts was the overcoming of the double spending problem.
Unlike physical stores of value, digital money is simply data and data can be replicated. And this allows the potential spending of a single coin multiple times. In the past, this issue was solved by involving a trusted third party to oversee transactions. In the case of eCash, that third party was banks.
But to Nakamoto, that defeated the point. And much like Nick Szabo attempted with Bitgold, the intention with Bitcoin was to create, quote, a system for electronic transactions without relying on trust. Bitcoin succeeded in overcoming the double spending problem by implementing an updated record of who owns what and at what time, as discussed earlier.
This was the birth and implementation of the blockchain. With the double spending problem solved, the system was brought online and tested. And it worked. By 2009 system was brought online and tested. And it worked. By 2009, Bitcoin was up and running. In July of 2010, it began trading at a value of $0.0008 US dollars, and had risen to $0.
08 by month’s end. But of course, nobody really cared. Here’s the very first Reddit post about Bitcoin in 2010. It was downvoted. The first reference of Bitcoin in TV history was the program Good Wife in 2012, when Bitcoin was at a price of $3.41. I went online and I bought one Bitcoin last night. Really? It’s the future.
I don’t know. I didn’t feel real. Real’s gonna change. Just watch. Here’s a talk about Bitcoin to an empty room in 2013 when it was at $100. Literally nobody cared here. What does Bitcoin neutrality mean? Neutrality in Bitcoin means being able to adopt Bitcoin in any culture, any language, any religion, any geography.
But there were some believers though. Chamath Palapatiya shares his views on Bitcoin at $135. Owning that currency and allowing water to find its level, particularly in the developing markets, is huge. And if you don’t think that this thing is going to rip when Brazil goes through a devaluation, when the Indian rupee continues to get crushed, when you have all of this money trying to get in and out of these countries where there’s massive political instability or monetary or financial instability,
you’re being naive. It doesn’t matter what happens in the United States. It doesn’t matter what happens in Japan. It doesn’t matter what happens in the EU, it doesn’t matter. It matters what happens in Argentina, in Venezuela, in Kenya, in Brazil, in India, in Russia, in China.
And when you look at where all the activity is, it’s in all of those markets. This will be born out of a people’s desire to have unfettered access to capital. Despite finally cracking the code to a working electronic cash system, Satoshi Nakamoto has mysteriously chosen to remain completely anonymous.
On April 26th 2011, Satoshi Nakamoto would send his final verified email and vanish. Satoshi still owns a million coins which have never moved from his digital wallet. If the price of Bitcoin was to reach $197,000, it would make him the richest person in the world. So Satoshi Nakamoto, being such a mysterious figure, has fuelled speculation and false claims.
Who is Satoshi, and why did he vanish?
