Today, mankind stands at a crossroads, and the path that humanity chooses may have a greater impact on our freedom and prosperity than any event in history. In 2008, a new technology was introduced that is so important that its destiny and the destiny of mankind are inextricably interlinked.
It is so powerful that if captured and controlled, it could enslave all of humanity. But, if allowed to remain free and flourish, it could foster unimaginable levels of peace and prosperity. It has the power to replace all financial systems globally, to supplant 90% of Wall Street, and to provide some functions of government. It has no agenda.
It’s always fair and impartial. It cannot be manipulated, subverted, corrupted, or cheated. And, it inverts the power structure and places control of one’s destiny in the hands of the individual. In the future, when we look back at the 2.6 million year timeline of human development and the major turning points that led to modern civilization, the creation of farming, the domestication of animals, the invention of the wheel, the harnessing of electricity and the splitting of the atom, the 60 year development of computers, the internet
and this new technology will be looked upon as a single event, a turning point that will change the course of human history. It’s called full consensus distributed ledger technology, and so far, its major use has been for cryptocurrencies such as Bitcoin, but its potential goes far, far beyond that.
Hi, I’m here in Washington, D.C. across the street from the Federal Reserve because I’m really excited about something. We could be on the verge of a paradigm shift in currency and trade that could put places like this, the Federal Reserve, and other central banks out of business. In our fourth episode of Hidden Secrets of Money we called upon the viewers to join a discussion to develop a new world monetary system and the people that put forth the most logical and compelling arguments were the cryptocurrency and Bitcoin people. So I’m here at a massive
Bitcoin conference that has drawn experts from all over the world and I’m going to be hanging out with them, asking a lot of questions, developing my own opinion. I’d like you to develop yours because this could be something that changes the world. The most common question I get lately is, when are you going to make an episode of Hidden Secrets of Money about cryptocurrencies? The reason this has taken so long is that I wasn’t happy releasing this video until I was comfortable explaining how it works, and now I finally can.
As I said in the intro, we’re going to start this journey at my first ever Bitcoin conference. This was the first time I’d done a deep dive into researching Bitcoin, and after it finished, I kept on learning and learning some more. And it actually became difficult to finish this episode because of the speed at which this space is evolving. But just a few weeks ago, I learned about something new that could change everything and I knew we had to get this video out quickly. This really is big.
We’ll learn more about this latest breakthrough later in the video because in order to explain it we need to go right back to the beginning and learn how Bitcoin works. Like most people at first I found the whole thing to be very abstract and complicated, but now I’ve found a way of breaking it down so that you don’t have to be a rocket scientist to get it.
I’m going to explain it by using an ancient problem that Bitcoin claims to have solved. It’s called the Byzantine Generals Problem, and now, it’s been unsolvable. The problem goes like this. How do you make absolutely sure that multiple entities, which are separated by distance, are in absolute full agreement before an action is taken? In other words, how can individual parties find a way to guarantee full consensus? Here’s the example.
Imagine that you are a general in the Byzantine army and you’re planning to attack an enemy city. You have the city surrounded by several battalions, each of them camped several miles from the other, and each of them led by another general. of them camped several miles from the other, and each of them led by another general.
A coordinated attack on the city from all sides at the same time will be successful, but an uncoordinated attack will likely end in defeat. You have decided to attack at dawn, but you have no walkie-talkies or cell phones, and signals from flags, torches, or smoke could be seen by the enemy.
How do you make sure with absolute certainty that all of the other generals reach consensus and all attack together at dawn? You could send messengers on horseback, but what if one of them is captured or killed before delivering the message? You would need to have a reply from each of your generals confirming that they have received your message, which means that they would have to send messengers to you on horseback, but what if they are captured or killed? What if a messenger is captured by the enemy, and an imposter messenger with a fake reply is sent back to you? enemy, and an imposter messenger with a fake reply is sent back to you? And how do the other generals know that the messages that they received from you are genuine
and haven’t been intercepted and altered by the enemy? Worse yet, what if some of the other generals are traitors, and they send messages back to you confirming that they will attack at dawn when their true intention is to retreat.
How can you ever be absolutely certain that all of your battalions will reach consensus and attack simultaneously? Like I said, this problem has remained unsolved for thousands of years, and at its core, it’s all about individual parties being able to trust each other directly, no strings attached. Bitcoin claims to have conquered this problem.
Now imagine that the battalions are actually computers on a network, and that the generals are copies of a computer program running a ledger. A ledger that, via some very complex math, records transactions and events in the exact order that they happened. The key here is that all of these ledgers are exactly the same for everyone. As soon as a change is made on one copy of a ledger, if it is proven to be true by the math, all other copies of the ledger are updated to match.
What we have here is a distributed ledger that is also always in consensus. This is one of the first things to understand about Bitcoin. It is the first full consensus distributed ledger mankind has ever seen. This network can be expanded across the entire planet. It means that individual parties on opposite sides of the world can come to consensus on an event without requiring any third party as an intermediary for trust.
Whether it’s an order from a general to his troops, or an order from you for a pizza, a distributed ledger confirms, via math, whether an event is true and records it permanently. Bitcoin, the first full-consensus distributed ledger, is a trust machine. But is it 100% reliable? That’s a question for later in the episode.
But for now, where did Bitcoin come from and who invented it? Well, Bitcoin was originally developed by a pseudo-anonymous developer, Satoshi Nakamoto. There’s a lot of speculation about who he is. And frankly, I work directly with him, but I have no idea. But that never really worried me because Bitcoin itself is open source.
And so any engineer can evaluate the Bitcoin source code, evaluate the Bitcoin cryptography, and understand and trust the software. So you don’t have to trust who wrote it. You trust the software itself. And so that was one of the big reasons why Satoshi chose open source for Bitcoin. And so you can have trust in the system. You don’t have to trust who he is.
I don’t know who Satoshi Nakamoto is. I also don’t know who Euclid was. Might have been some dude in Sicily a few years BC. But we don’t really know. We have some historical records that tell us that Euclid was someone who invented geometry in the ancient world. But it doesn’t matter. Euclidean geometry works whether I know who Euclid is or not.
Whether Euclid was a nice guy or an evil person, Euclidean geometry simply works. It’s completely independent of its creator. And if we didn’t know who invented the electric motor or the radio or any of these core technology developments electricity So what they still work you don’t have to have any appeal to authority We don’t have to worry about the motives now in a centralized system where someone is in control it motives. Now in a centralized system where someone is in control, it matters who is behind the curtains. It really matters who is in control. It matters who invented it because
they remain in control or they might have a secret way of controlling it. Bitcoin is wide open and no one is in control and everyone can see exactly how it works. So how does it work and what’s the point? Cryptocurrencies like Bitcoin allow people to transact with each other using the internet anywhere on earth.
Instead of having an account number like a checking account or a credit card, cryptocurrencies are much more secure because they have a public key and a private key. It’s like having two account numbers, one for deposits and another for withdrawals. You’ll often see them displayed as a string of characters or a scannable code. This level of security means that you could put your public key on a billboard if you wanted to and your funds would still be secure.
The only thing other people can do with your public key is send funds to you. It’s your private key that gives you access to your funds. As long as you keep control of your private key, your funds are absolutely safe and theft and fraud are virtually impossible. But, just like cash in your wallet, you need to keep it safe to prevent it from being stolen.
Its security is entirely your responsibility. Cryptocurrencies can also give you privacy. Just like cash, you don’t have to disclose any personal information when you spend them. By contrast, a credit card has your name, account number, and expiration date.
These act like a public key, but the equivalent of your private key, your signature and security code are displayed in plain sight. This is just plain stupid. I’ve toured five national money museums and while I was at one of them I saw a group of young students on a school outing. I can just imagine that someday in the future, a group of kids will be standing around the credit card display pointing and laughing at the incredible stupidity of the system we once used. And this is the point.
Cryptocurrencies are light years ahead of our current technology. Since Bitcoin was the first cryptocurrency, I’m going to use it as our example and I’ll expand on our earlier description of a distributed ledger. But first, where does Bitcoin get its value? Bitcoin is brand new to mankind in that it’s both a currency and a payment network simultaneously.
And this is where Bitcoin gets its value. The immense network of computers all around the world running the Bitcoin distributed ledger. Every second of every day, these computers are keeping the ledger updated and in full consensus via a system that incentivizes them to process and confirm transactions.
The system that Bitcoin runs on is called blockchain. Think of it as a modern version of an old-fashioned bookkeeping ledger, but instead of a handwritten list of entries and calculations, a blockchain is a digital list of entries and calculations. A block is simply a bundle of transactions. Think of a block as a whole page of transactions in the old-fashioned ledger. A blockchain is just a chain of blocks.
It’s the same as a whole series of pages in the old-fashioned ledger. Easy, huh? Here’s how it works. The Bitcoin blockchain actually exists in every one of the millions of computers on the network as exact copies of each other. However, for this example, so that we can zoom in and you can really see just how a blockchain works, I’m going to show it as one giant blockchain in the middle of a small network of computers.
Let’s follow a pizza transaction with Bitcoin. When the transaction occurs, it first appears on the network in a pool of unconfirmed transactions, along with thousands of others from all around the world. Millions of different computers from the network then gather some of these transactions and place them in their own blocks.
The computers are all creating blocks constantly in the hope that theirs will be the next one added to the official chain. A new block is added to the chain every 10 minutes or so when one of the computers wins the right to have its block recognized as the next in the chain and is rewarded with a prize of newly created bitcoins.
The way a computer wins the prize is by trying to guess the answer to an extremely difficult math problem. In fact, the problem is so difficult that even with millions of computers making guesses billions or even trillions of times per second, it still takes roughly 10 minutes to find the answer. Once one of the computers guesses the correct answer and wins, all of the millions of computers on the network that did not win are instructed to throw away all the work they have done, update their ledgers with the block
from the winning computer, and start again with a new math problem. In doing so, the computers use an immense amount of power and cost a literal fortune to run. So why do they do it? Because it can be very profitable. This is where the term mining for bitcoins comes from.
Instead of striking gold by mining for precious metals in the wilderness, these computers are hoping to strike bitcoin by mining precious numbers on the blockchain. But when these millions of computers are selecting transactions to go into their blocks, they aren’t all selecting the same transactions, and not all the blocks are the same size. Some contain more transactions, some contain less.
When blocks are thrown away, the transactions they contain go back into the pool of unconfirmed transactions. This means that the probability of a transaction being confirmed and staying in the order it was confirmed in is not absolute, but it becomes more of a certainty every 10 minutes as new blocks are added.
In fact, for very large transactions, it’s suggested that you wait for 6 or more blocks to be absolutely certain that a payment is permanent. So why is it so slow? Why is your pizza cold before you own it? Interestingly, the system is slowed down on purpose, and here’s why. With the insane difficulty of guessing the answer to the math problem, you would think that the odds of two or more computers winning at the same time are extremely improbable, but it actually happens quite often.
This is called a soft fork, and when it occurs, all the computers in the network receive both of the winning blocks, and are instructed to create a new block that will chain to the block they received first. But, because of varying internet connection speeds, different computers receive different winning blocks at different times.
The tie is broken roughly 10 minutes later when one of the computers solves the new math problem and its block is added to the ledger and the longest chain wins. But what happens to all of the blocks on the other side of the fork? They’re discarded, along with all the transactions they contained, which go back into the pool of unconfirmed transactions.
This soft forking is the main reason the system must be slowed down on purpose via the math problem. If the system was instant, it would be forking everywhere, all the time, and there would be no consensus. No one would have any idea of which ledger was the correct one, and every computer would be busy building a different block to create yet another fork.
The slowness and immense amount of computing power is required to keep the Bitcoin ledger in full consensus. Therefore, as more and more computing power is added to the network, the system automatically adjusts to increase the difficulty of solving the math problem, which then requires even more power.
If Bitcoin is ever going to be widely used, it will be using a massive amount of the world’s energy. There are other systems for reaching consensus, but we’ll look at those later in the episode. For now, Bitcoin is working as intended and allows people to transact with each other using the internet anywhere on earth.
Bitcoin, it’s the first full consensus distributed ledger that mankind has ever seen. But it’s not the last. I’m here at the conference with Eric Grill of Coin Outlet and I’m going to buy some of my very first bitcoins right now and so Eric’s going to show me how to do this he’s going to tell me this is a paper wallet that’s correct so I can put I can load this paper currency that’s inside this little ziplock here with bitcoins and so I’m going to take a hundred dollar bill and hold that for a second so what am I supposed to do with this now you’ll scan the your
public address into the in there yes okay and pull it out when it beeps okay okay it beeped awesome show your balance and okay deposit money and okay and aha so I’ve got 0.16073294 bitcoins and I just finished this session. And now it’s sent it. It’s done. And so basically, in the blockchain, the $100 that I just put in gave me that 0.16 something bitcoins in the blockchain.
It’s been assigned to my account code. And behind here, I can peel this open. and there’s a code that is my private key. That purchasing power is now protected in the blockchain that is mirrored around the world millions of times. So thank you very much Eric. Great. It was great meeting you. Yep.
A wonderful machine and a great advancement forward for when it comes to convenience for people. They’ll start understanding cryptocurrencies more when they get an exposure that’s very similar to an ATM. That’s what we’re mirroring. Yes. Okay, thanks. Thank you. So I’ve spent a day at the conference now and I wanted to come and sort of elaborate on some of the things that I’ve soaked up and I came here to Washington Circle in Washington D.C. behind me is a statue of George Washington.
A lot of people don’t know this but you know the Revolutionary War was a war fought to free themselves from regulation, from government intrusion on their lives, from too much taxation. And the Founding Fathers were fighting for liberty and freedom. And at the end of the war, George Washington was in control of the armies of this continent and could have crowned himself emperor, but instead chose to resign his commission and retire to private life, giving us this gift of a free republic.
One of the things that I’m getting from this conference is that a lot of them are worried about regulation. And so it’s this same revolution being fought all over again. They’re worried about regulation. They can’t actually stop transactions with cryptocurrencies. But they could come and try and punish us afterwards and make it less likely to be used.
And this is a tool that could free humanity. It’s an amazing leap in technology, an amazing leap in the potential evolution of mankind. And so if this battle is lost and governments do succeed in trying to regulate the cryptocurrencies, it would be like losing the Revolutionary War.
This stands for everything that the founding fathers stood for, the belief in freedom, liberty, and the individual choice and responsibility for your own actions. On day two, I listened to more of the experts, and the more I learned, the more I realized just how much I needed to more of the experts and the more I learned the more I realized just how much I needed to know Even once you know all the technical details about Bitcoin There’s still a lot to learn about keeping your funds secure in the real world One of the most interesting things I found out is in the early days of the Internet
They were actually paving the way for something like Bitcoin before they even knew what it would be So when the first web browser was built, there was a 404 error, page not found, and there’s also a 402 error, payment method not specified. So back when they originally built the web browser, they were thinking about the time when they would eventually discover the technology, create the technology to transfer value over the internet.
They didn’t have the technology back then, but they still had the foresight that eventually we would get there. Well, now we’re here. Bitcoin is a solution to that. You know, it’s hard to isolate what in particular about Bitcoin is so amazing. But if I had to name one thing, I would say it was the distributed network.
This is kind of an amazing thing because it’s essentially immortal. It can exist in trillions of copies all over the world. What that means essentially is that it can’t be destroyed. I mean, you could apply every regulator, every bureaucrat, every politician, every central banker in the world, assign it to destroy the blockchain, and they could spend 24-7 doing this, smashing copy after copy after copy, and destroy trillions of copies.
But so long as there’s one left somewhere, and there always will be, it can reproduce itself instantly and come into existence billions and trillions of times over again, virtually instantly. What this means is that the blockchain itself is more powerful than all the governments in the world combined many times over.
This is huge. We’ve never had a tool this powerful to beat back the despots of the world. Throughout most of the convention, I couldn’t find anybody that shared a few of the concerns that I have about Bitcoin, such as being a deflationary currency. That was until I met Chris Ellis. Chris, tell me about the concerns that you have.
So Bitcoin right now is still an experiment, as are most cryptocurrencies. And the price is mostly supported by a speculative sentiment. And that’s because markets are forward pricing mechanisms. People are looking at the information and they’re buying on the basis of what they believe other people will do in the future with that information.
And I think that a lot of people, having spoken to a lot of merchants as well, they are telling me anecdotally that people are not spending their bitcoins. So I am concerned. I think the the economic side of Bitcoin is probably The weakest that’s why we need a lot of these alternative cryptocurrencies to play around with some of the parameters But we should we should consider this an experiment for now One of my concerns is that in a deflation velocity slows down because your currency is going to be worth more
tomorrow than it is today and so people have a tendency to hoard currency in a deflation like the Great Depression for instance. Bitcoin is going to have so many coins per month released and then that level drops every year or four years until it gets to a level where it reaches 21 million coins and it stops.
When it stops, I have two concerns. One, the Bitcoin mining that people are doing is what encourages them to leave computers running all over the planet and that’s what makes Bitcoin work. Now I know there’s a small transaction fee and if velocity, the number of transactions, picks up enough then the transaction fee is a reason to leave your computer on.
But you have a deflationary currency that encourages hoarding and not spending it on transactions. And so when it reaches the 21 million, what is the reward for leaving the computers running if velocity slows and people tend to hoard it and there’s no new coins to be mined anymore? And plus, the cost of power is probably going to go up in the future.
Yeah. Have you got any other concerns? Yeah, one of my concerns in this space is that there are, most people here are communications and marketing. They’re in the business of persuading people. And I think we need more developers. We need to inspire younger people. There are probably fewer than 1,000 people on the planet that actually know how to code a cryptocurrency.
And that is a huge form of centralization. They become like Congress. And then we have to kind of go to them as lay people who don’t know how to code and ask for changes or otherwise we end up having to fork the code and produce our own one. So I still think there’s a lot to do in terms of outreach, getting existing programmers into the Bitcoin space, onto the GitHub repository, so they can start making their own changes and start experimenting and learning as well.
So what have I learned in the past few days about Bitcoin and other cryptocurrencies? I’ve learned that they’re a simple mathematical formula that is fair, honest, and impartial. I’ve learned that this is more than just a digital currency.
I thought that this was just for sending value from one person to another. This is a revolution that will change the world. It will tear down borders. It will connect the globe. It is as important as the Internet was. But because it connects people, because it frees people, there will come a day where there is a call to regulate it, to stop it, to shut it down possibly.
The people that are calling for those things, their motives need to be questioned because what they are trying to prevent is freedom. It’s that simple. The people that are calling for those things, their motives need to be questioned because what they are trying to prevent is freedom. It’s that simple.
One of the things that cryptocurrency does is it provides freedom and the people that will be calling for its regulation or its abandonment will be the financial sector, central banks, governments, because it provides for a lot of the things that government does very poorly, it will do very well. That the financial system currently does very poorly, it will do well.
It’s fair, honest, impartial, instant, and cannot be subverted. The only caveats are that Bitcoin has first mover advantage. It’s the largest one, but it may not be the one that succeeds. It’s an experiment at this point. But the important thing is that the genie is out of the bottle. Freedom is on its way to us.
Right now, we can all support it, or we can let it languish. And I think that this cannot be stopped. So am I going to sell my gold and silver and convert it all to Bitcoin? Absolutely not. Bitcoin, as I said, is an experiment. There is a possibility that these things could go to zero before they’re fully developed.
There’s a possibility of some sort of catastrophic failure. Right now, it has proved very robust and unhackable. You don’t know what is going to happen in the future. So one thing to keep in mind, the Germans came up with the Enigma machine in World War II, and it was supposedly uncrackable, and then we broke the code.
And then they added another dial to it to increase the complexity many fold. And it was supposed to be uncrackable, and we cracked the code. So, Bitcoin has not been completely proven. It’s got five years of existence now and robustness. This may be the answer to all of mankind’s problems when it comes to a simple medium of exchange, but it’s more than that.
You can make these smart contracts that settle with a set of rules, so somebody doesn’t get paid until all of the rules that you have established are fulfilled. You can create escrow with yourself, where there’s a third party that has to sign off that a transaction has been completed before the payment goes through. They’re working on things where you can take delivery of something continuously and pay for it as you use it.
It would be like paying for the internet for every second that you’re using it only. Or paying for the gas that’s delivered to your house instead of monthly you’re being billed per thermal unit. And with no frictional costs involved, so this adds up to efficiency. Therefore, mankind is left over with more prosperity. If there’s no third party in between bleeding off economic energy, you end up with more prosperity.
This is a very good thing for all of us. And because it is so fair and impartial, there’s less of a need for the court system. There’s less need for government and rules and regulation and people to enforce all of this stuff. In the future, there will be less need for Wall Street. Wall Street does not realize it yet, but they are antiquated dinosaurs of the past about to go extinct.
You can attach stocks and bonds and things such as that to cryptocurrencies and companies could now do IPOs just on the internet. They do not need Wall Street anymore. They don’t need a third party like Goldman Sachs or some other big brokerage house taking a cut, there’s no need to worry about corruption because the code cannot be corrupted.
I do know that I am going to be putting some of my capital into cryptocurrencies from now on and supporting this movement and helping to push the freedom of mankind forward. And here’s something else. The reason that people buy Bitcoin is the same reason that people buy gold and silver.
It’s an alternative to all of the other currencies, the fiat currencies, that are being printed into oblivion on this planet right now, and they eliminate the need for third-party trust. You don’t have to trust somebody else with your Bitcoins. You only have to trust yourself. You don’t have to trust somebody else with your Bitcoins.
You only have to trust yourself. You don’t have to trust somebody else with your gold and silver. You have to trust yourself. So the reasons are the same. And so I would encourage every precious metals investor to investigate Bitcoin and the other cryptocurrencies. And I would encourage every and the other cryptocurrencies, and I would encourage every Bitcoin and cryptocurrency user and investor to investigate precious metals. I’m going to hold both.
I look at the cryptocurrencies as a very speculative, volatile, and potentially risky play. I look at gold and silver just like savings. I see them as something that has never failed in 5,000 years. They are proven and I see them as extremely undervalued compared to the morass of fiat currencies on this planet at this point.
So when I came here I expected to find nothing but a digital payment system and what I found is a technology that can revolutionize the planet. If the founding fathers of America were standing here beside me they would be fighting for this revolution. Hi, this is an action alert for July 11th, 2014. I promised all of the insiders that I’d keep them updated on what I’m doing financially, and recently I’ve done something quite unusual. Up until now my portfolio is entirely precious metals, gold and silver, physical.
But I’ve been investigating Bitcoin quite a bit. I was in Washington DC recently at a Bitcoin conference and I learned a lot about it, I became convinced that this has a tremendous upside potential. The downside potential, it would be short term and there is a downside risk that it could entirely fail.
So I’m not going to put a lot of my portfolio into it, but someday I will probably be up to around 10% of my portfolio going into Bitcoin, believe it or not. The other thing that I’m doing is I’m buying a bunch of Pegasus one ounce rounds because they’re a bargain and I recently cut a video about how silver is a game of ounces.
One of the things I didn’t get around to during the conference was talking to retailers about their experience of accepting Bitcoin as payment. I’d become interested in accepting Bitcoin at my own business, but I still had some questions, so I made a trip to Salt Lake City to see Patrick Barron. Now this is a guy I’ve really got respect for because he understands monetary history, economics, and the frictional nature of our current monetary system and Wall Street.
So I know that you’re in a fairly low profit margin business being an online retailer of discount goods. I too am in a very low profit margin business. You’ve been taking Bitcoin. You’re one of the first large businesses to adopt Bitcoin. The first. The first. Large business. Excellent. What is your recommendation for me? Well, we have publicly, you can look in our public filings, our gross margins are in the high teens, which is quite low for a retailer, and our operating margin is a little over 1%, 1.2%.
And of course, to take people’s credit cards costs about 2 or 3 or 4% for most businesses. If you start doing sales in Bitcoin and it saves you, say, 3% on your expense, those sales, instead of being 1% in that margin, go to 4% in that margin. So it’s really, especially if you’re a tight margin business, it makes a lot of sense to accept Bitcoin and avoid those credit card processing fees those credit card companies And that part of the financial industry really has an amazing ability to sit on your
The exchanges you’re making with the public and extract they’re basically extracting the entire profit margin for themselves. And Bitcoin ends that. Cryptocurrency ends that. So it’s a frictionless system. Frictionless system. But the empire is going to strike back no matter what they’re saying. I think the financial industry is quite sorry they didn’t do more to put a stop to Bitcoin, kill it in its cradle.
Now that it’s getting some momentum, they’re not able to. You know, that’s their entire business model is to extract, is to be in that position where they can extract rents through their monopoly or oligopoly. And Bitcoin ends that. So it’s really an arrow right at the heart of their business model.
If you don’t trust the financial system anymore there’s basically two ways of checking out you can buy gold physical gold and silver and get it somewhere safe where it can’t be taken from you and the other solution is to get into the crypto revolution. Since starting this episode, we’ve seen a blockchain boom.
The IPOs I mentioned are happening now, but they’re actually called ICOs, Initial Coin Offerings, and the early nonchalance of the financial industry has been replaced by a race to develop their own blockchain payment systems. Because of its rate of growth, Bitcoin has been stressed to the limits. Where it was once fast and cheap, it is now slow and expensive.
In fact, the issues Bitcoin has suffered from have led to political infighting, Bitcoin forking into multiple versions, and alternative cryptocurrencies gaining market share every day. Distributed ledger technology has caught fire and there’s a speculative mania occurring. While the speculation can’t go on forever, one thing is for sure, blockchain is here to stay.
Or is it? Last week I was in New York City for a meeting that we had scheduled that I thought was going to take a couple of days and it ended up only taking a couple of hours. So with all the leftover time, I decided to go visit an old friend, Dimitri Kofinas. He used to have one of the best financial shows on television called Capital Account.
You might remember him from episode two of Hidden Secrets of Money, where he talked about Greece and the hubris of leaders and empires and how history repeats. Anyway, he has a new podcast called Hidden Forces. And when we visited him, he was all fired up about this new technology. And this podcast, when I listened to it, I got all fired up. And he invited us to attend an event.
So we went home to Los Angeles there for two days and right back to New York again. to New York again and to the event that he hosted about hashgraph technology created by Lehman Baird that is probably going to end up replacing blockchain technology I mean this is big we went to the event we listened to some of the people that are involved with this and we were just absolutely blown away so I’m going back to visit with Dimitri now and get his take on how the event went last night and where the future of this
thing is going. Since the advent of Bitcoin, there have been many thousands of blockchain-based cryptocurrencies created and now there are more of them being created every single day. So what’s different about Hashgraph? Well, it isn’t blockchain. It’s totally different.
In fact, the way it works is a real mind-bender and not very easy for me to explain, but I’m gonna give it a try. Instead of a block in a blockchain, Hashgraph calls their packages of information events. Your computer takes a transaction like a payment or anything else for that matter such as an action in a video game, an offer to sell merchandise or even sell stocks or bonds, a bid on that item, a contract or even a law.
Pretty much any information or transaction you want to record and it puts it in the event. For transmitting information quickly, Hashgraph uses a technology that has been the gold standard in computer science for decades. It’s super fast and it’s called Gossip Protocol.
Your computer randomly tells another computer in the network about the event you’ve created and that computer responds by telling your computer about any events it heard about. Then that computer tells another computer about your event and the other events it heard about. And the computer it’s talking to responds by telling all the events it knows about.
It’s absolutely the best, most efficient way to spread information, and it’s exponentially fast. But here’s the twist. Each time a computer tells another computer about an event, it also includes the information of the time it heard it, and who it heard it from, and the time they heard it, and who they heard it from, and so on and so on.
It’s called gossip about gossip, and it lets everyone know what everyone else knows and exactly when they knew it in just fractions of a second. The other major component is an even older technology and it’s the most robust, secure, and certain way of coming to absolute consensus. It’s called voting protocol.
But until now, it was so slow that nobody ever used it. And the twist that Hashgraph has given it is that there’s no voting. Instead, because everyone already knows what everyone else knows, you can mathematically calculate with 100% certainty how they would vote. It’s virtual voting, and it allows Hashgraph to come to consensus almost instantly.
So instead of recording things on a block and then adding it to the blockchain once every 10 minutes, Hashgraph events are added to the system instantly the moment they’re created so they don’t have 10 minutes worth of information in them. This means that they’re small and they contain far less data, so they use very little bandwidth and are much easier to transmit.
And because it’s not trying to guess the answer to an incredibly complex math problem trillions of times per second, Hashgraph uses just a minuscule amount of power. trillions of times per second, Hashgraph uses just a miniscule amount of power.
From what I’ve seen so far, compared to blockchain, Hashgraph is lightning fast, more secure, and provably fair. All events are timestamped the moment they’re woven into the system so the record of whose event came first and whose came second is instant and there’s no such thing as soft forking or unconfirmed events. It can also replace huge portions of the internet that are currently run by centralized servers by replacing them with the shared computing power of all of our own computers, iPads, and cell phones.
It looks like Hashgraph might just have the potential of fulfilling all the original hopes and dreams I had for blockchain technology. The power to decentralize and remove the middlemen from commerce, banking, stock markets, and much of the legal system and government. With the speed at which this technology is evolving, the future is looking bright and Hashgraph is the perfect example of just how fast things are moving in this field.
Well I think the really amazing innovation that Lehman has made is in the way in which he has made adjustments to the gossip protocol and to the voting system in order to make them compatible at scale, right? Because a voting algorithm can work and you can reach consensus in the exact same way, but in order to deploy that in the real world, the bandwidth constraints on it would be such that you’d never actually be able to practically use it.
But by incorporating the gossip protocol and creating the hash graph, and then being able to use that in conjunction with the local data that you have in memory, and running a voting algorithm locally on the computer without having to cast any votes or send any votes over the internet, you’re actually able to get all those strong guarantees that you get with a voting algorithm, but you’re able to do it at scale.
And that’s what’s so remarkable. And to be quite honest, it’s hard to imagine how no one thought of it. It’s one of those brilliant ideas that you could have only looked in retrospect and said, how did no one think of this? But at the time, no one did. So one of the challenges, I think, with any new technology like this is how do you really explain to people, how do you make a compelling case for what makes a technology so compelling, right? And one of the things that’s so compelling about this technology is the throughput. It’s the speed. And you can tell
people that they’ve tested over 300,000 minimum tested transactions per second versus Bitcoin’s three to seven max. But like, how did you kind of get that in your head? And I sort of did a back of the envelope calculation. And that’s roughly twice the speed of sound relative to a snail’s pace. Bitcoin being a snail’s pace and this network literally being like a supersonic jet traveling at twice the speed of sound, which is, I mean, just wrap your head around that for a second.
It’s remarkable. It’s not even like within, so you can see the difference. It’s tremendous. And understanding, of course, that the speed of the network, the reason why Bitcoin is so slow is because they have to make it slow, because if it’s not slow, it would fall apart. It would branch off everywhere.
You’d never have consensus. Now remember the explanation of the Byzantine generals’ problem from earlier and how blockchain was built to solve it? Here’s something not many people know. Blockchain systems aren’t technically Byzantine fault tolerant. They came close, but no cigar. So I, like many people, assumed that blockchain was Byzantine fault tolerant.
And in fact, I didn’t fully appreciate what that even meant. I sort of just assumed it because I saw it as a sort of part of the larger picture of blockchain being very secure and not having been hacked. But in fact, it isn’t Byzantine fault tolerant. And the reason why it’s not Byzantine is because in order to be Byzantine You have there has to become a point in time when you’ve reached consensus You know you’ve reached consensus and you know You’ll never be wrong and you’re never gonna change your mind and that doesn’t happen with blockchain because of the nature of the network the the
geometrical qualities of the blockchain network require you to always sort of of the blockchain network require you to always sort of recognize that you’re never entirely sure. You’re probabilistically more confident that you’re arriving at consensus, but that’s also why on the blockchain network you need to keep an entire history of the ledger because you sort of have to have the capacity to do a forensic analysis in the event that you are mistaken, in the event that the network has forked and you don’t know it.
And so that’s something that you don’t have to do with Hashgraph because with Hashgraph you’re coming to consensus every few seconds and you can dump the entire history of the network’s data and just keep rolling forward because you’re absolutely sure that you reached consensus and that’s the difference.
I think the major problem, the sort of the big deal in the blockchain community for years, ever since the community figured out that they could take this protocol that Bitcoin was built on and sort of extrapolate it and use it to build these distributed systems, this distributed architecture around storage and computation, et cetera, and building applications on top of it is that there was a recognition that it had limitations.
It had limitations at scale. And the community has been trying to figure out how to address that while at the same time building apps on top of it. And something that Lehman said, which really has stuck with me, is that while everyone was really busy building apps, they forgot about what the core of distributed technology is all about, which is reaching consensus.
And what Hashgraph has done is it has revolutionized that process. We can agree about the things that we’re communicating about at scale, and that’s a revolution. It’s the biggest That’s the thing. It wasn’t in my heart. Right. So we’ve been looking at this amazing new technology for about a week now and what I find so incredibly amazing is that it holds the promise to solve all of the problems that the other distributed ledger distributed network ledger systems have bitcoin once it started to scale up it turned
out that it used an immense amount of energy to run the system and also as it scaled up it became slower and slower and slower to where it was no longer a currency. It was basically a speculative vehicle. People could make some gains in purchasing power on it, but it wasn’t something that you could stand in line at a Starbucks and pay for a cup of coffee for.
A friend of mine just did a transaction that took four hours for confirmation. And so this is incredibly fast, pretty much instantaneous. The number of transactions that it can process per second is mind-boggling compared to Bitcoin, and it uses almost no power. So it solves all of the issues that I had with Bitcoin.
There’s a lot of different cryptocurrencies now, and many of them are engineered to either be faster or to be more sound and robust. But everything has a set of trade-offs. And so whatever feature that they want to offer, they have to give up something else. So the really fast ones, if they want them to still be fast once they’re scaled up, they’re more vulnerable to some sort of attack or hacking the ones that are less vulnerable to attack and hacking have the problem of scaling they’re going to be slow so you know speed fairness where the transactions are recorded in the absolute order that they came in
some cryptocurrencies offer you the ability to pay extra to have your transaction mined first, and that really isn’t fair. A distributed ledger should be recording everything at the absolute time of event, and then full consensus is reached and there’s no argument, no going back. This is set in stone forever.
So now we’re actually on our way to talk to some of the team at Hashgraph and learn more about this. Have you ever seen New Jersey look so beautiful? No. When I first arrived, I was chatting with some of the Hashgraph team about how much energy the Bitcoin system uses these days. It has literally gone through the roof.
If Bitcoin were to replace the entire world monetary system and financial markets, it would use more power than the entire world produces. It’s completely unsustainable. This is one of the reasons I’m interested in Hashgraph. It’s amazing efficiency. The other reason, these guys already have commercial customers using their technology at an industrial scale.
How it’s being used today is in private enterprises. It’s been deployed by the Credit Union Association, where CU Ledger is a group of 6,000 credit unions and a consortium that had to make a decision what distributed ledger technology were they going to use and we beat IBM Hyperledger and we’re super proud of that.
We’re a small company, no more than six people today and the fact that we could go up against IBM it’s a true David and Goliath story and we’re really proud of that. It’s also true David and Goliath story, and we’re really proud of that. It’s also being used in Ethereum-based projects, where a lot of these ICOs, coin offerings, are starting to realize the limitations of the Ethereum protocol, in that today it’s five to seven transactions per second.
Hashgraph is, again, that hundreds of thousands of transactions per second, which opens up a whole new genre of applications that could never run on Ethereum. Our technology speaks for itself. It’s night and day in true comparison to everything else in the market and everything falls short, especially when it comes to security.
We’re asynchronous Byzantine fault tolerant. We’re the strongest form of security you can get in a distributed architecture. You don’t have to take our word for that. There’s 30 years of academic literature in the space of voting-based systems. Ours is a voting-based system without the voting. We do virtual voting, which sounds weird, but it works.
It’s peer-reviewed, mathematically proven. That’s what got the credit unions, the fact that we have absolute certainty that when we achieve consensus. This is consensus It’s not it’s not blockchain and that with every additional confirmation we become a little more certain But we’re never truly certain and that’s the case certainly of blockchain with hashgraph You never have that what if you’re a hundred percent certain that this is the way things are. This isn’t theoretical.
We’re not talking about a white paper or some voodoo idea that is not practical because the fact of the matter is, this is a tech stack that you can go download today. It’s been out for a while now. We took it to TechCrunch Disrupt to have developers and a hackathon out there build on it. We gave a $5,000 prize to a team that built the Hashgraph fair auction ledger.
And what that is is a distributed auction for the first time ever in the history of mankind where there is no centralized infrastructure, but distributed parties could submit a bid. And we can still decide who won that auction. Think Sotheby’s or eBay, but without a leader, without any vulnerability and with complete fairness.
That’s never existed before. Well, for me, the most exciting applications or potential applications for Hashgraph are in terms of Internet of Things, in terms of identity, and allowing us to be able to control our own identity instead of it being in the hands of corporations or other organizations. From a currency or economic standpoint, it opens up possibilities in developing countries.
There’s so many possibilities that before Hashgraph got invented, you know, all these possibilities didn’t exist, but now they do. It really does seem like Hashgraph has cracked the problem of consensus at scale. Once again, you can see the speed of evolution in this space right in front of your eyes, and like I said in Washington, D.C.
, it may not be Bitcoin that dominates this space it may not be aetherium it may not be hashgraph but you need to understand how quickly this thing is moving it’s a very exciting time the more I found out about this technology the more I needed to know about it. So I headed straight to Texas to meet with Lehman Baird and Hashgraph’s CEO, Mance Harmon. We both lived in the same town.
It was actually a suburb of Austin, Texas, Cedar Park, Texas. And there is a Starbucks on the corner. We would meet there after kids have gone to bed and would sit at this Starbucks until they would close. And very often until late in the evening after they’ve closed, we would often watch the people at Starbucks bag up all the trash and throw it over into the dumpster.
And Lehman and I would be sitting there talking about the latest thought and the latest evolution of the hashgraph. What’s the latest rabbit hole that Lehman was going down in terms of exploration of how to solve this problem? And so there are a great many memories of this process in that particular location.
It’s clearly the case that we’re wanting to change the face of the internet. We’re wanting to make the internet what it should have been from the beginning, but nobody stopped to figure out what’s the right way to do this. And the internet grew up in such a way that there are serious architectural flaws and security flaws and there’s a lack of trust in a very real sense.
And we see the opportunity to fix that problem. There’s a general understanding across the community that what we’re doing today in the world of distributed consensus is sort of equivalent in many ways to what happened in the mid-90s with the introduction of the World Wide Web and how that changed society in fundamental ways.
And so we’re not alone in this. It’s obvious to the community. We just happen to have the best technology in the market at the right moment in time. And so we’ve been given this privilege of being able to be on the leading edge and perhaps usher in this new trust layer on top of the existing internet and there’s a certain camaraderie that comes along with wanting to do something as bold as say we’re going to change the internet.
So it’s funny, the ledger field is very broad and people come to it from different directions. Some people 30 years ago were coming to it from making computers not have faults. But they’re also concerned about how to create cryptocurrencies or how to create smart contracts or how to create short stored information or how to do databases.
The database world has been doing this for decades. My interest was slightly different. What I wanted to do was to enable collaboration. My goal is that we should have anyone on Earth at any moment can just wave their hand and carve out a chunk of cyberspace, carve out a world of their own without having to pay anything for free, create a world of their own, and invite some friends.
And now we have a shared world. Anybody should be able to create this shared world. And in this shared world, you and I should be able to create documents and create movies and create 3D objects and we should be able to collaborate with each other and talk to each other. We should be able to interact in ways where I’m not the dictator of the whole world.
I can’t delete everything arbitrarily. We should have rules enforced. So maybe it’s a fair world where I can’t delete things you create. Or maybe it’s a fair world where we vote on things. Or maybe it’s a world in which we have a stock market and you can make sure that the first bid gets matched up with the first act, not the later ones.
We want to have a world that you and I can trust and that our friends that we have invited and maybe the strangers we have invited can trust is going to work the way we want. And we can trust that if my computer dies and is erased, I can get all the data back. The data will never disappear. But to do it totally for free, no server involved, just the computers and the people involved, with complete trust without having to trust any one person in any way, and be able to have this shared world that has the fairness and then the speed.
I mean, I want to be able to play games in this world. So I want a ledger where I’m recording every single time a person moves or shoots or picks something up. You want to be able to do a game at – we’re talking hundreds of thousands of transactions per second maybe. We want huge speed and we want complete security.
We want privacy. We want no one is spying on us. This isn’t funded by advertisements. You want to spy on me so I have better advertisements? We want it just to be something that appears out of nothing that’s just living on our computers. And then when we’re able to have a shared world, we want to have multiple shared worlds that connect to each other.
So maybe you and I and a few friends set up a little stock market just for ourselves to send things back and forth. The banks do this. They’re called dark pools. It’s like a little tiny stock market just for a few players that trust each other sort of but not entirely. I don’t entirely trust you and there have even been problems with dark pools where maybe banks are taking advantage of some of the information involved and maybe one bank is hosting the server but they can manipulate the timing a little bit,
and we have to worry about this. I don’t want that. I want a completely trustworthy stock market that maybe you and I and a few banks set up, but then I want to have a different stored world that maybe keeps track of a cryptocurrency, and I want them to be able to link so that that cryptocurrency is used to buy and sell our stocks.
I want to be able to have a game world that links to a Wikipedia world where it appears that pieces of Wikipedia are actually part of our world and as they change in the Wikipedia world, they change in our world. You want to have shared worlds that are interlocking with each other that allow shared trust even across these things.
This is the vision for what we want the internet to be. It will change the way we even look at what cyberspace is, what the internet is, what are networks, even what are computers. This is what’s going to happen. And 20 years from now, when the children who were born then are growing up, they’re not even going to think about websites and emails as a separate thing and internet and many of the hacking attacks that we have today.
They’re just gonna take it as a matter of course. Anytime I want to, I can wave my hands, I get a shared world, it’s free, it’s easy, it’s trustworthy and reliable. I can invite two friends or a million friends and it all just works and it will change the way we think of what the internet is.
That is what I started being interested in building and this is the direction that we’re going this is what distributed ledgers do is they will ultimately allow us to do that and there’s a lot of rough edges is we have growing pains and distributed ledger technology today but we’ll get over the growing pains we will get to a world that really is fast and secure and fair, and we will then be able to then have this vision of shared worlds, big public ones, little private ones, everything connected.
That was the idea. That was five years ago. So I like playing with math, so I kept playing around with how would you do it, and I convinced myself, yeah, it’s impossible. You can’t do that. There’s no way that you can have really high throughput and also have all these security and fairness properties.
You just can’t do it because ultimately you end up having to tell everybody what you think and then tell people what other people thought and then you can have millions or billions of extra votes and receipts on votes floating around. It just doesn’t work. So I was able to convince myself it’s not possible.
And I set it aside and it would come back and haunt me and it would keep nagging at me. And so I would pick it up again and I would spend a couple of days going through it and going through the math and realizing, no, I was right. It really is impossible. You can’t do that. And set it aside again. And this kept going for years.
I have lots of math problems. Some I’ve been working on for decades. For whatever reason, I don’t know why, they just latch on to me and I can’t get away from them. And eventually, I said, wait a second. If we’re all just talking to each other and you include a tiny bit of extra information, we could each end up with a complete history of exactly how we talked to each other in what order.
But if I had that, I would know exactly how information flowed through our community. I would know what you know. I would know when you learned it. I would know what you know about what Alice knows and what you know about what Alice knows about what Bob knows and about when they learned it.
I would know so much that I could take one of those huge impractical impossible too slow voting algorithms and do it with no votes at all. I could just sit here and say oh, I know how you would vote, so don’t bother voting. Don’t tell me your vote, I know it. I’ll just pretend that you voted and I’ll just pretend and I’ll just get to the conclusion.
And so all we do is we just talk the way we would talk anyway to send out our transactions. We had a tiny bit of information and it gives us this entire history. The history is called a hashgraph. You just get this entire hashgraph that lets you see such incredible amounts of information about who knows what when that then you get consensus for free.
But that’s where we’re going and we’re at the very early stages. I mean the planet is at the early stages of what ledgers can do. And I think whatever you think that ledgers might be able to do, they can do that but they can also do more. And we are just as a species beginning to learn what the final limits are. And we’re pushing as fast as we can along that path.
And so this is the gateway to the next net. This is it. This is the next net. Technically, the geeks will always know, well, there’s multiple layers and the internet’s still down there at the bottom, just like it always has been. But for the users, what they think of when they think in their mind of what the net is is changing and that’s what’s going to be different at a low energy cost ah let’s talk about energy costs you can run this on your cell phone am I correct the processor and a cell phone absolutely is enough to actually run
absolutely hashgraph absolutely so there are systems that would require you to That is enough to actually run Hashgraph. Absolutely. Absolutely. So there are systems that would require you to buy a supercomputer. It’s called a mining rig. It’s a big box full of specially built chips that don’t do anything useful for humanity.
They just mine, which means they solve math problems that have no inherent use. The purpose of them is to slow down the network. This isn’t sound good, just on the face of it. I’m going to spend a lot of money on a supercomputer, and then I’m going to use a lot of electricity to run my supercomputer, and the whole point of the supercomputer is to slow down the network.
But that’s what it is. And so proof-of- work systems work that way. Proof of work is really exciting because it was the first to show us all the possibilities of ledgers. But it’s the first generation. We clearly need to move beyond that. And we will, I think, over time. So with Hashgraph, yeah, you could run a full node on your cell phone.
You’ve accomplished something, a tool that is extremely powerful. What are your hopes and dreams? My hope and dream is that this pushes us forward along this path to an Internet of shared worlds like we’ve been talking about, where anybody can collaborate with anybody and the data is stored. You don’t have to pay for a server to hold it.
It is secure. It is private. Where you have the rules enforced, we could set up an organization and trust that elections aren’t being rigged because the rules are enforced and you don’t have to trust any one person. We could have money and trust that no one’s going to inflate the money supply because the rules are enforced and it is guaranteed.
We could store the deed to your house and at any given moment I could know that we’re all seeing the same answer as to who owns it so that you can’t sell it to one person and also sell it to someone else at the same time. You’ll get caught because it’s a publicly visible thing that everyone knows that everyone else is seeing the same thing.
I envision a world where the whole internet works this way, where we all know that we can all see the same thing and that rules are enforced, that we have collaboration. And to do that, we need speed, we need security, we need fairness. And my goal is that what we’re doing pushes us along that path because that’s the goal that we need to get to where the nature of the Internet itself is different because it has a trust layer.
So this has been my three-year journey of discovery from Bitcoin to Hashgraph and all the promise that they contain. Now when we make a documentary like this, you shoot hours and hours and hours of film and you have to decide what to put in and what to leave out. Many of these guests we interviewed for somewhere between a half an hour to more than two hours and they said amazing things and stuff that you really do want to learn.
And so we’re going to make all of this available as bonus footage on HiddenSecretsOfMoney.com. And so go there if you’re interested in any of this, but especially Hashgraph. We wanted to take you on this journey of discovery to show you these stepping stones along the way. And my hopes and dreams when I first started on this journey was that Bitcoin was going to be the technology that was going to help free the world to make a fairer, more prosperous, freer planet for all of us by helping to change the monetary system. And it has.
Bitcoin is extremely important. It’s like the very first automobile. It’s like the discovery of electricity. It’s like figuring out how to harness fire. It’s a very, very important technology, but no man can design something that is supposed to be a free market interaction and predict all of the unintended consequences.
And what Satoshi Nakamoto has done here is beautiful, except when he did it, figuring out how to incentivize people, he over incentivized the mining area. And what has happened to Bitcoin is it has become this behemoth that is no longer the promise of a currency. It’s not going to replace the world monetary system or the financial markets.
Nobody is actually using it for transactions. They’re using it as a speculation now. And so it isn’t living up to the original promise of what Bitcoin was supposed to be. Hashgraph might. We have yet to see. Right now, none of the blockchain technologies that I know of can run markets where it’s got to be absolutely instant and absolutely fair.
Hashgraph can provide these things. You know, the people on Wall Street were sort of like dinosaurs looking up at an asteroid and not realizing what was coming. Suddenly everybody in the financial sector is scrambling to try and figure out how they can get a cut of this. And one of the things a lot of the Wall Street people don’t realize yet is that a lot of them are already obsolete.
Now, Hashgraph, because it’s patented, there’s no token that you can buy right now. It’s a platform. It’s just like the blockchain. It’s something that underlies applications that will be built on top of it. But the part that underlies those applications, this is a revolutionary trust layer that speeds everything up, conserves energy, and turns the internet into something completely different because it’s completely decentralized.
As far as government and the financial system, we have seen a tremendous change since the founding of the United States of America. It was founded on freedom and what we’ve seen is more and more control by government and the financial system inserting themselves more and more and more between individuals that want to transact with one another.
Now the powers that be are not going to want to go down without a fight and this does have a potential to supplant most of what they do to take away much of the power and that’s really what I would like to see and so this is my great hope and dream but we’re not out of the woods yet. We have to keep pushing this forward, and please support it.
This is something that everybody should get involved with, and everybody should spread the news on it if you want it to succeed, just like the beginning of this episode. These technologies really do have the power to enslave or free mankind. It’s going to be one or the other. There is no middle ground here. And right now, we have the opportunity to choose.
This is a decisive moment in history. The future of mankind depends on what you do. So learn as much as you can about this space, all of it. Visit HiddenSecretsOfMoney.com and watch the bonus features, especially the stuff from Lehman Barrett at Hashgraph. Share this video with everybody that you can. And until next time, thank you very much for watching.
