welcome to 99bitcoins.com
i'm nate martin and i'll be your guide
through this video series bitcoin
whiteboard tuesday we're going to cover
a lot of topics such as bitcoin mining
bitcoin wallets how to trade bitcoin and
a lot more
today we're going to start from scratch
and answer the third most searched term
on google today what is bitcoin
if you're worried that we're going to
get too technical and use a lot of
complicated words don't
here at 99 bitcoins we translate bitcoin
into plain english so even if you have
no technical background you'll be able
to understand everything
by the end of this course you'll know
more about bitcoin and how it works than
99 of the population so let's get
started
before we talk about bitcoin i want to
take a moment and talk about money what
is money exactly
at its core money represents value if i
do some work for you you give me money
in exchange for the value i gave you
i can then use that money to get
something of value from someone else in
the future
throughout history value has taken many
forms and people have used a lot of
different materials to represent money
salt wheat shells and of course gold
have all been used as a medium of
exchange
however in order for something to
represent value people have to trust
that it is indeed valuable and will stay
valuable long enough for them to redeem
that value in the future
up until 100 years ago or so we always
trusted in something to represent money
however something happened along the way
and we've changed our trust model from
trusting something to trusting in
someone let me explain
over time people found it too cumbersome
to walk around the world carrying bars
of gold or other forms of money so paper
money was invented here's how it worked
a bank or government would offer to take
possession of your bar of gold let's say
worth a thousand dollars and in return
that bank would give you receipt
certificates which we call bills
amounting to a thousand dollars
not only were these pieces of paper much
easier to carry but you could spend a
dollar on a cup of coffee and not have
to cut your gold bar into a thousand
pieces and if you wanted your gold back
you simply took a thousand dollars in
bills back to the bank to redeem them
for the actual form of money in this
case that gold bar whenever you needed
and so paper began its use as money as
an instrument of practicality and
convenience
however as time progressed and due to
macroeconomic changes this bond between
the paper receipt and the gold it stands
for was broken now to explain the path
that led us away from the gold standards
is extremely complex but suffice to say
that governments told their people that
the government itself would be liable
for the value of that paper money
basically we all said let's just forget
about gold and trade paper instead
so people continued to trade with
receipts that are backed by nothing but
the government's promise and why did
that continue to work well because of
trust
even though there is no actual commodity
backing paper money people trusted the
government and that's how fiat money was
created
fiat is a latin word that means by
decree
meaning the dollars or euros or any
other currency for that matter have
value because the government orders it
too it's what's known as legal tender
coins or bank notes that must be
accepted if offered as payment
so the value of today's money actually
comes from a legal status given to it by
a central authority in this case the
government and so the trust model has
changed from trusting something to
trusting someone in this case the
government
fiat money has two main drawbacks one it
is centralized you have a central
authority that controls and issues it in
this case the government or central bank
and two it is not limited by quantity
the government or central bank can print
as much as they want whenever needed and
inflate the money supply on the market
the problem with printing money is that
because you're flooding the market with
more money the value of each dollar
drops so your own money is worth less
when you see prices rising throughout
the years it's not necessarily that
prices are rising as much as that the
purchasing power of your money is
dropping
you need more dollars to buy something
that used to cost less
once fiat money was in place the move to
digital money was pretty simple we
already have a central authority that
issues money so why not make money
mostly digital and let that authority
keep track of who owns what
today we mainly use credit cards wire
transfers paypal and other forms of
digital money the amount of physical
money in the world is almost negligible
and it's getting smaller with each year
that passes
so if money today is digital how does
that even work i mean if i have a file
that represents a dollar what's to stop
me from copying it a million times and
having a million dollars
this is called the double spend problem
the solution that banks use today is a
centralized solution they keep a ledger
on their computer which keeps track of
who owns what
everyone has an account and this ledger
keeps a tally for each account we all
trust the bank and the bank trust their
computer and so the solution is
centralized on this ledger in this
computer you may not know this but there
were many attempts to create alternative
forms of digital currencies however none
were successful in solving the double
spend problem without a central
authority
whenever you give anyone control over
the money supply you're giving them
enormous power and this creates three
major issues
the first issue is corruption
power corrupts and absolute power
corrupts absolutely
when banks have a mandate to create
money or value they basically control
the flow of value in the world which
gives them almost unlimited power
a small example of how power corrupts
can be seen in the wells fargo scandal
where employees secretly created
millions of unauthorized bank and credit
card accounts in order to inflate the
bank's revenue stream without their
customers knowing about it for years
the second issue of a centralized system
is mismanagement if the central
authority's interest isn't aligned with
the people it controls there may be a
case of mismanagement of the money
for example printing a lot of money in
order to save a certain bank or
institution from collapsing as what
happened in 2008
the problem with printing too much money
is that it causes inflation and
basically erodes the value of the
citizens money
one extreme example for this is
venezuela where the government has
printed so much money and the value of
it has dropped so much that people are
no longer counting money but are
weighing it instead
the last issue is control you are
basically giving away all control of
your money to the government or bank
at any point in time the government can
decide to freeze your account and deny
you access to your funds
even if you use only cold hard cash the
government can cancel the legal status
of your currency as was done in india a
few years back
this was the state of things until 2009
creating an alternative to the current
monetary system seemed like a lost cause
but then everything changed
in october of 2008 a document was
published online by a guy calling
himself satoshi nakamoto the document
also called a white paper suggested a
way of creating a system for a
decentralized currency called bitcoin
this system claimed to create digital
money that solves the double spend
problem without the need for a central
authority
at its core bitcoin is a transparent
ledger without a central authority but
what does this confusing phrase even
really mean
well let's compare bitcoin to the bank
since most money today is already
digital the bank basically manages its
own ledger of balances and transactions
however the bank's ledger is not
transparent and it's stored on the
bank's main computer you can't sneak a
peek into the bank's ledger and only the
bank has complete control over it
bitcoin on the other hand is a
transparent ledger at any point in time
i can sneak a peek into the ledger and
see all the transactions and balances
that are taking place
the only thing you can't figure out is
who owns these balances and who is
behind each transaction
this means bitcoin is pseudo anonymous
everything is open transparent and
trackable but you still can't tell who's
sending what to whom
let's explain this with an example you
can see on your screen certain rows from
bitcoin's ledger we can see that a
certain bitcoin address sent 10 000
bitcoins to another bitcoin address in
may of 2010.
this specific transaction is the first
purchase that was ever made with bitcoin
and it was used to buy two pizzas by a
guy named laszlo
laszlo published a post back in 2010
asking for someone to sell him two
pizzas in exchange for 10 000 bitcoins
well someone did and now the price of
these two pizzas is worth well over 100
million dollars today
bitcoin is also decentralized there's no
one computer that holds the ledger with
bitcoin every computer that participates
in the system is also keeping a copy of
the ledger also known as the blockchain
so if you want to take down the system
or hack the ledger you'll have to take
down thousands of computers which are
keeping a copy and constantly updating
it
like most money today bitcoin is also
digital this means there's nothing
physical that you can touch in bitcoin
there are no actual coins there are only
rows of transactions and balances when
you own bitcoin it means that you own
the right to access a specific bitcoin
address record in the ledger and send
funds from it to a different address so
what does all of this mean why is
bitcoin such big news
well for the first time since digital
money came into existence we now have an
alternative to the current system
bitcoin is a form of money that no
government or bank can control
think about the time before the internet
how centralized the flow of information
was basically if you wanted information
you could get it from a few major
players like the new york times the
washington post and others like them
today thanks to the internet information
is decentralized and you can communicate
and consume knowledge from around the
world with a click of a button
bitcoin is the internet of money and
it's offering a decentralized solution
to money
bitcoin has several advantages over the
current system first it gives you
complete control over your money with
bitcoin you and you alone can access
your funds how you actually do this will
be explained in a later video no
government or bank can decide to freeze
your account or confiscate your holdings
bitcoin also cuts a lot of the middlemen
from the process of transferring money
this means that in many cases bitcoin is
cheaper to use than traditional wire
transfers or money orders also unlike
fiat currencies bitcoin was designed to
be digital by nature
this means you can add additional layers
of programming on top of it and turn it
into smart money but more on that in
later videos
finally bitcoin opens up digital
commerce to two and a half billion
people around the world who don't have
access to the current banking system
these people are unbanked or underbanked
because of where they live and the
reality that they've been born into
however today with a mobile phone and a
click of a button they can start trading
using bitcoin no permission needed
today there are several merchants online
and offline that accept bitcoin you can
order a flight or book a hotel with
bitcoin if you like there are even
bitcoin debit cards that allow you to
pay at almost any store with your
bitcoin balance
however the road toward acceptance by
the majority of the public is still a
long one
as we continue in this video series we
will break down exactly how bitcoin
works and how to use it we will learn
about bitcoin mining bitcoin wallets how
to buy bitcoins and much more
the revolution of money began in 2009
and these days we are seeing it change
money as we know it
you may still have some questions if so
just leave them in the comments section
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thanks for joining me here at the
whiteboard for 99bitcoins.com i'm nate
martin and i'll see you in a bit