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  • 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 99Bitcoins 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 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 a hundred 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 $1000,

  • and in return, that bank would give you receipt certificates,

  • which we call bills, amounting to $1000.

  • 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 $1000 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 standard

  • 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 meansby decree”.

  • Meaning the dollars, or euros or any other currency for that matter

  • have value because the government orders it to.

  • It's what is known aslegal tender” -

  • coins or banknotes 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:

  • 1. 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 tocost 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 others forms of digital money.

  • The amount of physical money in the world is almost negligible

  • and is 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 thedouble spend problem”.

  • The solution that banks use today is a “centralizedsolution;

  • 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 trusts 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 a 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's 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 centralised 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 citizen's 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 2008

  • a document was published online by a guy calling himself Satoshi Nakamoto.

  • The document, also called a whitepaper,

  • suggested a way of creating a system

  • for a decentralised 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 is 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 of 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 is 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 2 pizzas by a guy named Laszlo.

  • Laszlo published a post back in 2010

  • asking for someone to sell him 2 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 youownBitcoin

  • 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 the 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 intosmart money”, but more on that in later videos.

  • Finally, Bitcoin opens up digital commerce to

  • 2.5 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 leave and the reality that they have 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.