Bitcoin Whiteboard Tuesday – What is Bitcoin?

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Hello guys and gals, I’m Ariel from 99Bitcoins and welcome to your very first lesson about Bitcoin!

In today’s video we’ll be asking the most popular question – the #4 most searched query on Google in 2014 – “What is Bitcoin?

 

This sounds like a simple question but it tends to get some complicated answers. In this video we’ll make sure to cover all the bases but also to keep it simple. If you find anything interesting that I didn’t talk about enough, there’s lots more to read about it if you search for it – I urge you.

The correct answer is “The first decentralized digital currency”, but that’s quite a mouthful. So before we begin to understand this, lets start with a more basic question that most people usually don’t ask themselves: “what is money?”

Money, ultimately, is simply the tool that we use to exchange value. Throughout history we’ve used lots of things as money, from seashells, to precious metals, to salt… The most popular money, historically, has been gold. There’s good reason for this: gold works really well as money. It’s rare – so it’s not worthless, and it’s tangible so if you’re holding it in your hand it’s probably yours. Pretty simple. And this worked for thousands of years, no matter what social institutions exist around you, no matter who the king or government is at that particular time. Gold just worked.

Then came along a new invention: paper money. When you think about it, for someone who uses gold their whole life, paper money is a hard sell. Trust paper instead of metal? Well, paper money actually started out as just a representation of gold. For e.g. the US Dollar was originally just a “gold certificate” which is a piece of paper saying you own some gold that’s sitting in a vault at the treasury. In other words, people never trusted paper money, they trusted the government to hold the gold for them.

Time passed and the US has since abandoned the so-called “gold standard” during the 70’s and today the US Dollar is actually a “fiat” money. “Fiat” is a Latin word for “it shall be” which is another way of saying “forget about gold, let’s all just agree that this paper is worth something, ok?” And that apparently works, because we’re all using fiat money these days and we don’t have to have “hard currency” or “tangible money”. Paper money has some advantages and disadvantages. The biggest disadvantage is that paper is easy to counterfeit, something that’s practically impossible with gold. Almost anyone can simply print paper at home. But there must be advantages that make it worth this trouble, right? Fiat money is actually a form of digitization – that is, we’re dealing with numbers, not metals. This makes money much easier to count, manage and move. In fact, the vast majority of money these days are actually just numbers in computers, believe it or not.

Wait a minute, 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 trusts their computer, and so the solution is centralized on this ledger in this computer. Computer scientists though, weren’t pleased.

Decades later in 2008, an anonymous researcher publishes a paper describing how to solve this problem without a centralized solution – that is, without a bank. He called it “Bitcoin” and went on to describe how you can make a ledger that doesn’t rely on a single particular bank – this is, a decentralized solution. This may sound confusing, or at best like science fiction. How does something work if it’s decentralized? You actually already know the answer to this, you’re using a decentralized solution right now to watch this video: the internet.

Think about it: nobody owns the internet. It’s the most vast and powerful network that humans have ever created – but there is no “Internet, inc.” – so it’s decentralized. Lots of individuals and private companies all build the infrastructure of the internet, across companies and border and even ideologies, and it works – much thanks to profit motives and economic interests. So if the internet decentralizes information technology, how does Bitcoin decentralize money?

At this point many videos would start getting technical and complicated, but we want to keep it simple. In Bitcoin, the coins (or rather the transactions) are all recorded in a ledger. So far, nothing new. The big deal with Bitcoin is that this ledger is public and shared. Not only, it’s also maintained by the public. Thousands of people have a copy of this ledger around the world, and anyone can download and verify this ledger. In Bitcoin, instead of accounts, money is moved between addresses – kind of like email.

Usually people get concerned when they hear about this ledger being public. Isn’t this a privacy problem? Like most privacy issues, it’s complicated. Whatever you may have heard about Bitcoin – it’s not really inherently anonymous or identifiable. We will touch on this in a later video.

OK, maybe it’s not anonymous or something, but isn’t this a security problem? Well, if you think about it, it’s not a security problem. If you think that this public ledger is easy to hack, try to imagine hacking the English language – you can probably hack into Oxford Dictionary computers and change some definitions, but that wouldn’t be a big problem. There are lots of copies of dictionaries all over the world – you can’t fool everyone by hacking only some of the copies. In Bitcoin, the dictionary that helps everyone stay on the same page is the ledger, and this ledger is called the “Blockchain”.

So now that we understand how Bitcoin is digital, and how Bitcoin is decentralized, we can finally say: “Bitcoin is the first decentralized digital currency”.

But what does this all matter? Is Bitcoin going to change the world? That’s a question we’d all like to know, eh? Well, let’s start by considering that Bitcoin is non-geographic. If economies fall or governments change, Bitcoin won’t be affected like fiat currencies. It is also much more internet friendly, which means online commerce can improve. But the biggest winners here are probably the billions of people across Asia and Africa and other places that have an internet connection but have horrible banks.

I mean, with my bank I can shop online and send money across the world even though it’s really slow and quite expensive.  But in Kenya, they use cell phone minutes as money, they buy groceries with air time. In Argentina people are exchanging money in the black market because of inflation that makes it impossible to save money for a rainy day or for retirement. Non-geographic, global money is exactly what these people need – it works even if your government or banks don’t work.

Of course, Bitcoin isn’t only offering an economic alternative, but also a technological alternative. After all, Dollars today are numbers on a computer which represent numbers on a paper which used to represent hard metals, according to laws written hundreds of years ago. Bitcoin was born in the 21st century, which is why it is able to do lots of things that make people call it “smart-money”. For the same reason phones today are called “smartphones”, because they have more features than cellphones from a decade ago. We won’t get into details, but Bitcoin has some advanced features that you don’t get with the old money that we have today (things like colored coins, smart contracts and multisig).

Of course, businesses have started accepting it all around the world, some big names include Microsoft and TigerDirect and a whole bunch of airlines. There are websites to help you find Bitcoin-accepting businesses. In fact, I got my paycheck in Bitcoin for over a year – and there are lots of people offering professional services in exchange for Bitcoin.

The implications for Bitcoin are obviously hard to measure. In reality there is a whole industry, fields of research, and grassroots movements growing – much like there was when executives from AOL and young students were all trying to explain to people what is this “internet thing” back in the ‘90s.

So I hope you’ve enjoyed our very first edition of BWBT and I can’t wait to see you in our next video. If you still have any questions or comments on the video feel free to leave them in the comment section below. Bye for now!

Ariel Horwitz

Ariel Horwitz is a Bitcoin activist, educator, and consultant. He has been involved with the Israeli Bitcoin Association, The Bitcoin Embassy in Tel Aviv, and has founded AlefBit - the first Bitcoin education website in Hebrew.

Latest posts by Ariel Horwitz (see all)

235 Comments

  1. delnora hari nano on

    Hi There, I am new with Bitcoin and created an account with coins.ph. However I wish to register another account for my resorts to accept payment. coins.ph does not allow multiple accounts with them and although I explained that I wish to have another one for business account, their help desk is not really giving me a meaningful answer. I think my recourse is to open from another platform and not coins.ph. However how do i register my resort as a establishment accepting bitcoins payment? I hope the succeeding videos will provide me the answer, if not I would appreciate your comments.

  2. Ken Finlayson on

    Does the government, creditors etc. have recourse to seize your account for taxes , debts or whatever?
    In other words how secure is our investment?

  3. Rick TheBrick on

    Good morning

    Awesome video, straight to the point and very informative. The only question I have would be about fees; I purchased $1000 worth of Bitcoins through Coinbase I believe, I came across that site in forums etc. The only problem I have is thst without notice they’ve withdrawn a little bit more than $1030 about 3%.. I thought why not? They’re fee ir whatever, but then I immediately checked my balance to have a point if reference which in my mind should have been $1000 obviously, instead I had $970 ???? IM SORRY, my question; Do you guys also charge those fees? If so, could you please tell me what they’re for?

    ThankYou

    Rick


    Sent from myMail for Android

  4. Ariel
    I appreciate your first Video presentation. I have been reading an exploring Bitcoin for the last 3 weeks. I do not own any Cryptocurrency yet, however I am very interested in the trend. I am already thinking of a Cryptocurrency business, but would need lots of help from experts like yourself. Thanks for providing such simple information to a non tech guy like myself. What is the future of Cryptocurrencies and commerce.

    • Zsofia - 99Bitcoins support on

      Hi Ralph, thanks for the feedback, we are glad you found the video useful. If you want to know more about Bitcoin, you can sign up to our Crash Course here: https://99bitcoins.com/subscribe-to-newsletter/. Regarding the future, of course, no one knows for sure what will happen, but Bitcoin has been used more and more in the recent years all around the globe.

  5. Thank you for a very pedagogical and educative first video course – I am looking forward to the following ones!

  6. You speak a little faster than I listen Ariel. But I did find it interesting enough to rewind several times so as not to miss something.

  7. Its rare to get down to earth explanation of bitcoin and its road map. You just ignited my knowledge about it. So grateful

  8. Adeoye Feranmi on

    Good day! I enjoyed your lesson. But I will like to know more about bitcoins because I want to buy it and i am considering if it is not going to be a risk to invest in it. Besides I can chat you up. I need you to explain some things to me thanks. Feranmi from Nigeria

  9. Thank you. As a new subscriber I am impressed. This is the first video discussion I have heard that clearly defines the history and reason behind paper money and Crypto Currency (smart money). I look forward to hearing your next lesson.

  10. Gerald Nelson on

    I have for a long time, wanted to learn about blockchain…especially BitCoin. I feel fortunate to have found this site and I signed on.

  11. This is an extremely well done video series and perfect for beginners. Your site was recommended to me and it gave me exactly what I was looking for. I’ve poked around and done a lot of reading, and now i”m going to recommend it to others. Thanks for simplifying a complicated, technical subject. :)

  12. Happy to come across your videos. It has been really informative. You mentioned that companies are using bitcoins as part of their transactions and even you received your salary in bitcoin. I was just thinking with the crazy fluctuations in the value of bitcoin against fiat currency at any given day and time, how does bitcoin provide stability in this sense?

    • Zsofia - 99Bitcoins support on

      Hi Daniela, when you treat Bitcoin as a financial intermediary, then since your expenses and income are both in Bitcoin, you are not exposed to price volatility.

    • Ofir Beigel on

      Hey Daniela, some payment services allow companies to accept Bitcoin but exchange them into dollars for them the second they receive it (for a fee). In this way the company isn’t exposed to any price volatility since they end up getting USD.

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