What you will learn in this video
- What is money?
- Why money today is basically worthless
- Why Bitcoin is the most mind-blowing invention since the Internet
- Who accepts 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.
So what is Bitcoin?
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.
Ener Paper Money
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.
The age of digital money
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.
Bitcoin in invented
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?
Bitcoin is just a distributed ledger system
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 answer the question “What is Bitcoin?” It’s the first decentralized digital currency.
What does Bitcoin mean for the world?
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).
Who accepts Bitcoin?
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!
i have bitcoins but here in my country does not use it so it is useless for me… where can i sell it?
Hi Jeff,
Well, that depends where you are and what you want in exchange for it. Usually you can sell Bitcoin the same way you buy it, via an exchange of some kind. If there aren’t any exchanges which work with your local currency, then the best way to convert bitcoins would probably be to buy stuff online with them and have it shipped to your country. There are loads of online stores which accept BTC so that shouldn’t be a problem, wherever you are.
how i no right bitcoin to buy
Hi Wali,
If you want real Bitcoin, then only buy Bitcoin (BTC), that is the only real Bitcoin.
If the name is Bitcoin *Something * or *Something* Bitcoin and the ticker is not “BTC” then it isn’t real Bitcoin but a fork.
I have a couple businesses in my country. I noticed a few businesses accepting Bitcoin. How do i join up to accept Bitcoin?
Hey Aaron,
Well, you download a free Bitcoin wallet (one of those listed on https://bitcoin.org/en/choose-your-wallet is usually best, in your case I’d recommend Electrum) and run it. The wallet will generate some receiving addresses which you can share with people so they can send you bitcoins.
That’s a very simplified overview, of course. There is a lot going on with Bitcoin – it differs from existing payment solutions in many important ways. I’d suggest that you run through our video introduction to Bitcoin to get a better sense of how it works.
If you visit this link and enter your email, we’ll send you a new video link each day for a week (but no spam, don’t worry). This is a great way to learn the basics of Bitcoin without getting overwhelmed by complexity:
https://99bitcoins.com/subscribe-to-newsletter
Nobody writing about any of the cryptocurrencies ever tells you how to buy them. How the hell DO you buy them?
Hi Wally,
If you check out our buying guides section, you’ll find guides to buying several major cryptos. For Bitcoin, there are guides for buying with credit or debit cards, PayPal and cash. There are also exchange reviews. Exchanges let you buy through bank transfers and other payment methods. Each exchange should have a FAQ or support section which will guide you through the process of signing up and sending them money. Once your money arrives, you can buy Bitcoin or other cryptos on the exchange. Check out those guides for your preferred payment method and get back me if you still have troubles.
where does bitcoin come from? how do you earn it.
If there’s a limitless supply how doe it retain value?
Hi John,
OK, so a common misconception is that Bitcoin supply is unlimited. This is not true. There is a strict limit of 21 million bitcoins in place. Currently over 16 million bitcoins have been mined and it’s expected that the limit will be reached sometime around 2160.
Where the coin actually comes from is mining… this is the process by which all the current transactions in the network get recorded into a “block” of transactions, which is linked to the previous block… Miners then recognise this new block and begin work on the next one, including fresh transactions – hence a chain of blocks, or blockchain…
Anyway, each time a miner finds a new block (by doing a lot of calculation work) they are given a block reward of bitcoins. This amount is currently 12.5 BTC but it halves every 4 years, I think the next halving is in 2020. Once we get into the next century, the reward will be tiny, less than 1 BTC – but hopefully Bitcoin will be worth so much by then that miners will still enjoy their block reward.
Once there are no more block rewards, it’s expected that transaction fees alone with keep miners mining.
As for earning Bitcoin, you can go about it the same as earning regular money. Doing work for people or selling stuff or trading in markets, etc. Here’s a guide to getting started which recommends a few easy methods:
https://99bitcoins.com/how-to-earn-bitcoins-fast-free/
I did read that part, I guess my questions is ho is someone prevented from getting in and changing that limitation (in the same way the US government solves certain problems by raising the debt ceiling.)
Hi I am a in Accra Ghana how can I own bit coin….I didn’t earn much at the end of the month…can a poor person earns it ….or its for the rich alone
Hi Kwame,
It’s certainly possible for you to earn some bitcoin or altcoins, in fact we have a guide for doing so:
https://99bitcoins.com/how-to-earn-bitcoins-fast-free/
If you have time, then I’d say a good starting point which doesn’t require much in the way of special skills, would be signature campaigns on the BitcoinTalk forum. You do need to build up a post history there to qualify for some of them.
Otherwise, any kind of business you can do online is a good way to earn Bitcoin. Maybe you can sell goods or services?
That said, you could probably make more doing other online work for PayPal or other types of payments. The point of working for Bitcoin is to hold over the long term so that hopefully it’s value goes up in future. In that way, what could be a small payment today becomes a big payment in the future (hopefully!).
Good luck with it.