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.

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.

End 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 moneywallet

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 is 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!

TOMORROW'S MONEY

Bitcoins are the equivalent of Internet cash. You can send bitcoins over the Internet directly to anyone with no middle man. Like cash, Bitcoin transactions are irreversible. Bitcoins are traded worldwide.

BITCOIN EXCLUSIVES

Here is a list of things that you can only do with Bitcoin:

  • Spend and transfer money internationally for less than a penny.
  • Sell on the Internet without setting up with a payment service.
  • Protect your wealth from devaluation by the government.
  • Donate to any Bitcoin-accepting organization anywhere.

CONSUMERS LOVE BITCOIN

There are lots of reasons consumers love Bitcoin:

  • Easier checkout
  • Paying with bitcoins is easier than using a credit card at check out. Unlike a credit card, with bitcoins, you don’t need to fill out a credit card number, an expiration date, a card holder name, or a CCV.
  • Cheaper prices
  • Merchants typically pay from 2% to 3% in credit card transaction fees. Merchants who accept bitcoins will be able to avoid credit card fees and can pass these savings on to consumers.
  • Increased privacy
  • With Bitcoin, you only provide the necessary information to the merchant. For example, if the product is not being shipped to you, you don’t need to give the merchant your address.
  • Increased security
  • With Bitcoin, you directly pay merchants and just like with cash there is no need to give them any payment information that can be lost, stolen, or used to make unauthorized charges.
  • Using bitcoins increases their value
  • If you have some bitcoins saved, you can make them more valuable by using them. Using bitcoins increases their demand which in turn increases the value of your saved bitcoins.

MERCHANTS LOVE BITCOIN

There are many reasons merchants love Bitcoin:

  • No reversals
  • Reputable merchants can still provide refunds as needed, but this is at the merchant’s option and the merchant has no risk of fraudulent charge backs.
  • Low transaction fees
  • Receiving bitcoins is free and sending bitcoins costs less than a penny. Merchants can convert bitcoins to dollars and get volatility protection for half a percent (0.5%).
  • Accept payments internationally
  • Take payment from anyone, anywhere in the world with confidence. In seconds, merchants will see the payment is on the way. Usually, in one hour, the transaction is fully completed. Services are coming to eliminate the hour delay.
  • No payment processor set up or fees
  • Merchants accept payments directly from consumers. Merchants do not need a relationship with any service to begin accepting bitcoins. Merchants do not need to worry about a payment processor refusing their business, delaying their funds, or cutting off service.

BITCOIN IS BETTER THAN REGULAR CURRENCIES

Some of the reasons Bitcoin is better than regular currencies:

  • Bitcoin is an international currency.
  • Bitcoin can be spent all over the world.
  • Bitcoins cannot be counterfeited.
  • There is no printing technology that will ever be able to fool the bitcoin network.
  • Bitcoin cannot be devalued.
  • Only 21 million bitcoins will ever be issued. Unlike regular currencies, since Bitcoin is not controlled by any government or bank, the raising of a debt ceiling and quantitative easing can not devalue bitcoins.

TECHNOLOGY

Bitcoins are implemented using the latest trusted technologies:

  • The same cryptography that powers Internet banking.
  • Peer-to-peer networking protects Bitcoin from governmental or individual interference.
  • Allows anyone to audit and improve the Bitcoin source code.

HOW TO GET BITCOINS TODAY

It’s easy to get bitcoins for cash:

  • Open a free account at Bitfxt.com
  • Go to the deposit page, make deposit request, and print the instructions.
  • Make a deposit at one of thousands of bank locations nationwide.
  • Purchase some bitcoins.

WHAT TO DO WITH YOUR BITCOINS

  • Save your bitcoins
  • The easiest way to save your bitcoins is simply to leave them on the exchange.
  • Sell your bitcoins
  • Whenever you want, you can convert your bitcoins to cash by selling them on the exchange.
  • Transfer your bitcoins
  • You can transfer your bitcoins to a wallet service or your own computer. If you’re sure your computer is secure and you backup regularly, you can download and install the Bitcoin wallet software on your computer and transfer your bitcoins to your computer.
  • Spend your bitcoins

BITCOIN RISKS

Do not invest anything in Bitcoin you can not afford to lose. Investing in Bitcoin or any other currency is not without risk. For example, any of the following could happen to Bitcoin:

  • Another crypto-currency might surpass Bitcoin
  • Several have already tried and failed.
  • A weakness in the encryption might be discovered
  • This is the same encryption used in online banking. Like banking systems, if a flaw is found in a particular algorithm, the Bitcoin client can be upgraded to use different encryption algorithms.
  • Governments might try to ban or regulate Bitcoin
  • This would be similar to the government banning the Internet because of illegal uses. Banning the Internet is unlikely because it would place the government and its people at a strategic communications disadvantage. Banning bitcoins, is similarly unlikely as it would place the government and its people at a strategic economic disadvantage.
  • An unfixable flaw might be discovered in the Bitcoin protocol
  • People have been trying to find a flaw for over two years.