Saturday, 10 March 2018

Bitcoin: What is it? (video and transcript)

NJ Bridgewater
10 March 2018

Yesterday, I released a new video introduction to Bitcoin, which you can find below, along with a transcription of my presentation. I hope people find it useful in gaining a more holistic understanding of Bitcoin, especially in relation to fiat currencies, money and real value.


Hello everyone and welcome to my channel. It’s been a little while since my last video and I have been quite busy with work and life in general. However, I thought the time had come to release a new video, and I’ve been planning to talk about this topic for quite a while. And that topic is: Bitcoin.

From @BitcoinGent, Jan 23, 2018.
Why have I chosen this topic? Because it’s a topic I am passionate about, and there is a lot of misinformation out there about Bitcoin, especially in the mainstream media. The reasons for this are twofold: Bitcoin is a threat to the existing financial order, so the mainstream narrative will tend to focus on the negative aspects of Bitcoin in order to de-legitimize it. Secondly, bad news sells a lot better than good news. So, if there is any hacking of a cryptocurrency exchange, or if Bitcoin is being used by hackers or in ransomware, that will be picked up on by the media. There’s also a lot of old guard economists and bankers who like to spread fear, uncertainty and doubt (often called ‘FUD’) about Bitcoin because it doesn’t fit their narrative of government control of the money supply.

Now, I’m not making this video as financial advice, but merely as my own reflections and understanding of Bitcoin. I have discussed this issue more thoroughly in an article entitled ‘What is Bitcoin’, which appears on my Crossing the Bridge blog. You can find a link to the post in the description below. In that article, I discuss what money really is, the history of money and the meaning of intrinsic value. For more background on this topic, I would also recommend Nick Szabo’s article, Shelling Out: The Origins ofMoney, which I have also linked to below.

From Jameson Lopp (2014) Bitcoin Nodes: How Many is Enough?

So, what is Bitcoin? In a nutshell, Bitcoin is a de-centralized cryptocurrency based on a distributed network. That’s quite a mouthful, isn’t it? So, let’s break it down. Bitcoin is based on a new technology called the blockchain. The blockchain is essentially a distributed ledger. A ledger is a record of transactions, showing who has sent how much money to whom. In this case, it records all the transactions that ever occur using Bitcoin. It is distributed because the blockchain is maintained by a network of nodes. Each node is just a computer which has stored a copy of the blockchain and is running Bitcoin Core (the latest version being 0.16.0), which can be downloaded from

What does this mean? Well, it means that Bitcoin is something tangible. It exists on a network of nodes that are distributed across the planet and which are constantly running and maintaining the network while verifying new transactions. Whenever a transaction occurs, it is bundled together with other transactions into a block. No names are included in the transactions, so there is some anonymity to them; although people can, in theory, trace a Bitcoin address back to the exchange where you bought your Bitcoins. Nevertheless, these transactions are then “mined”. Bitcoin miners process the transactions in the block using a cryptographic code. As The Economist explained in a 2015 article:

“Every ten minutes or so mining computers collect a few hundred pending bitcoin transactions (a “block”) and turn them into a mathematical puzzle. The first miner to find the solution announces it to others on the network. The other miners then check whether the sender of the funds has the right to spend the money, and whether the solution to the puzzle is correct. If enough of them grant their approval, the block is cryptographically added to the ledger and the miners move on to the next set of transactions (hence the term “blockchain”). “

 This prevents the double-spending problem, in which digital currency can be spent twice. By independently verifying transactions, double spending cannot occur and the integrity of the blockchain ledger is maintained. There are estimated to be around 100,000 miners worldwide, maintaining this transparent and distributed network.[1]

Binary code. From: How Does the Binary System Work?

How does this differ from US dollars and other currencies? The answer is simple. And some people may find this shocking. US dollars and other government-created currencies are not backed by anything at all. They are simply 1s and 0s created out of thing air. They don’t really exist. They’re a sort of illusion that we attribute value to based on our collective belief in their value. As I point out in my article, What is Bitcoin, these currencies have no intrinsic value, which is why they are called fiat currencies. They are created by fiat, which means they are created by decree. They are not backed by or attached to any physical asset. Also, the vast majority of dollars, euros, pounds, etc. are not physical. They exist only as digital money, a sort of ‘magic internet money’ that is circulated between banks and individuals. Whenever you take out a loan or overdraft from your bank, the bank simply creates some 1s and 0s in their ledger, and, et voilà, the money exists. What this really is, however, is not money, but debt, and the debt is no more real than 1s and 0s  you write in a notebook if someone borrows money from you, or owes you a favour.

Bitcoin, in contrast, has real substance. It is a real and immutable network that is distributed across the planet. Because it is not located in any one place, it is censorship resistant. Because it consists of thousands of nodes, all recording an ever-growing blockchain, and because it takes real energy and time to generate new Bitcoins, which are released after every block is computed, Bitcoin has intrinsic value. The blockchain has value in and of itself, so Bitcoin has real-world value. Furthermore, because it has entered the social consciousness, and now has perceived value, rather like gold, Bitcoin’s value is as real and substantive as the value of any other real-world asset such as gold, silver, land or crude oil.

Supply and demand, adapted from Truett and Truett (1982)

But the best and most satisfying part of the story is this: Bitcoin is a limited asset. There will only ever be 21 million Bitcoins. Thus, like gold, there is scarcity. And the economic principle of supply and demand determines that what is limited in supply and much in demand will have an increasingly high value. As Bitcoin continues to be adopted over time, its price will inevitably go up over time. The increasing value of Bitcoin is certain, as long the network continues to grow and its adoption increases. Thus, if Bitcoin is still around 5 or 10 years from now, which I believe it will be, then it will be much, much more valuable than it is today. And the path to 1 million dollars is not a matter of if, but only of when. Again, I’m not saying this as financial advice, but just to burst the bubble of the myth of government-currencies having real value. Due to inflation, the value of fiat currencies will always go down, but the value of Bitcoin will tend to go up.

From Mastering Bitcoin by Andreas Antonopoulos, Ch. 8

Are there risks with Bitcoin? Yes, of course. There is huge speculation and some market manipulation. Can it be hacked? No. Can your private key be hacked? Yes. Your private key represents your ownership of Bitcoin. If you hold your private key on an exchange, it can and might be hacked at some point. But Bitcoin itself, being this distributed ledger spread across the planet, cannot be destroyed, hacked or lost. Only your private key can be lost or stolen. Bitcoin lets you be your own bank and, as such, you are responsible for the security of your Bitcoins. Can you afford Bitcoin? Yes. Bitcoin may be over $10,000, but each Bitcoin is divided into 100 million parts, called satoshis. If you want to buy Bitcoins directly, you can do so on Coinbase,, Kraken, Binance and other exchanges. I have provided some links below to help you. Some of these are affiliate links. 

In conclusion, Bitcoin is a revolutionary, censorship-resistant, immutable, scarce and highly valuable cryptocurrency that has intrinsic value, has consistently gone up in value over time and allows you to have full financial control over your own money. It is real, sound money that has actual value and substance, whereas fiat currencies, such as dollars, euros and pounds, have no real value and consistently go down in value over time, due to inflation. The government manipulates its own currencies while reducing your purchasing power. Bitcoin is decentralized and neutral. It causes no harm to you while maintaining the integrity of your wealth. It allow you to be your own bank. It is digital gold and a savings account for the future. Bitcoin is, in short, what we have all been waiting for for a long time: real money.

If you like this video, make sure to click like and subscribe. If you want to read more about Bitcoin, make sure to click on my introductory article, What is Bitcoin?, as well as my short e-book, Bitcoin: 10 Ways to Make Money Using Bitcoin, which I have linked to in the description below. Also, make sure to follow me on Twitter @Nicholas19. And, as always, keep learning and keep earning.

External Links:
NJ Bridgewater (2017) What is Bitcoin?, 7 December 2017. URL: (accessed 07/03/2017) (accessed 07/03/2017)
L.S. (2015) How Bitcoin mining works, The Economist, Jan. 20, 2015. URL: (accessed 07/03/2018)
Joseph Young (2015) Nick Szabo: Block Size Increase a ‘Huge Security Risk’, 17/08/2015. URL: (accessed 07/03/2018)
Nick Szabo (2002) Shelling Out: The Origins of Money, Satoshi Nakamoto Institute. URL: (accessed 10/03/2018)
NJ Bridgewater (2017) Bitcoin: 10 Ways to Make Money Using Bitcoin (Amazon Kindle Publishing, e-book). URL: Also: (accessed 07/03/2018)

Links to buy Bitcoin:

[1] URL: (accessed 07/03/2018).