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.
Transcript:
-->
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 Bitcoin.org.
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, CEX.io, 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: http://nicholasjames19.blogspot.com/2017/12/what-is-bitcoin.html
(accessed 07/03/2017)
https://bitcoin.org/en/download (accessed 07/03/2017)
L.S. (2015) How Bitcoin mining works, The Economist, Jan. 20,
2015. URL: https://www.economist.com/blogs/economist-explains/2015/01/economist-explains-11
(accessed 07/03/2018)
Joseph Young (2015) Nick Szabo: Block Size Increase a ‘Huge Security Risk’, 17/08/2015. URL: https://cointelegraph.com/news/nick-szabo-block-size-increase-a-huge-security-risk
Nick Szabo (2002) Shelling Out: The Origins of Money, Satoshi
Nakamoto Institute. URL: http://nakamotoinstitute.org/shelling-out/
(accessed 10/03/2018)
NJ Bridgewater (2017) Bitcoin: 10 Ways to Make Money Using Bitcoin (Amazon Kindle
Publishing, e-book). URL: https://www.amazon.com/Bitcoin-Money-Business-Mastery-Secrets-ebook/dp/B077M1WJR2/
Also: https://bizmasterysecrets.com/bitcoininformationguide (accessed
07/03/2018)
Links to buy
Bitcoin:
[1] URL: https://cointelegraph.com/news/nick-szabo-block-size-increase-a-huge-security-risk
(accessed 07/03/2018).
No comments:
Post a Comment