What is Bitcoin? Bitcoin Explained Simply

Summary

In this informative video series by 99Bitcoins.com, Nate Martin guides viewers through the fundamentals of Bitcoin, starting with the question 'What is Bitcoin?' The video simplifies complex concepts, making them accessible to a non-technical audience. It begins by exploring the nature of money, its evolution from physical commodities to fiat currency, and the drawbacks of the current centralized financial system, including issues like corruption, mismanagement, and loss of control over personal finances. The introduction of Bitcoin as a decentralized digital currency is presented as a revolutionary alternative, addressing the double spend problem without a central authority. Bitcoin's transparency, pseudo-anonymity, and decentralized nature are highlighted, along with its advantages such as full control over one's money, reduced transaction costs, and the potential to empower unbanked populations. The video concludes by inviting viewers to join the ongoing exploration of Bitcoin's operation, its potential, and its impact on the future of money.

Takeaways

• 💡 Bitcoin is a digital currency that represents value without the need for a physical form.
• 🔑 Traditional money evolved from physical commodities to paper money, which is a receipt for gold that later became decoupled from the gold standard.
• 🏦 Fiat money, like the US dollar or Euro, is backed by government decree rather than a physical commodity, and its value is maintained through trust in the government.
• 📈 Fiat money's centralization allows for potential mismanagement, such as excessive money printing leading to inflation.
• 💻 The shift to digital money was a natural progression from fiat money, relying on central authorities to maintain digital ledgers and prevent issues like double spending.
• 🚫 Centralized control over money supply can lead to corruption, mismanagement, and a lack of individual control over one's own funds.
• ⛓️ Bitcoin introduced a decentralized financial system, removing the need for a central authority to manage the ledger, thus addressing the double spend problem.
• 🌐 Bitcoin's ledger, known as the blockchain, is transparent and accessible to anyone, allowing full transparency of transactions while maintaining pseudonymity.
• 🚀 Bitcoin provides individuals with full control over their funds, free from the potential for government or bank interference.
• 💰 By reducing middlemen, Bitcoin can offer a cheaper alternative to traditional banking and money transfer services.
• 🌍 Bitcoin opens up financial opportunities to the unbanked and underbanked populations, providing a way to participate in digital commerce without the need for a traditional bank account.

Q & A

What is the third most searched term on Google today according to the video?

The third most searched term on Google today, as mentioned in the video, is 'what is Bitcoin?'

How does the video assure viewers that the content will be understandable even without a technical background?

The video assures viewers that it will translate Bitcoin into plain English, making it accessible to everyone, regardless of their technical background.

What does the video claim about the knowledge viewers will gain by the end of the course?

The video claims that by the end of the course, viewers will know more about Bitcoin and how it works than 99% of the population.

What is the core concept of money according to the video?

The core concept of money, as described in the video, is that it represents value and is used as a medium of exchange.

How did the trust model for money change over time as explained in the video?

The trust model for money changed from trusting in something physical, like gold, to trusting in someone, such as a government or central bank, which issues fiat money.

What is the main issue with fiat money that the video discusses?

The main issue with fiat money discussed in the video is that it is centralized and not limited by quantity, which can lead to inflation and a decrease in the value of money.

What is the 'double spend problem' mentioned in the video?

The 'double spend problem' refers to the potential issue in digital currency where a digital token could be copied and spent multiple times, thus negating the value of the currency.

How does Bitcoin solve the double spend problem without a central authority?

Bitcoin solves the double spend problem through a decentralized ledger known as the Blockchain, which is maintained and updated by a network of computers, making it secure and transparent.

What is the term used to describe the state of being both transparent and anonymous in Bitcoin transactions?

The term used to describe this state is 'pseudo-anonymous,' where all transactions are open, transparent, and trackable, but the identities of the parties involved are not revealed.

How does Bitcoin provide more control over one's money compared to traditional banking systems?

Bitcoin provides more control over one's money because it operates on a decentralized network, meaning that no government or bank can freeze accounts or confiscate holdings.

What advantages does Bitcoin offer over traditional banking and payment systems?

Bitcoin offers advantages such as complete control over one's funds, reduced need for middlemen which can lower transaction costs, the potential for 'smart money' through additional programming layers, and access to financial services for the unbanked or underbanked populations.

What is the significance of the first Bitcoin transaction mentioned in the video?

The first Bitcoin transaction mentioned in the video is significant because it was the first real-world purchase made with Bitcoin, where 10,000 Bitcoins were used to buy two pizzas, a transaction that would be worth over 100 million dollars at later Bitcoin valuations.

Outlines

00:00

🤔 Introduction to Bitcoin and Its Basics

The video introduces the concept of Bitcoin with Nate Martin as the guide. It aims to explain Bitcoin in simple terms, suitable for anyone without a technical background. The video begins by questioning what money is and how it has evolved over time, from physical commodities like gold to paper money and eventually to digital currencies. It discusses the shift from trusting a physical 'something' to trusting an entity, like a government, which leads to the creation of fiat money. The video also touches on the drawbacks of fiat money, such as centralization and the potential for inflation due to the ability to print more money. Finally, it raises the 'double spend problem' associated with digital currencies and sets the stage for the introduction of Bitcoin as a solution.

05:01

💡 The Problem with Centralized Digital Currencies

This paragraph delves into the issues associated with centralized digital currencies, particularly those managed by banks. It explains how banks use a ledger to keep track of transactions and balances, which is a centralized solution to the double spend problem. The video highlights three major problems with this system: corruption, mismanagement, and control. It uses examples such as Wells Fargo's scandal and the economic crisis in Venezuela to illustrate these issues. The paragraph also discusses the limitations of traditional banking systems and how they can restrict access to financial services for many people around the world. It concludes with the introduction of Bitcoin as a decentralized alternative to traditional monetary systems, proposed by Satoshi Nakamoto in 2008.

10:01

🚀 Bitcoin as a Decentralized and Transparent Currency

The final paragraph of the script outlines the revolutionary aspects of Bitcoin as a decentralized form of digital money. It contrasts Bitcoin's transparent and pseudo-anonymous ledger, known as the Blockchain, with the private ledgers of banks. The video emphasizes that Bitcoin offers a level of control over one's money that is not possible with traditional currencies, as no central authority can freeze or confiscate Bitcoin holdings. It also mentions the cost-effectiveness of Bitcoin transactions compared to traditional methods and the potential for 'smart money' applications. The paragraph highlights Bitcoin's ability to provide financial access to the unbanked and underbanked populations through digital means. The video concludes by inviting viewers to learn more about Bitcoin in subsequent episodes, covering topics like mining, wallets, and purchasing Bitcoin.

Keywords

💡Bitcoin

Bitcoin is a decentralized digital currency that operates without a central authority or government backing. It was created in 2009 by an individual or group of individuals using the pseudonym Satoshi Nakamoto. The video emphasizes Bitcoin as an alternative to traditional fiat currencies, highlighting its lack of central control and its potential to empower individuals by giving them full control over their money.

💡Fiat Money

Fiat money is a type of currency that is not backed by a physical commodity, such as gold, but rather by the trust that people have in the government that issued it. The term 'fiat' comes from the Latin word for 'let it be done'. In the video, it is discussed in contrast to Bitcoin, emphasizing the trust in a central authority versus the trust in a decentralized network.

💡Double Spend Problem

The double spend problem refers to the potential for digital money to be spent twice, which is a challenge for digital currencies because digital information can be copied. The video explains that traditional banks solve this with centralized ledgers, while Bitcoin solves it through a decentralized consensus mechanism without the need for a central authority.

💡Blockchain

The blockchain is the technology that underpins Bitcoin, serving as a public ledger that records all transactions across a distributed network of computers. Each computer, or node, in the Bitcoin network maintains a copy of the blockchain, ensuring transparency and security. The video uses the term to illustrate how Bitcoin's decentralized nature prevents a single point of failure or control.

💡Pseudo-anonymous

Pseudo-anonymous refers to the nature of Bitcoin transactions, where all transactions are recorded on the blockchain for anyone to see, but the identities of the parties involved are not directly revealed. This concept is important in the video as it explains the privacy aspect of Bitcoin, where transactions are transparent but the individuals involved remain anonymous.

💡Decentralization

Decentralization is a key feature of Bitcoin and means that no single entity has control over the currency. Instead, the network is maintained collectively by a decentralized network of computers. The video emphasizes the shift from centralized control by banks and governments to a decentralized model as a significant innovation that Bitcoin introduces to the monetary system.

💡Smart Contracts

Smart contracts are self-executing contracts with the terms of the agreement directly written into code. They are a feature that can be built on top of the Bitcoin blockchain, allowing for more complex financial transactions without intermediaries. While not explicitly detailed in the script, the concept is alluded to when discussing the potential for Bitcoin to become 'smart money'.

💡Unbanked and Underbanked

The unbanked and underbanked are terms referring to people who do not have access to traditional banking services due to various reasons, such as living in areas without banks or not having enough income to maintain an account. The video highlights how Bitcoin can provide financial services to these populations, as all they need is a mobile phone to participate in the Bitcoin network.

💡Inflation

Inflation is the economic term for the decrease in the purchasing power of money over time, often caused by an increase in the supply of money. The video discusses how governments can cause inflation by printing more money, which erodes the value of citizens' money. Bitcoin, with its capped supply, is presented as a potential hedge against inflation.

💡Legal Tender

Legal tender is money that is recognized by the law and must be accepted for the settlement of debts. The video contrasts legal tender with Bitcoin, which is not backed by any government and does not have legal tender status in most jurisdictions. This distinction is important as it highlights the voluntary nature of Bitcoin's acceptance versus the compulsory acceptance of fiat currencies.

💡Bitcoin Mining

Bitcoin mining is the process of contributing computing power to verify and record transactions on the blockchain. Miners are rewarded with newly created bitcoins and transaction fees. The video mentions Bitcoin mining as a topic to be covered in more detail in subsequent videos, indicating its importance to the Bitcoin network's security and operation.

Highlights

Bitcoin is a decentralized digital currency that solves the double spend problem without the need for a central authority.

The value of money is based on trust, which has historically been placed in tangible assets like gold, but now is often placed in the trustworthiness of a government or institution.

Fiat money, such as the US dollar or the Euro, is backed by government decree rather than a physical commodity, making it subject to central control and potential inflation.

The shift to digital money was a natural progression from fiat money, allowing for greater convenience and less reliance on physical currency.

Centralized systems, like banks, prevent the 'double spend problem' by maintaining a ledger of transactions, but this requires trust in a single authority.

Bitcoin's transparency allows anyone to view transactions and balances on its ledger, known as the Blockchain, without revealing the identities of the parties involved.

Pseudo-anonymity in Bitcoin transactions ensures that all data is open and trackable while maintaining the privacy of users.

The decentralized nature of Bitcoin means that no single entity controls the currency, distributing power across a network of computers.

Bitcoin transactions are digital and do not require physical coins, representing ownership of a specific address record on the Blockchain.

Bitcoin offers an alternative to traditional banking and financial systems, providing control, reduced costs, and accessibility to the unbanked population.

The advent of Bitcoin has the potential to revolutionize the monetary system, much like the Internet did for the flow of information.

Bitcoin can be programmed with additional layers, making it possible to create 'smart money' with advanced functionalities.

Despite its advantages, widespread public acceptance of Bitcoin is still a work in progress, with ongoing education and infrastructure development required.

Bitcoin's creation in 2009 by Satoshi Nakamoto introduced a new monetary paradigm that challenges the status quo of centralized financial power.

The Bitcoin Whiteboard Tuesday series aims to demystify Bitcoin for a broad audience, explaining complex concepts in plain English.

By the end of the video series, viewers will understand Bitcoin more deeply than 99% of the population, despite their technical background.

The Bitcoin system is designed to be inherently digital, which differentiates it from traditional money and allows for unique capabilities and global accessibility.

Transcripts

Welcome to 99Bitcoins.com.

I'm Nate Martin and I'll be your guide through this video series

Bitcoin Whiteboard Tuesday.

We're going to cover a lot of topics such as

Bitcoin mining, Bitcoin wallets, how to trade Bitcoin and a lot more.

Today we're going to start from scratch

and answer the third most searched term on Google today, what is Bitcoin?

If you’re worried that we’re going to get too technical

and use a lot of complicated words, don’t.

Here at 99Bitcoins we translate Bitcoin into plain English

so even if you have no technical background

you’ll be able to understand everything.

By the end of this course,

you’ll know more about Bitcoin and how it works

than 99% of the population.

So let’s get started…

Before we talk about Bitcoin

I want to take a moment and talk about money.

What is money exactly?

At its core, money represents value.

If I do some work for you,

you give me money in exchange for the value I gave you.

I can then use that money to get something of value

from someone else in the future.

Throughout history, value has taken many forms

and people used a lot of different materials to represent money.

Salt, wheat, shells and of course gold

have all been used as a medium of exchange.

However, in order for something to represent value

people have to trust that it is indeed valuable

and will stay valuable long enough for them to

redeem that value in the future.

Up until a hundred years ago or so

we always trusted in someTHING to represent money.

However something happened along the way

and we’ve changed our trust model

from trusting someTHING to trusting in someONE.

Let me explain.

Over time, people found it too cumbersome

to walk around the world carrying bars of gold

or other forms of money, so paper money was invented.

Here’s how it worked:

a bank or government would offer to take possession of your bar of gold;

let’s say worth $1000,

and in return, that bank would give you receipt certificates,

which we call bills, amounting to $1000.

Not only were these pieces of paper much easier to carry,

but you could spend a dollar on a cup of coffee

and not have to cut your gold bar into a thousand pieces.

And if you wanted your gold back,

you simply took $1000 in bills back to the bank

to redeem them for the actual form of money,

in this case that gold bar, whenever you needed…

And so, paper began its use as money

as an instrument of practicality and convenience.

However as time progressed, and due to macroeconomic changes,

this bond between the paper receipt and the gold it stands for was broken.

Now, to explain the path that led us away from the gold standard

is extremely complex, but suffice to say that

governments told their people that

the government itself would be liable for the value of that paper money.

Basically we all said

“let’s just forget about gold and trade paper instead”.

So people continued to

trade with receipts that are backed by nothing but the government’s promise.

And why did that continue to work?

Well, because of trust.

Even though there is no actual commodity backing paper money,

people trusted the government and that’s how fiat money was created.

Fiat is a Latin word that means “by decree”.

Meaning the dollars, or euros or any other currency for that matter

have value because the government orders it to.

It’s what is known as “legal tender” -

coins or banknotes that must be accepted

if offered as payment.

So the value of today’s money

actually comes from a legal status given to it by a central authority,

in this case, the government.

And so the trust model has changed,

from trusting someTHING to trusting someONE,

in this case, the government.

Fiat money has two main drawbacks:

1. It is centralized:

You have a central authority that controls and issues it.

In this case the government or central bank.

And two, it is not limited by quantity:

The government or central bank can print as much as they want

whenever needed and inflate the money supply on the market.

The problem with printing money is that

because you’re flooding the market with more money

the value of each dollar drops, so your own money is worth less.

When you see prices rising throughout the years

it’s not necessarily that prices are rising as much as that

the purchasing power of your money is dropping.

You need more dollars to buy something that used to “cost less”.

Once fiat money was in place,

the move to digital money was pretty simple.

We already have a central authority that issues money,

so why not make money mostly digital

and let that authority keep track of who owns what.

Today we mainly use credit cards, wire transfers, Paypal

and others forms of digital money.

The amount of physical money in the world is almost negligible

and is getting smaller with each year that passes.

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.

You may not know this,

but there were many attempts to create alternative forms of digital currencies,

however none were successful in solving the double spend problem

without a central authority.

Whenever you give a anyone control over the money supply

you’re giving them enormous power and this creates three major issues:

The first issue is corruption;

power corrupts, and absolute power corrupts absolutely.

When banks have a mandate to create money, or value,

they basically control the flow of value in the world,

which gives them almost unlimited power.

A small example of how power corrupts

can be seen in the Wells Fargo’s scandal

where employees secretly created

millions of unauthorized bank and credit card accounts

in order to inflate the bank’s revenue stream,

without their customers knowing about it for years.

The second issue of a centralised system is mismanagement.

If the central authority’s interest isn’t aligned with the people it controls

there may be a case of mismanagement of the money.

For example, printing a lot of money

in order to save a certain bank or institution from collapsing,

as what happened in 2008.

The problem with printing too much money is that

it causes inflation and basically erodes the value of the citizen’s money.

One extreme example for this is Venezuela,

where the government has printed so much money,

and the value of it has dropped so much,

that people are no longer counting money but are weighing it instead.

The last issue is control.

You are basically giving away all control of your money

to the government or bank.

At any point in time

the government can decide to freeze your account

and deny you access to your funds.

Even if you use only cold hard cash

the government can cancel the legal status of your currency

as was done in India a few years back.

This was the state of things until 2009.

Creating an alternative to the current monetary system

seemed like a lost cause.

But then everything changed….

In October 2008

a document was published online by a guy calling himself Satoshi Nakamoto.

The document, also called a whitepaper,

suggested a way of creating a system

for a decentralised currency called Bitcoin.

This system claimed to create digital money that solves

the double spend problem without the need for a central authority.

At its core Bitcoin is a transparent ledger without a central authority,

but what does this confusing phrase even really mean?

Well, let’s compare Bitcoin to the bank.

Since most money today is already digital,

the bank basically manages its own ledger of balances and transactions.

However the bank’s ledger is not transparent

and it is stored on the bank’s main computer.

You can’t sneak a peek into the bank’s ledger,

and only the bank has complete control over it.

Bitcoin on the other hand is a transparent ledger.

At any point in time I can sneak a peek into the ledger

and see all of the transactions and balances that are taking place.

The only thing you can’t figure out is

who owns these balances and who is behind each transaction.

This means Bitcoin is pseudo-anonymous;

everything is open, transparent and trackable

but you still can’t tell who is sending what to whom.

Let’s explain this with an example.

You can see on your screen certain rows from Bitcoin’s ledger.

We can see that a certain Bitcoin address

sent 10,000 Bitcoins to another Bitcoin address

in May of 2010.

This specific transaction is the first purchase

that was ever made with Bitcoin

and it was used to buy 2 pizzas by a guy named Laszlo.

Laszlo published a post back in 2010

asking for someone to sell him 2 pizzas in exchange for 10,000 Bitcoins.

Well, someone did, and now the price of these two Pizzas

is worth well over 100 million dollars today.

Bitcoin is also decentralized;

there’s no one computer that holds the ledger.

With Bitcoin, every computer that participates in the system

is also keeping a copy of the ledger, also known as the Blockchain.

So if you want to take down the system or hack the ledger

you’ll have to take down thousands of computers

which are keeping a copy and constantly updating it.

Like most money today, Bitcoin is also digital.

This means there’s nothing physical that you can touch in Bitcoin.

There are no actual coins,

there are only rows of transactions and balances.

When you “own” Bitcoin

it means that you own the right to access

a specific Bitcoin address record in the ledger

and send funds from it to a different address.

So what does all of this mean?

Why is Bitcoin such big news?

Well for the first time since digital money came into existence

we now have an alternative to the current system.

Bitcoin is a form of money that no government or bank can control.

Think about the time before the Internet,

how centralized the flow of information was.

Basically if you wanted information

you could get it from a few major players

like the New York Times, The Washington Post

and others like them.

Today, thanks to the Internet, information is decentralized

and you can communicate and consume knowledge

from around the world with the click of a button.

Bitcoin is the Internet of money

and it’s offering a decentralized solution to money.

Bitcoin has several advantages over the current system.

First, it gives you complete control over your money.

With Bitcoin, you and you alone can access your funds.

How you actually do this will be explained in a later video.

No government or bank can decide to freeze your account

or confiscate your holdings.

Bitcoin also cuts a lot of the middlemen from the process of transferring money.

This means that in many cases

Bitcoin is cheaper to use than traditional wire transfers or money orders.

Also, unlike fiat currencies,

Bitcoin was designed to be digital by nature,

this means you can add additional layers of programming on top of it

and turn it into “smart money”, but more on that in later videos.

Finally, Bitcoin opens up digital commerce to

2.5 billion people around the world

who don’t have access to the current banking system.

These people are unbanked or underbanked

because of where they leave and the reality that they have been born into.

However, today, with a mobile phone and a click of a button

they can start trading using Bitcoin, no permission needed.

Today there are several merchants online and offline that accept Bitcoin.

You can order a flight or book a hotel with Bitcoin if you like.

There are even Bitcoin debit cards

that allow you to pay at almost any store with your Bitcoin balance.

However the road toward acceptance by the majority of the public

is still a long one.

As we continue in this video series,

we will break down exactly how Bitcoin works and how to use it.

We will learn about Bitcoin mining, Bitcoin wallets, how to buy Bitcoins

and much more.

The revolution of money began in 2009

and these days we are seeing it change money as we know it.

You may still have some questions.

If so, just leave them in the comment section below.

And if you're watching this video on YouTube

and enjoy what you've seen,

don't forget to hit the like button.

Then, make sure to subscribe

for notifications about new episodes.

Thanks for joining me here at the Whiteboard.

For 99Bitcoins.com, I’m Nate Martin, and I’ll see you… in a bit.