Bitcoin Explained Simply for Dummies by: 99Bitcoins

Summary

In this Bitcoin primer by 99 Bitcoins, Nate Martin explains the concept of money evolution from physical forms to fiat currency, highlighting the drawbacks of centralized control and inflation. He introduces Bitcoin as a decentralized digital currency that solves the double-spend problem without a central authority. Bitcoin offers control over personal funds, reduced transaction costs, and smart contract capabilities, democratizing financial access for the unbanked. The video promises an in-depth exploration of Bitcoin's workings, including mining, wallets, and transactions.

Takeaways

• 😀 Bitcoin is a decentralized digital currency that operates without a central authority.
• 💼 Money, at its core, represents value and has historically taken many forms, from commodities like gold to paper currency.
• 📜 The transition from physical to paper money was driven by convenience and practicality, but eventually led to fiat money, which is backed by government decree rather than a physical commodity.
• 🏦 Fiat money is centralized and can be subject to issues such as corruption, mismanagement, and control by the government or central bank.
• 📈 Fiat money's main drawback is the potential for inflation due to the unlimited ability of central authorities to print more currency.
• 💡 The advent of digital money raised the 'double spend' problem, which traditional banks solve through centralized ledgers.
• 🔒 Bitcoin introduced a solution to the double spend problem without a central authority, using a transparent and decentralized ledger known as the blockchain.
• 🌐 Bitcoin's ledger is transparent and accessible to anyone, with transactions and balances visible but the identities of the parties involved remaining pseudo-anonymous.
• 🚀 Bitcoin offers advantages over traditional systems, including full control over one's money, reduced need for intermediaries, and the potential for smart contracts.
• 🌍 Bitcoin opens up financial inclusion for the unbanked and underbanked populations by leveraging mobile technology and eliminating the need for traditional banking access.
• 🛍️ Bitcoin is increasingly accepted by merchants, both online and offline, and can be used for a variety of purchases, including flights and hotels, and through debit cards.

Q & A

What is the primary purpose of the 'Bitcoin Whiteboard Tuesday' video series?

The primary purpose of the 'Bitcoin Whiteboard Tuesday' video series is to cover a variety of topics related to Bitcoin, such as mining, wallets, trading, and more, in a way that is accessible to people without a technical background.

What does the term 'Bitcoin' represent at its core?

At its core, 'Bitcoin' represents a digital currency that is decentralized and does not rely on a central authority, aiming to solve the double-spending problem without the need for a central ledger.

What is the fundamental concept of money according to the script?

The fundamental concept of money is that it represents value and is used as a medium of exchange for goods and services. It has taken various forms throughout history, including commodities like salt, wheat, shells, and gold.

Why did the trust model for money shift from trusting 'something' to trusting 'someone'?

The trust model shifted because carrying physical forms of money like gold became cumbersome, leading to the invention of paper money. Over time, the link between paper money and physical commodities was broken, and trust was placed in the government or central bank to maintain the value of the currency.

What are the two main drawbacks of fiat money as mentioned in the script?

The two main drawbacks of fiat money are that it is centralized, with a central authority controlling and issuing it, and it is not limited by quantity, allowing the government or central bank to print as much as they want, potentially leading to inflation.

What is the 'double spend problem' in the context of digital money?

The 'double spend problem' refers to the issue where a digital token representing money could be copied multiple times, effectively allowing someone to spend the same digital currency more than once, which undermines the value of the currency.

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

Bitcoin addresses the double spend problem through a decentralized ledger known as the blockchain, which is maintained and updated by a network of computers, making it extremely difficult to alter transactions without detection.

What is the significance of Bitcoin being 'pseudo anonymous'?

The significance of Bitcoin being 'pseudo anonymous' is that while all transactions and balances are transparent and trackable on the blockchain, the identities of the individuals behind each transaction remain unknown, providing a level of privacy.

What are some of the advantages of Bitcoin over traditional fiat currencies?

Some advantages of Bitcoin include giving users complete control over their money without the risk of accounts being frozen or funds confiscated, reducing the need for middlemen in transactions, enabling the creation of smart contracts, and providing access to digital commerce for unbanked populations.

How does the script describe the historical transition from physical to digital forms of money?

The script describes the transition from physical to digital forms of money as a progression from using commodities like gold to paper money for convenience, then to digital representations of money managed by central authorities, and finally to decentralized digital currencies like Bitcoin.

What is the potential impact of Bitcoin on the global financial system as suggested by the script?

The potential impact of Bitcoin on the global financial system, as suggested by the script, is that it offers a decentralized alternative to traditional money, which could disrupt the control exerted by governments and banks, and provide greater financial inclusion and autonomy to individuals worldwide.

Outlines

00:00

😀 Introduction to Bitcoin and Money Basics

This paragraph introduces the video series 'Bitcoin Whiteboard Tuesday' hosted by Nate Martin from 99 Bitcoins. It aims to explain Bitcoin in simple terms, ensuring even those without a technical background can understand. The paragraph begins by defining money and its evolution from various physical forms to the concept of fiat money, which is backed by government decree rather than a physical commodity. It discusses the drawbacks of fiat money, such as centralization and the potential for inflation due to the uncontrolled printing of currency. The transition from physical to digital forms of money is also highlighted, along with the problem of 'double spending' in digital currencies and how banks currently use a centralized ledger system to prevent it.

05:03

😨 The Risks of Centralized Financial Systems

This paragraph delves into the issues associated with centralized financial systems, such as corruption, mismanagement, and control. It provides examples of how power can corrupt, as seen in the Wells Fargo scandal, and how mismanagement can lead to economic crises, referencing the 2008 financial crash. The paragraph also touches on the control aspect, where governments or banks can freeze accounts or devalue currencies, as happened in India with the demonetization of certain banknotes. It sets the stage for the introduction of Bitcoin as a decentralized alternative to traditional fiat currencies.

10:03

🚀 The Emergence of Bitcoin as a Decentralized Currency

This paragraph marks the introduction of Bitcoin, a decentralized digital currency proposed by the mysterious figure, Satoshi Nakamoto, in 2008. It explains how Bitcoin addresses the double spend problem without a central authority, unlike traditional banks that use centralized ledgers. Bitcoin is described as a transparent and pseudo-anonymous ledger, where transactions are open and trackable without revealing the identities of the parties involved. The paragraph also emphasizes the advantages of Bitcoin, such as full control over one's money, reduced need for intermediaries, the potential for smart contracts, and its accessibility to the unbanked population. It concludes by highlighting the ongoing revolution in the concept of money and invites viewers to learn more about Bitcoin in the subsequent video series.

Keywords

💡Bitcoin

Bitcoin is a decentralized digital currency that operates without a central authority or bank. It was introduced in 2009 by an entity known as Satoshi Nakamoto. The video discusses Bitcoin as a revolutionary alternative to traditional fiat currencies, highlighting its ability to solve the double-spending problem without the need for central oversight. An example from the script is the first purchase made with Bitcoin, where 10,000 bitcoins were used to buy two pizzas.

💡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 it will be accepted for future payment of goods and services. The script explains that fiat money's value comes from government decree, making it 'legal tender.' It contrasts with Bitcoin, which is not issued by any government and is instead controlled by a decentralized network.

💡Decentralization

Decentralization, in the context of the video, refers to the distribution of authority and control across a network, rather than being centralized in a single entity such as a government or bank. Bitcoin exemplifies this concept by having a transparent ledger, known as the blockchain, which is maintained by multiple participants, ensuring no single point of failure or control.

💡Double Spend Problem

The double spend problem is a potential issue with digital currencies where the same digital token could be spent more than once. The script explains that traditional banks solve this with centralized ledgers, whereas Bitcoin solves it through a decentralized consensus mechanism involving its network of computers.

💡Blockchain

The blockchain is the technology underlying Bitcoin, which is essentially a public ledger that records all transactions across a distributed network. The script mentions the blockchain as the means by which Bitcoin maintains its decentralized ledger, with each computer in the network holding a copy of the ledger to ensure transparency and security.

💡Pseudo Anonymity

Pseudo anonymity in the script refers to the nature of Bitcoin transactions, where all transactions are transparent and recorded on the blockchain, but the identities of the individuals involved are not directly revealed. This allows for a level of privacy while still maintaining the integrity of the transaction record.

💡Inflation

Inflation is the decrease in the purchasing power of money, often caused by an increase in the supply of money. The script discusses how governments can print more money, leading to inflation, which erodes the value of citizens' money. Bitcoin, with its capped supply, is presented as a hedge against such inflationary practices.

💡Legal Tender

Legal tender is money that is recognized by the government as a valid form of payment for debts and is accepted by law. The script explains that fiat currencies are considered legal tender by decree, and this status is what gives them value and acceptance in transactions.

💡Unbanked/Underbanked

The terms 'unbanked' and 'underbanked' refer to individuals or communities that lack access to traditional banking and financial services. The script highlights how Bitcoin can provide financial inclusion to these populations by enabling them to participate in digital commerce through mobile phones, without the need for traditional banking infrastructure.

💡Smart Contracts

Smart contracts are self-executing contracts with the terms of the agreement directly written into code. While not explicitly detailed in the script, the mention of Bitcoin being 'designed to be digital by nature' alludes to the potential for programmability, which includes the use of smart contracts to facilitate, verify, and enforce the negotiation or performance of a contract.

💡Satoshi Nakamoto

Satoshi Nakamoto is the pseudonym used by the unknown person or group of people who created Bitcoin and authored the white paper that outlined its underlying technology. The script refers to the publication of this white paper in 2008 as a pivotal moment in the creation of an alternative to the current monetary system.

Highlights

Introduction to the Bitcoin series by Nate Martin, aiming to explain Bitcoin in plain English.

Definition of money and its evolution from physical forms to fiat currency.

The shift from trusting a 'thing' to trusting a 'person' or authority in the context of money.

Explanation of the transition from gold-backed paper money to fiat currency based on government decree.

The drawbacks of fiat money, including centralization and the potential for inflation due to uncontrolled printing.

The advent of digital money and the challenge of the double spend problem.

How banks use centralized ledgers to prevent double spending in digital transactions.

The issues arising from centralized control over money, such as corruption, mismanagement, and control.

The introduction of Bitcoin as a decentralized digital currency proposed by Satoshi Nakamoto.

Bitcoin's transparent and decentralized ledger system, contrasting with traditional bank ledgers.

The concept of pseudo-anonymity in Bitcoin transactions, ensuring transparency without revealing identities.

The significance of Bitcoin as a form of money not controlled by any government or bank.

Advantages of Bitcoin, including full control over funds, reduced middlemen, and potential for smart contracts.

Bitcoin's potential to enable financial inclusion for the unbanked population through digital means.

The current state of Bitcoin acceptance by merchants and the availability of Bitcoin debit cards.

The ongoing journey of Bitcoin towards wider public acceptance and understanding.

Invitation for viewers to engage with the series, ask questions, and subscribe for updates.

Transcripts

welcome to 99 bitcoins calm

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

search 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 99

bitcoins 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 have 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 trust it in some thing to

represent money however something

happened along the way and we've changed

our trust model from trusting some thing

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 a thousand dollars and in return

that bank would give you receipts

certificates which we call bills

amounting to a thousand dollars

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 a thousand dollars in bills

back to the bank to redeem them for the

actual form of money in this case that

gold bar whenever you need it 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

goal that stands for was broken now to

explain the path that led us away from

the gold standards is extremely complex

but suffice to say that government's

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's known as legal tender coins or

banknotes that must be accepted if

offered is 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 some thing to trusting someone

in this case the government fiat money

has two main drawbacks one 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 other forms of

digital money the amount of physical

money in the world is almost negligible

and it's getting smaller with each year

that passes so with 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 it

tally for each account we all trust the

bank and the bank trust 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 more

successful in solving the double spend

problem without a central authority

whenever you give 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 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

centralized system is mismanagement

if the central authorities 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 citizens money

one extreme example for this is Venice

Wailer 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're 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

of 2008 a document was published online

by a guy calling himself Satoshi

Nakamoto the document also called a

white paper suggested a way of creating

a system for a decentralized currency

called Bitcoin this system claimed to

create digital money that solves the

double spam 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's 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's

sending what to whom let's explain this

with an example you can see on your

screen certain rows from bitcoins 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 2p

by a guy named Laszlo Laszlo published a

post back in 2010 asking for someone to

sell him two 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 a 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 two and a half

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 live

and the reality that they've 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 it 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 499 bitcoins calm I'm Nate

Martin and I'll see you in a bit