Look closely. What do we all have in common? No matter what corner
of the world you live in, you need food, water, shelter, and money. Half of every transaction involves money
in exchange for goods or services, stocks, a loaf of bread,
and illegal drugs. You've got to pay for it. We spend much of our lives
chasing money to make a living and accomplish our dreams. However,
it's also an instrument of destruction. Some might say evil,
driving criminals to lie, steal, and even murder. The existing banking system
extracts enormous value from society, and it is parasitic in nature. Money is a catalyst for the worst
and the best of human endeavors. Before civilization, we created currency. Fuel for wars. The path to power. Champion and enemy of innovation. Money is so integral to our society
and our global economy that its true nature
remains a mystery to most. This is the story of money,
perhaps the end of money as we know it. No matter how fat your bank account
or how thin your wallet, to us, it's all cold hard cash.
There are some who want to kill it, get rid of it, burn your dollars,
your euros, your yen, and transform every penny
you have into ones and zeros. Digital currency entrusted to the Web
and computers spread across the planet. Magic Internet money. It's called cryptocurrency,
Bitcoin, invented in secret, it was a gift to the world. It's not just a currency,
but it's actually programmable money. A potential curse on bankers. There's nothing that the big banks
or politicians can do to stop it. Breaking every government's grip
on the money supply. What the Internet did for information,
Bitcoin is doing for money. Could it be the new gold? No, you have to stretch your imagination to infer what the intrinsic value
of Bitcoin is. Regulators,
the Federal Reserve, banking system, at least understand this is a thing
that they have to take seriously. This is going to change
the economic culture.
Bitcoin could be
a microeconomic miracle worker and it could be
a macroeconomic wrecking ball. Is Bitcoin the currency of the future,
a godsend for criminals, or a recipe for financial disaster? If you trust your money just as it is,
we have a little story to share. Once upon a time, there was a big party with everyone standing
around the punch bowl drunk. Politicians credited the strong economy
to their wise decisions. Businesses jumped into new,
profitable markets, ignoring risk. In fact,
the experts said there was no risk. Then, troubling market data
from miner countries spooked the markets. Rumors spread. More bad news rattled housing prices
at the heart of the financial world. A major bank went insolvent. Investors and businesses
made a run on the other banks demanding their cash deposits. The largest financial institutions
and the center of the modern world were frozen. Assets were seized, and banks foreclosed. A credit crunch threatened
the entire world economy. Then finally, the government stepped in. The largest bank bailout ever. Swift action by the head of state
had saved the day.
Remember that? No, you don't. It happened 2,000 years ago. Rome, 33 AD. Ground zero
for the first recorded liquidity crisis and government bailout in history. The largest empire
the world had ever seen, was brought to its knees
by a banking disaster. Emperor Tiberius used the money
from the National Treasury to bail out the country's
troubled banks and companies. History may not repeat itself,
but it certainly rhymes badly. People in power and their money
have always been at the very center of it.
The story of money
is as old as civilization itself. When we lived in small tribes,
keeping track of debt was easy. You owed somebody a load of firewood. A neighbor owed you a piece of meat. Credits and debits were kept in your head. A mental ledger. Currency is a language that allows us to express
the transactional value between people. It's technology
that's older than the wheel. It's as old as fire. When humans wanted to trade
outside their tribe or village, they needed something
everyone could agree had value. Something scalable. Enter commodity monies. There were many kinds
but each had to embody the same five characteristics. Commodity money is relatively scarce,
easily recognizable, can be cut into smaller pieces. You can substitute one piece
for another of equal value, and you can carry it around
without too much trouble. In ancient Rome, it was salt. The Aztecs used cacao beans. It was whale teeth in Fiji,
yak dung in Tibet, shells in Africa and China.
Grains, metal, ivory,
rare stones, leather, and fish. If it had the five characteristics
of commodity money, someone probably used it as currency. Then you ask,
what value do these currencies have? If you go to a primary school, you'll see children
exchanging rubber bands, Tamagotchi, Pokemon cards,
baseball cards, sweets, candy, and any other form of currency. People invent currency
when they have no other currency, and now they're going to invent
digital currencies. However, commodities that aren't durable
are a lousy store of value. A bad cacao crop
or a huge new salt discovery can throw your currency
and the economy into turmoil.
A more stable system was needed. About 2,500 years ago,
the first metal coins were minted in China and in what is now Turkey. These coins shared
the same five characteristics with commodity money,
but were also very durable. In some cases, coins are the only thing
left of entire civilizations. Money does not originate with governments. Money arises naturally
as markets begin to develop. As people with a division of labor
realize that if I have eggs and you have a cow,
we may need some medium of exchange in order for you to buy my eggs
or for me to buy your cow. Coins were an objective
and universal unit of account and they allowed people to buy
and sell goods over vast regions. The market economy was born. Coins worked, but only if people
trusted that the king or emperor who issued them
wasn't cheating on the metal content. Using coins also meant that an authority now controlled the supply
of your currency. Money and political power
were inextricably linked and centralized. Minting coins in a steady
and predictable manner allowed economic growth and stability.
The Wu Zhu coin in China
retained its value for 500 years. In Constantinople,
the Solidus lasted for 700 years. However, in those times,
the coins didn't have the milled edge. They were flat. What used to happen was,
as coins were passing from people to people,
they would cut little bits off. In fact, some of the taxation
that the Kings would do would actually
be to take one-eighth of the coin off. Taxes built castles
and financed military campaigns, and expensive hobbies. Soon, Royal Mints were substituting
cheaper metals for silver and gold. This is called debasement
and Europe's kings made a habit of it. The currency of France
was debased every 20 months for 200 years. If no one can trust the gold
or silver content of your coins, how can you trade with other countries? International merchants found a solution. They recognized
that one person's debt has value. It can be traded or transferred. When those IOUs
came from reputable sources, they could be used as a form of money,
paper money. This money was not based
on hard commodities or metal, but instead on someone's promise to pay.
Merchant families like the Medici
in the 15th century, Florence, acted as clearinghouses for these IOUs. It worked like this. An English trader
ordered a shipment of Italian cloth from the Medici for 100 gold coins. His promise to pay the Medici
was put on paper. Meanwhile, the Medici owed 100 gold coins
to another trading partner for delivery of wine from France. The parties didn't go to the expense
of transporting and exchanging gold coins.
Instead, the paper was transferred. Everyone agreed that the paper
had a value of 100 gold coins, but only because everyone
trusted the Medici. As solvent middlemen,
they had created a paper money machine. Within a few generations,
they rose from low crime to high finance. Their great wealth helped
fuel the Italian Renaissance and elevated the family
to levels of enormous political power. The power to marry into royal families
and get elected as popes. The ties binding money to power,
politics and influence, now ran through church and state. Merchants had proven that creating
paper currency could be wildly profitable. Goldsmiths wanted in on the action. Imagine it like this,
if the Goldsmith had seen over a period of time
that some of the coins he was storing for people
were gathering dust. The people who owned them
don't need them right now. What if I go
and lend them out to the community and I charge them interest on this loan? He starts lending
some of these gold coins, and then later he realizes actually people
don't even want the gold coins.
They just want the piece of paper
that says the gold coins are in the bank and with the goldsmith. I can now make a loan
with these pieces of paper and whatever I write on a paper
as long as people trust me, they'll trust the paper. Effectively the goldsmith
and the early-day bankers had literally acquired
the power to print money. More and more, private paper money
from merchants and banks circulated and began to rival
the Crown coins. The power inherent
in controlling and issuing money began slipping away from the rulers. They couldn't tax or debase
this new kind of money, but they had bigger ambitions
than ever with trading posts colonies, and empires that now stretched
across the globe. For centuries, European countries
would take turns building massive fleets and waging war
on each other to rule the world. The government
wanted to take these people's money in order to finance its wars.
That's essentially the history of money. Money and warfare go together. War is expensive. One year's income taxes
simply aren't enough. Kings and queens
had to borrow money against future taxes. They needed a groundbreaking
financial innovation, Government bonds. The loans came from rich merchant families
and goldsmiths, who by now had become
powerful financiers and bankers. Sovereign debt
and deficit spending had been born. In 1694,
the Bank of England was established to fund a war against France. England's central bank was privately owned
and granted the monopoly to issue banknotes, paper that could be redeemed
for an equal amount of gold from the government coffers. The central bank soon also managed
the entire debt of the Crown. Money has been a tool
of sovereignty for centuries. Being able to issue currency
gave you the power, but it also gave the value
to that monetary supply by backing it with a force of the state,
essentially the debt of the state.
When the US won independence from Britain,
the first article of the new constitution gave Congress
the exclusive right to coin money. This currency's value
was tied to gold in government vaults from 1781 until the panic of 1907. The financial system of the US
was an economic petri dish. Brief central banks,
State banks, private banks, private currency,
government currency, depressions, strong growth, recessions,
regular boom and bust cycles. In the long term
as far as capital is concerned, people want predictability. People want stability. From the back of that, they can plan. It's very hard to plan in the long term
with such a level of volatility. In 1913, bankers and politicians decided
that it was in the country's best interest and theirs
to have a permanent central bank.
They created the Federal Reserve. Among its jobs,
expand or contract the supply of a single national currency,
the Federal Reserve Note. The dollar was tied to gold, and strategic control of it
would avoid booms that lead to busts. At least that was the plan. Then came 1929. The Great Depression
would have a profound effect on monetary policy worldwide. I shall ask the Congress
for the one remaining instrument to meet the President's
broad executive power. Soon, the Fed had printed
nearly all the money it legally could to pump life back into the economy. It needed gold to fire up the mint. In 1933, President Roosevelt
issued a controversial executive order forcing all US citizens
to sell their gold to the Federal Reserve at a fixed price or go to prison. The Fed offered far more cash
to foreign governments for their gold.
Many jumped at the offer. Gold flowed in,
and dollars spread across the globe. World War II devastated
nearly every major economy except for the United States. The military
and industrial juggernaut emerged as the global financial superpower. The dollar had become the world's
most stable and trusted currency. Other countries
pegged their currency to the dollar, which could still be redeemed for gold. In fact, the US owned more than half
of the world's gold reserves. In the next few decades,
more dollars flowed to foreign countries.
Governments began debasing their coins
with cheaper metals and printing more of their own currency
than they had in gold. The bond between precious metals
and paper currency was cracking. This is 1966, 50-cent piece. It was the last coin in regular circulation
in Australia to contain silver. It contains 80 percent silver. In 1966, this was 50 cents. Nowadays it's roughly
eight dollars in silver alone. By 1966, foreign nations had had enough of the US collecting gold
and printing cash, and they had more value in dollars
than the US had bullion in its vaults. They demanded gold
in return for their paper dollars. Arguments about the value of the dollar
versus their currency ensued. In 1971,
President Nixon settled the matter. He severed United States currency
from the gold standard. I have directed Secretary Connally
to suspend temporarily the convertibility of the dollar into gold
or other reserve assets, except in amounts and conditions determined to be in the interest
of monetary stability and in the best interest
of the United States. Never again could anyone legally
demand US government gold in exchange for paper dollars. For better or worse, the dollar was now backed solely
by the full faith and credit of the United States government.
The wealthiest nation
the world had ever known would bet its future
on a single word, trust. People have this mythology of money
that is based on very little fact. One of the nice things
about Bitcoin is that it forces people to start to ask questions
about the fundamentals of money. A Bitcoin is an attempt
to adopt the advanced computerized system that we have, the Internet, to resurrecting
what money used to be all about.
I think our dollar policies,
monetary policies, our fiscal policies
have absolutely created a nation of debtors. Not just personal debt, corporate debt,
but government debt. You have to look at those
all together as one big thing. What is the wealth of the nation? The wealth of the nation
is a gigantic hole of money that we owe to the rest of the world
that is never going to be paid back.
Today, the United States
pays more than 400 Billion dollars in interest to its creditors every year. When a government spends more money
than it collects in taxes, it simply borrows more or creates more. At one time, every piece of paper money
was backed by gold. Remember, for every 20-dollar bill, there were 20 dollars
worth of gold in a government vault. Not anymore. Today, governments create currency
by first creating bonds or Treasury bills. These bonds are sold in the market, generating funds
for the government that issued them. Large banks buy US bonds to flip them, selling them
to the Federal Reserve at a profit. This is the magic money machine. You see,
the Fed is America's central bank, but it doesn't have any money. No cash on its balance sheets. When a bank buys a bond
and takes it to the Federal Reserve, the Fed simply says,
thank you, Mr. Banker, here's the principle and some profit.
New money isn't exchanged. It simply appears
on the bank's accounts, magic. For 100 years and counting,
the precise mechanisms of these bond purchases
have remained a secret. Here's where it gets really interesting. The Federal Reserve
is not a government agency. It's a private entity and its shareholders are banks
which earns a dividend. As much as 80 billion dollars
per year total is paid out to some of the very same banks
that sell the government debt to the Fed. Which banks, don't even bother asking. That's also a secret. In other words,
the magic money machine answers no one. The Fed also sets the bar for how much interest you pay
for a car, home, or business loan. The Federal Reserve
has been given the impossible task of trying to run the credit
and monetary system as though we are the Soviet Union. It's the central planner
for the key aspect of capitalism, which is how money
and credit is allocated. The Federal Reserve, on balance,
does not help the economy.
On balance, it hurts the economy
and it's bound to make mistakes, even with the best of intentions. The Fed is also supposed
to boost employment with low-interest rates, encouraging people and businesses
to buy more goods and services. Governments getting involved
in money is a good thing, and it's also a bad thing. It's a good thing because money
is the arteries of the economy, the blood supply of the economy.
Markets are subject to bouts
of euphoria and despair, and it makes sense for governments
to back currency and manipulate it. Moving the money supply up and down
is the most powerful way to sedate that boom and bust cycle. Manipulating the supply of money
has short-term and long-term consequences. Central banks aim to create
new money carefully, strategically, and very, very slowly. Releasing more money
into the economy causes prices to rise, ideally by two percent every year. That's supposed to foster economic growth. However, two percent inflation
means the buying power of one cash dollar in your pocket today
will be 98 cents next year and less nearly every year to come.
Since 1913 when the Federal Reserve
took over the United States dollar, we've seen that the United States dollar
has decreased in value by 98 percent. Inflation is a far higher tax because on your income
you pay it just once. If inflation is 2%, you're paying a 2% tax
on your net worth every single year, your net worth held in currency. What does that mean? If you earned a dollar in 1913,
you could buy 16 loaves of bread. Today, a dollar barely buys you one. That's not a quaint notion
of how cheap things used to be. It's proof that the value
of your cash is slowly withering away. That one dollar invested at two percent
in 1913 would now be worth 7.24 dollars. More than 600 percent return
versus a near-total loss. The US dollar
has gone from being worth one dollar to now being worth about four cents. That's 96 percent of its original value and it's a direct result
of government control. Governments don't create money
from thin air all alone.
You play a key role
in the magic money machine. It's not the central banks
that are the problem. They're part of it, but the real problem
is that we've given the power to create money to the same banks
that caused the financial crisis. We put our paychecks
and savings into a bank account and draw from it as we need it. The banks are custodians of our money,
right or wrong? It is now the property
of the bank on their balance sheets.
They can do just about anything
they want with it. For example, create new money. Here's how. Your bank account shows 100 dollars, but the bank only holds three
and loans 97 to Bob to buy something. In the bank's computers, you still have 100 dollars
in your account. However, Bob now has 97 dollars
of new virtual money in his account, just digits on a computer screen. There's no cash, no gold,
or anything else backing up the new numbers in Bob's account. Just his promise to pay it back. This is new money created as debt. When those 97 dollars are spent,
say, in a shop, the shop owner deposits into another bank
and it is lent out again and again.
Each of these people
have numbers in their accounts showing that they own this money. Your original 100 dollars have multiplied. Now, there are over 3,300 dollars
in the system. This process of loaning out far more money
than a bank actually has as cash on hand is called fractional reserve banking. In the UK,
97 percent of the money that exists is just numbers in the computer system, and those numbers
are created by the banks. Banks earn untold billions
in interest every year by creating and lending virtual money. What's more,
banks don't even need your deposit to create new money.
If they consider someone
creditworthy for a loan, they can put new magic money
into his or her account and start charging interest. Reporters talk about Bitcoin
as though it's the first digital currency. Actually, we use digital currency
every time you make a transaction through Internet banking
or through your bank card. It's not even just digital currency, it's a digital currency that is created
by the banks essentially out of nothing. In other words, all new money is debt. This is part of money creation
that isn't taught in economics class. Money in paychecks,
bank accounts, 401 (K)s, that loan to Bob, credit card debt, your home loan, all began life as virtual money
created by the banks. The entire system is based on trust. Trust in the bank's solvency. Trust in the debtor's ability
to repay their debt. If all bank customers
demanded just three percent of their deposits right now in cash, this run on the banks
would reveal the truth.
Almost none of that paper currency
you think is in your bank account exists. It never did. Remember the Drunken party? Our financial crisis
had everything to do with virtual dollars. Too many people with very little income borrowed a lot of money
they could never repay. However, the banks didn't care. They didn't have to. They quickly made and sold shaky loans
to someone else for profit. I got them all approved. Apply now. Selling bad loans was a good business until the whole thing blew up
in the global financial crisis. The magic money machine
destroyed 30 million real jobs. The United States alone lost
16 trillion dollars in household wealth and the banks foreclosed
on more than one million homes. Selling subprime loans
and betting they will fail may not be sacred, but it is lucrative. As much as one-quarter
of our best and brightest are being lured by the siren call
of the money machine. Instead of science,
engineering, or medicine, they chose a career of playing with
and betting with other people's money to get rich quickly, very rich.
Sometimes they take shortcuts. My ancestors in Greece talked
about the corrupting influence of power. Nothing has changed in these 3,000 years. When you give control over massive amounts
of money to a few individuals, they will take advantage of that control. Banks today are factoring in fines
and money laundering and all the rules that they break
into their cost of doing business. JPMorgan is today
coming out and saying that Bitcoin is not a legitimate way of doing business. Banks today are tied into a system
that is completely rigged to basically harvest money
from the entire global economy and pump it into the hands of very few.
The existing banking system is cozy. It captures the regulators. It extracts enormous value from society
without delivering anything in return, and it is parasitic in nature. The banks play
a very pivotal role in an economy. You look at any successful economy,
it has successful banks. There's a very close correlation
with banking profits and the economy as a whole. In medieval Europe, a banker
who couldn't repay depositors was hanged.
Today, that same banker
would get bailed out, paaid bonuses
and enjoy some tax benefits too. To date, no senior US banking executive
has been charged for selling the bad loans that fueled the Great Recession. In December 2014, just six years
after the last banking crisis brought the world to its knees, a congressman snuck
a last-minute provision written by Citigroup
into a crucial funding bill. The provision allows the largest US banks
to once again make risky derivatives bets with bank deposits.
However, no need to worry. If the banks implode again,
lost deposits must be paid back by US taxpayers. Today's financial innovators
package assets in ever more complex ways. Slicing, dicing, securitizing,
always using someone else's money. They sell debt,
transfer risks, and leverage bets. That's what they call innovation. When you talk
about financial innovation, Bitcoin certainly
is a very good example of innovation. Still, there's also been other innovations
that people a bit closer to the world of finance
would cite as good examples. An example of that
would be the original swaps market. From there, moving on
to the credit default swap, it is an excellent example
of financial innovation, but also if it's used incorrectly,
it can create a lot of problems, as we've just seen. History teaches
that the most revolutionary and disruptive innovation
nearly always comes from the fringe, not from corporate cubicles. True innovators see the world differently.
They see the big picture
creating new products and entire systems
that lead to new industries. Steve Jobs called them
the "square cogs in round holes". It's unsurprising that new innovations
always come from a niche group of early adopters
because it is inherently very hard for many people to realize
the benefits of new technologies. In 2011, most Bitcoin community people
were either people from the technology space,
the geeks and hackers, or people from the traditional
financial industry. There are even some bankers
and hedge fund traders using Bitcoin at that time as well,
which was really surprising to me. A radical new idea
is often met with skepticism, ridicule, even hostility from those who stand
to lose the most from its success. Case in point, the automobile. In the late 19th century, Karl Benz
and others built the first cars, contraptions that could threaten
the stagecoach and railroad industries. These self-propelled vehicles
or rode trains would certainly scare horses,
injure people and damage roads.
The railroad barons said
that cars were too dangerous. To protect us, they used their power
to pass a law in 1865. It required every automobile in England to observe
a four-mile-per-hour speed limit and to be operated by a crew of three,
a driver, an engineer, and a flagman. This heroic flagman
walked in front of the car to warn fellow citizens
of the coming danger. The railroad tycoons, the lawmakers,
the self-appointed gatekeepers, used regulation to stifle innovation. However, they didn't invent the flagman. He's been around for a long time. For centuries, very few could read. Books were copied by hand. The people in control,
political and religious leaders wanted to keep it that way. They greeted Johann Gutenberg's
printing press with licensing laws, publishing bans, taxes, in some parts of the world,
printing was a crime punishable by death. After all, they were just protecting us
from dangerous ideas. Before the printing press, there were an estimated 30,000 books
in all of Europe. Fifty years later, there were ten million. As Gutenberg's invention flourished,
the dark ages withered. Progress couldn't be stopped. Still, the flagman never stops trying. His master set him loose
on each of these innovations because they threaten someone's profits,
someone's control.
Remember, this is a story about money. What if a technological innovation
allowed anyone in the world to be their own bank? To create a currency
free from taxes and banking fees? The US Constitution forbids citizens from printing or minting
their own currency, competing with
or undercutting reliance on the US dollar. In 1998, Bernhard von NortHaus decided to test the resolve
of the federal government. The Liberty Dollar was available in gold,
silver, platinum, and copper. It was available in three forms,
both in specie, in other words, gold and silver, in paper,
as warehouse receipts and in digital form. Obviously, the government didn't like it. They arrested me and convicted me
of counterfeiting, fraud, and conspiracy and I'm currently awaiting
22 years sentence in federal prison. Lesson learned. There are hacker convention
and another one, there was a young hacker
there who used the alias of Satoshi Nakamoto,
and he talked to a friend of mine and he identified the Liberty Dollar in me
as inspiring him to create a new currency.
Bernhard Von NortHaus arrest
for creating private money may also have inspired Bitcoin's inventor
to keep a lower profile, publishing the invention
under an alias and vanishing. Part of me is interested to know,
like, who Satoshi is. Maybe that's part
of the mystique of the story. It's completely irrelevant
to the functioning of Bitcoin because we have the code to read.
Still, it would be fun to know. Who is Archimedes? Who is Euclid? We don't know. We don't know if Euclid
was one person or multiple people. You know what, it doesn't matter. Euclidean geometry works
whether I know who Euclid was or not. Whether Euclid
was a moral and good person, or whether he was a corrupt plutocrat
and a bastard. Science and Mathematics
have essential truths that stand alone, irrespective of its inventors
and irrespective of their motives.
Well, Bitcoin is a system
based on mathematical truths, and these mathematical truths stand alone. We can read the source code
in Bitcoin and understand it. It will be true whether Satoshi Nakamoto
is a man, a woman, a collection of individuals,
a government agency, or aliens from the future. Bitcoin is a digital currency
and computer software. Capital B, Bitcoin, is the shared code
that creates a global payment network using computers connected to the Internet. Bitcoins are virtual currency,
digital money created, stored, and exchanged on that network. Unlike virtual dollars
created by a banker, this new currency was created with math
by an anonymous inventor. Bitcoin is an open-source
software protocol like much of the code supporting the Internet and email. Open source means anyone. Everyone can use the protocol. No one person or company can control it. Every change to the software is public,
open, and transparent.
The code was first developed by Satoshi. Then there were dozens,
now hundreds of programmers constantly collaborating
to improve Bitcoin's features and security. What makes Bitcoin a breakthrough? It tackles an ancient human dilemma
and solves a computer science problem. Any shared information
or data can be flawed and corrupted, Anything can be faked. How do we know
that what we're receiving can be trusted? In our traditional mindset,
it's very important to know who is behind this currency
because their reputation is significant in knowing that our funds
and the true wealth is actually safe. In finance,
we rely on trusted third parties like banks, credit card companies,
and remittance services. They keep track of money
as it moves from one account to another, and they charge us handsomely for it. We trust that their digital ledgers
of credits and debits balance.
A financial system
that cuts out these middlemen could be faster, cheaper, and more secure. However, Bitcoin is digital. Music and movies are easily pirated,
copied, and stolen. How can a digital currency retain value
if anyone can make a million copies? The answer is at the core
of Satoshi's invention. A Bitcoin is not a file on a computer. It's an entry
in the publicly distributed database called the blockchain. Just as the Medici
kept a ledger of credits and debits, today's banks record each transaction
as a plus and minus in their ledgers. Now we call them databases. Bank accounts
are replaced by a digital wallet that you alone control. Bitcoin's ledger is the blockchain,
a record of every bitcoin in existence and every bitcoin transaction ever made. It always balances
because no bitcoin ever leaves it. When a bitcoin is sent
from one digital wallet to another, what they are really sending
is control over that part of the database. Code that is a unique key
for the new owner. As the network processes transactions,
it constantly synchronizes the one ledger across the global network.
Each computer or bitcoin miner
has a complete and identical copy, and because the blockchain is public, it cannot be controlled
by any one person or computer. Owners of the Bitcoin mining computers
are rewarded with new bitcoins for processing transactions
and keeping the network secure. In other words, the Bitcoin network
replaces banks and bankers. Today, the combined
computing power of this global network is greater than the 500 biggest
supercomputers combined times 10,000 and because every transaction is verified
and recorded by the network, a bitcoin cannot be forged.
Digital currency
cannot be debased with cheap metals or printed by the billion at will. Too much currency can unleash a monster. Skyrocketing prices, trillion-dollar bills
that can't buy a loaf of bread. There's a big movement in the US
demanding that the Fed be audited so we can find out what they're doing. Nobody really knows
how many dollars are in existence. For example, Ben Bernanke
created several trillions of dollars over the last several years,
but nobody really knows where they landed. At any time for any reason, the central banks can print
as much money as they want. They call it fancy things
like quantitative easing. When they do that,
it makes dollars, euros, or yen that you and I have worth less. If the world
starts using Bitcoin as their currency, it can't be controlled
by central bankers or politicians. Remember, central banks
create money to boost the economy and try to pull it back out
before inflation heats up. However, no one knows how much magic money
global banks are creating to boost their profits
with questionable loans. Bitcoin is completely the opposite. It's totally transparent,
you know exactly how many exist.
The computer code
behind Bitcoin has a built-in brake pedal, cutting the creation of bitcoins
in half every four years. This ensures a transparent,
controlled scarcity and ultimately limits the total number
of bitcoins to 21 million. No lobbyists, no politicians,
no banker can create more or change the mathematical rules
dictating their creation. That's in accountability. That's the most exciting about Bitcoin
and the technology behind it is not so much that it will supplant
the dollar or governance itself, but that all of a sudden
there's a competitor to the government, and that government itself now needs to look over its shoulder
more than it did.
This new digital currency
can be purchased online, with a credit card,
or in person with cash, and it has the five key characteristics
of money. Is it a store of value? Is it stable or will it diminish
over time like a commodity rendered useless or a crop that fails? The ultimate power of a cryptocurrency
is unleashed by mainstream adoption and an ever-growing volume
of transactions. With Bitcoin,
the currency has been created much more slowly than other currencies,
and the effect of that has been to turn it into what is essentially
a speculative asset. If you ask a lot of Bitcoin enthusiasts
whether they're spending the currency, they're not, they're sitting on it
waiting for the price to go up. It isn't a currency
if you don't use it to pay people. The point is, the average person
is quite happy to walk into a bar and hand over a five-dollar note
in order to get a drink.
You've got to realize that most people
are happy with the money system they have. If most people are happy with cash,
they're in love with plastic. In the US, two-thirds of in-person sales
are done with debit or credit cards. That plastic is a 60-year-old technology
created by a middleman never designed for the Internet. Each transaction requires personal data
like your name and address. Credit card databases are regularly hacked with fraudulent purchases
charged to your account. Criminals buy and sell
stolen credit cards by the thousands in dark corners of the Internet. In some parts of London, one-third of all online
credit card transactions are fraudulent. Card issuers
don't hold you responsible for fraud, but protection comes with a price,
two to four percent in fees.
That's 50 billion dollars a year. The issue with credit cards from a merchant's perspective
is there's a lot of risk. If they take your credit card,
there might be a chargeback, there might be fraudulent purchases. There's hundreds of billions
of dollars every year in fraudulent purchases. A Bitcoin purchase is done for pennies,
but there are no protections. If you lose your passwords or are fooled
into paying the wrong person, you can never get your money back. It is like digital cash. For a seller,
this means no chargeback risks. For an e-commerce company
like Expedia or Overstock, cutting credit card fees
can double their profit margin.
You could not miss the point
more effectively than by thinking of Bitcoin
as a currency and payment network that will make shopping easier
for the first world. Bitcoin is about everything else,
everywhere else. There are 2.5 billion people
without a bank account. With Bitcoin,
a mobile phone with an internet connection is now a bank
with access to the global marketplace. What happens when Bitcoin services
and infrastructure and Bitcoin wallets and payment processes
start going into these countries? These people
will be able to gain benefits from trade where they could not previously. These people will be able to send money
home International remittance, which is one of the major pain points
of the current financial system. Yes, if I send 100 dollars with the bank,
it's going to cost me 20 percent. Western Union
is going to cost ten percent. Other options
that are competing Western Union are still going to be about 5 percent.
If you are sending to really remote areas, it's going to be anywhere
between 15 and 30 percent. In terms of money, Rubin says it's going to be
a game changer using Bitcoin. You don't need a bank account. You just need an Internet connection
and a wallet to get set up. It's a tool to give people
access into the global ecosystem and give them a promise
for an economic future, and specifically provide a way
for them to not be dependent on a government
that could shut down their bank accounts or even could go into their bank accounts
and take out finances. Goldman Sachs came out with a report
and they basically looked at if you were to replace
all transactions globally, so, if bank-to-bank transactions
with the Bitcoin protocol and still charging one percent, mind you, it would save
the global economy of 200 billion. So not millions, 200 billion dollars
a year in saved transaction costs, which ultimately goes back
into the hands of the consumer. An international wire transfer
can take up to four days. Yet the Internet allows us
to instantly and globally share text, pictures, videos, and anything digital. Why not money? Money which we now know only exists
as digits in a bank's database.
Wouldn't it be great
if you could send Bitcoin transactions just simply via a tweet? For example,
you would say at the end of money, one dollar worth of bitcoin
and so we built your stock. All you have to do
is hashtag it with tippercoin, a person and our Twitter bot will process the transactions,
notify you and give you a link. This will allow you
to either withdraw your bitcoins or send it to someone else. With Bitcoin, you can send 1 dollar
or 1 million dollar worth of value anywhere in the world.
You can do it for free,
or you pay the Bitcoin network fee, which is just around a penny. There's nothing that the big banks
or politicians can do to stop it. A cryptocurrency that can only be created
and transferred with computer networks may be the next step
of the digital revolution. The rise of machines,
self-driving cars, drones, robots that rely less and less on humans. What I often think
is that the future of Bitcoin or digital currency
from a broader perspective is really about
machine-to-machine payments. By the time you have an unmanned taxi
driving you around New York and then going to power up
at an unmanned power station or going to get repairs
at an unmanned auto shop, you'll see the machine-to-machine payments
done with some sort of digital currency.
We built this world that we live in
over the last two or 300 years. We've made some mistakes. We've learned to make things better. The idea that there's some magic key,
that if you just stop doing a few things, that there will be this perfect order
that will settle is a very childish ideological delusion, in my opinion. However, that is not to say
that Bitcoin isn't an exciting thing.
It's a terrifically exciting thing. However, we have to try
and engage with it with working minds, not with magical thinking. People are suggesting that it's going
to be another world currency rivaling the dollar
or the euro or the yen. I think that's not going to happen. I prefer to trust the banks
or the central government compared to the Bitcoin
is because someone's accountable. Whereas with Bitcoin,
it's completely deregulated. There is no central control. There's no one held accountable. It is a free float. It's purely demand and supply driven. Clearly, this is not a currency. Currencies don't behave like this. What this is, is a high risk
speculative commodity. For entrepreneurs,
the bankers, governments, and everyone else studying
and watching Bitcoin, all I have to say is that
there will probably be a lot of volatility in an upward trajectory and to buckle up.
Criminals, scam artists,
bad actors are drawn to any kind of money, like a moth to a flame. Silk Road was a marketplace
that was online. It existed in the underground web. Now this marketplace
allowed people to sell things that were illegal to governments. Fake IDs, pirated music,
Bibles in North Korea. Are cryptocurrencies inherently bad
or just the newest tool to acquire the forbidden? Porn is illegal in Iran. Well, as a few percentage points
of sales on Silk Road was to sell porn to Iranians. Now, a much broader one
that gets a lot of press with regards to Silk Road is drugs.
I've been doing research
over the past couple of years into the online drug marketplaces
in the darknet, using Tor and Bitcoin as technologies
to enable illicit drug transactions. We did a global survey of drug users and we had over 20,000 people
respond to that. The majority of those people
were buying traditionally illicit drugs, ecstasy and cannabis. The FBI brought down Silk Road. It certainly hasn't stopped
the trading of illicit drugs online. A lot of people want to criticize Bitcoin for being used
for illegal or illicit things. However, if you look at it, the most popular currency
in the entire world for doing bad things is the US dollar. If you think of Bitcoin
as a platform instead of a currency, then you really begin to see
the potential it has. The ledger which cannot be forged,
it cannot be changed and universally accepted as genius. There will be Bitcoin technology forever
and it'll have applications for years to come. Creating a secure global payment system
may just be the beginning. Patents, contracts,
land titles, proof of ownership can be baked into Bitcoin,
securely held in the public ledger.
I read a bit more about Bitcoin,
I play with the source code, I built some things that I realized
that this is a very powerful protocol. It's not just the currency,
but it's programmable money. The digital age
has fundamentally changed the world. We have embraced
digitized music, film, medical records, communications, the Internet. The free exchange
of information and currency can fuel revolutions,
and help in a disaster. However, our money
is shackled to the 20th century, manipulated by governments and banks. The champions of Bitcoin ask us
to imagine payments without a middleman. Investments without a broker. Loans without a bank. Insurance without an underwriter.
Charity without a trustee. Escrow without an agent. Betting without a bookie. Record keeping without an accountant. Global, secure, nearly instant, and free. Is it fantasy
or the future of money and commerce? I love bitcoins. I'm really into Bitcoin. If you don't know what a bitcoin is, usually, the white people
describe it as digital cash. It's money for the internet. They're like, I love my bank.
I'm like, really? Yes, it's good banking,
you know what's 2 plus 2 is.
I'm llike, well, I can tell you,
but there's a fee. Bitcoin is a new technology. I like to say it's banking lives. All of the convenience, none of the evil. When I go online
and I buy a pair of socks, if I pay with a credit card,
I'm just buying stocks, right? If I buy those socks with Bitcoin,
it's a revolution. I am sticking it to the man. There are always people who are not ready
to get into the new technology. Like when the Internet came out,
there were people going, no I don't think
this is going to be popular. Then an email came out and we were like,
no, this isn't going to catch on. Now Bitcoin comes out. People are like, I don't think
I'm looking at you shake a big wrong. Get on this train..
