Afford Anything - Bitcoin for Beginners

Episode Date: July 2, 2021

#325: Okay, so everyone and their dog is talking about Bitcoin — but what exactly is it? And what’s Ethereum? If you’re feeling lost in the topic and confused by the jargon, start with this episode in which we cover the basics about blockchain technology and cryptocurrency.  For more information, visit the show notes at https://affordanything.com/episode325 Learn more about your ad choices. Visit podcastchoices.com/adchoices

You can afford anything but not everything. Every choice that you make is a trade-off against something else, and that doesn't just apply to your money. That applies to your time, your focus, your energy, your attention. Anything in your life that's a scarce or limited resource, saying yes to something implicitly means. You're saying no to all other opportunities, and that opens up two questions.

First, what matters most? And second, how do you make decisions that reflect that which matters most? Now, answering these two questions is a lifetime practice, and that is what this podcast is here to explore and facilitate. My name is Paula Pant. I am the host of the Afford Anything podcast, and today, we are going to deep dive into blockchain, Bitcoin, and cryptocurrencies for beginners. So, if you are wondering what the heck is going on, if you don't know anything about blockchain or cryptocurrencies and every time you try to read about it, it makes even less sense. This episode is for you. Let's start by talking about the fundamental problem that blockchain is

trying to solve. Why does it exist? And what contribution is it making or attempting to make to the world? When we talk about blockchain, at the core of the conversation, we are talking, about trust. We are talking about transparency, accountability, and trust. And we are also talking about power. Who holds the power? Is it a centralized authority or is it decentralized and dispersed? So that is what we're talking about when we talk about blockchain. Now here's how. If I want to send you $100, There needs to be some ledger, some tracking method that verifies that $100 U.S. dollars leaves my bank account and goes into your bank account.

I can't send the same $100 to an infinite number of people. I can't duplicate that same $100. It's a finite amount. And every time that there is a $100 transaction between two parties, there needs to be a credit and a debit. right now, there exists some middleman, some intermediary, that tracks and records and verifies these transactions. So in the case of me sending you $100, there would be a bank or a credit union that processes

and tracks and records that data. Now, there are a few problems with this. First, records can get lost. Records can get damaged. They can get destroyed. They can be forged. With malicious intent, you know, they can be altered. and even with non-malicious actors, there can be basic data entry errors.

Here's a basic example. Look up land deeds and recording and titles for real estate. You'll find loads of data entry errors. Sometimes they're basic, like your first name is misspelled, and sometimes they're more intense than that. A personal example, my triplex in Atlanta was built in either 1910, 1911, or 1912. I've seen different records reflecting each of those years. So which year was it built?

I'm not entirely sure. My best guess is that the initial permit for construction was pulled in 1910. The building was constructed in 1911 and perhaps it passed final inspection or received its certificate of occupancy in 1912. But that is just an educated guess because the record keeping, as far as I've been able to see, is both incomplete and self-executive. contradictory. And on top of that, the permitting on this building from 1911 through the late 1990s is pretty darn spotty. So I actually, many years ago, I went to look up the physical paper records of my building because it was built in 1911. I want to know its history. And if you look at the history of permits that have been pulled for this property, there is

not a lot there. To the best of my recollection, there's a 40-year gap from 1911 when it was ostensibly constructed until sometime in the 1950s when the first renovation permit that I saw was pulled. And then there's another 20-year gap from the 50s to the 70s before I saw another record of another permit getting pulled. I'm not confident that this reflects the actual renovation history of the property. I suspect that there's some missing data in there, and that's the key, missing data. And so the history of this particular house that I own, especially in its early years, that history is and always will be largely a mystery. And that is just one very low stakes example of how our current system of record keeping is highly imperfect, full of flaws, and prone to human error.

And of course, this isn't just in real estate. So a second example is vehicles. Your car title is a piece of paper. And the county has a record of it, but county records are not a perfect science. Those records could, in theory, be tampered with, forged, altered, destroyed. County officials could take bribes, workers could make honest clerical errors. All kinds of things could go wrong. And other examples include contracts, promissory notes, wills, birth certificates.

All of these can be forged. And so as a result of this imperfect system, There are all kinds of industries and occupations, from auditors to title insurance, title companies, all kinds of industries that are in the business of making sure that records are kept up to snuff. That's the current landscape that we live in when it comes to record keeping. And from the way that I've described it, I hope it's clear that our system of record keeping is flawed. And so now let's switch gears and let's talk about bank. Specifically, let's talk about centralized banking.

Centralized banking, by its very construction, puts a lot of power into the hands of a few. First, there are many people worldwide who are unbanked, both here in the United States and all over the globe. They don't have access to a bank account or to credit cards. And financial institutions are in complete control. They can reverse transactions. They can freeze accounts. They can close accounts. And furthermore, in terms of record keeping and security, in a centralized banking system,

all of these data management decisions are made by just a few organizations. So Bank of America, Wells Fargo, J.P. Morgan Chase, they decide what types of servers to use, where those servers are located, and how their security protocols will work. And so in our current system, banks and financial institutions have an incredible level of power. And in our current system, these financial institutions are the middlemen in every transaction. So when I walk into a store to buy a shirt, if I swipe my debit card to buy that shirt, my payment doesn't go to the store owner directly. The debit card issuer, Visa or MasterCard, and the issuing bank are both involved in that transaction. They're both middlemen.

So when I buy a shirt at a store using a debit card, the card issuer and the issuing bank will remove money from my account and deposit money into the store owner's account. And if I use a credit card, then the financial institution behind that card, whether it's Capital One or JPMorgan Chase, that financial institution will issue me a loan via a line of credit, which is what that transaction on the credit card represents. And even if I want to pay cash for that shirt, I've got to pull that cash out of an ATM that's controlled by a major financial institution. So they are involved in the transaction no matter what. It's not a transaction simply between two parties, myself and the store owner.

It's a transaction between myself, the store owner, and all of the interested financial institutions who are involved in every transaction. doesn't that seem a little inefficient? What if we could cut out the middlemen? And what if that meant that there would not be so much concentrated power in the hands of a few as there currently is in centralized banking? So we've talked about, at this point zooming out, we've talked about two realities of our current system. One are the shortcomings with our current record keeping system. The second is the centralization and the inner.

efficiency of having major financial institutions be involved in every financial transaction. And so, with those two problems established, let's turn our attention to this new technology called blockchain. Now, blockchain, at its core, is a method of record keeping. That's all it is. You know, I know there's a lot of hype. There are all these internet memes. You see this crazy Bitcoin conference in Miami with these super, you're not.

Kind of drugged up looking people up on the stage. The thing everyone's getting really excited about is record-keeping methodology. That's what this is all about. Sounds way nerdyer when you say it like that. So imagine a bunch of blocks, right? Imagine cinder blocks, if you will. Every block is a list of records. Now, imagine, if you're picturing cinder blocks in your head,

imagine that you've got a bunch of cinder blocks and they're all tied together. They're chained together. That's what blockchain is. A block is a list of records and a chain is a link that holds these records together. So blockchain are blocks of records that are linked together. Blockchain was created in 1991 by Stuart Haber and Scott Stornetta. They were worried about the accuracy and modifiability of records, as we've just outlined. In 1991, the Internet, as we know it today, the Internet was very much in its infancy, and they had the foresight to recognize that records would become more digital, and digital records can be modified, backdated, forward-dated, record-keeping could be susceptible to bribes or error. And so they created blockchain.

They created a digital list of records that are chained together, and they made sure that blockchain has three characteristics. So one characteristic is decentralization, and that means that data is recorded and stored on multiple devices and locations worldwide. So blockchain data is stored on a network of computers with open source software. Any changes to the protocols require a consensus process that no single entity can control. So there's no one-person government company that controls the data recording in the storage process. Now, let's compare that to our current. system, our current mainstream system, right? Right now, a major financial institution or a government

might have its data recorded and stored on many servers. But that financial institution or that government has complete control over all of this data. They choose what servers to use. They choose where those servers are located. They choose the software and the systems that they're going to use in order to protect and manage that data. They have total authority over their data. With a decentralized format, that data is stored on this network of computers worldwide that no one can control. And that is a central defining pillar of blockchain technology. A second defining characteristic is total transparency. Transactions are recorded on a ledger that everybody can see. And that ledger is recorded on that network of computers around the world. Now, to be clear, that doesn't mean that you can look up

a person's transaction. You can't use this to spy on your neighbors. You can't see that Bob Smith bought a t-shirt on Tuesday. So when I talk about transparency, I don't mean it in the privacy-violating episode of Black Mirror type of context. But there is transparency in record-keeping. There is a live-running ledger, and that is a defining characteristic of blockchain.

And then the third characteristic is immutability, meaning that the data, once it's approved, that data cannot be changed, altered, or forged. As a result, those records are secure. And so blockchain technology creates transparency, validates and secures records, and eliminates middlemen, and distributes record-keeping across a vast network of computers,

which means the power, the data, the information, isn't consolidated into the hands of a few. So, to summarize, blockchain technology is a new method of digital recordkeeping that will revolutionize our entire world. Because record keeping impacts every facet of human life from birth certificates and death certificates to medical records, to educational records, to real estate, to insurance, everything we do, relies on our systems of record keeping, and blockchain is a major disruptor for the better. It's a major disruptor to the old ways of doing things.

And I realize I'm going to sound like a complete nerd when I say this, but I mean this sincerely. The future of auditing in the next couple of decades is going to be fascinating. I mean, every industry is going to change, but that one in particular is going to be So interesting to watch. Okay, so that's blockchain technology. Now, let's move to Bitcoin. Actually, you know what? Let's do this.

We're going to take a quick break to hear a word from our sponsors. And after that, we're going to discuss what Bitcoin is and how Bitcoin relates to blockchain technology and what this might mean for the future of money. So we'll talk about all of that right after this word from our sponsors. Fifth Third Bank's commercial payments are fast. and efficient, but they're not just fast and efficient. They're also powered by the latest in payments technology built to evolve with your business. Fifth Third Bank has the big bank muscle

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Money, at its core, money is a medium of exchange. It was created because bartering would be very inefficient. and fiat currency is legal tender, it's legal money that is issued and backed by its issuing government. In the U.S. this is, of course, the U.S. dollar. So we use U.S. dollars because our government has determined that dollars are the medium that will be used in our economy as the medium of exchange. Dollars themselves are intrinsically useless. They have no objective value. You can't eat it, you can't live in it, but they are subjectively useful insofar as we as a society all collectively agree that these dollars are useful. And the supply of money, the supply of new dollars, is controlled by our government.

But what might happen? Wouldn't it be interesting if we had a decentralized form of currency? Well, Bitcoin is a digital currency, and it is a decentralized, open source, peer-to-peer network, powered by its users with no central authority, no middlemen. It is built using blockchain technology. It is a use case of blockchain technology. Bitcoin was made in 2009 by an anonymous person or group of people named Satoshi Nakamoto. I say anonymous because Satoshi Nakamoto. is the pseudonym of the person or people who created Bitcoin. Now, Bitcoin is a digital currency that exists on a wide network of computers. Imagine that you have a computer that has Bitcoin

processing software on it. And imagine that that computer is connected via the internet to a network of other computers that also have Bitcoin processing software. Now, these computers, which are all on the Bitcoin network are referred to as nodes, and this is what the Bitcoin network exists on. It exists on this wide network of computers. And as transactions are made, those transactions get posted to a public ledger. And those transactions are timestamped, unmodifiable, and distributed across this wide network of computers, these nodes, rather than being maintained on the private, servers of a bank or a government. So as people exchange Bitcoin with one another, these transactions

are recorded in blocks of information that are distributed among these nodes. And so that decentralized aspect, the fact that the data is decentralized rather than under the control of just one government entity, that is one of the key features of Bitcoin and of all other cryptocurrencies. And so the Bitcoin blockchain is a live running ledger. of all Bitcoin transactions. Every transaction has a unique hash that's created for it. And anyone can look at Bitcoin's public ledger and see all of the transactions.

But if you want to find your own, then you can identify your transaction by the unique hash that was created. Now, why are so many computers on this network? There is a process that's referred to as Bitcoin mining. Now, miners are people with Bitcoin processing software who maintain this blockchain ledger. And what they do is they verify blocks. And so every block of transactions has a maximum amount of data that it can store.

And once it's full, then it needs to be verified. And if verified, it's then broadcast to the network and linked to other blocks with the chain. And so for a new block to be accepted to the ledger, miners compete. with one another using computing power in order to verify transactions. And they do this in exchange for payment. And that payment is new Bitcoin. That Bitcoin right now comes from new bitcoins that haven't previously existed, plus transaction fees associated with making transactions.

And so these rewards are incentives for miners to compete with one another and use their processing power to verify blocks of information, and add those blocks to the chain. That is what Bitcoin mining is. Now, why are people investing in Bitcoin? Well, Bitcoin has a maximum supply of 21 million Bitcoin. That's the way that it was programmed. And it was programmed to mirror an inflation rate that's similar to gold.

And because it has limited supply and a predictable inflation rate, many people see it as a store of value, fixed supply and high. demand creates scarcity and scarcity yields value. Currently there are 18 million Bitcoin in circulation and new Bitcoin are created during the mining process. At this time, the rewards that miners receive are 6.25 Bitcoin per block, and it takes about 10 minutes to verify a block. And so what that means is that right now, there are about 900 new Bitcoin that are being created every day. So the math behind this, it takes 10 minutes to mine a block, which means six blocks get mined per hour, times 24 hours a day. That means 144 blocks are mined every day.

Multiplied by 6.25 Bitcoin per block, that means 900 new Bitcoin are entering the Bitcoin monetary supply per day. So if you compare this to fiat currencies, where new money can enter the money supply in ways that are subject to the decisions of, you know, the money currencies, of the leaders, the monetary supply of government-issued fiat currencies is far less predictable. And again, those decisions are concentrated into the hands of only a few very powerful actors. Bitcoin, by contrast, has a clear process for issuing new Bitcoin into the supply. and it also has a clear maximum. As I mentioned, there are currently 18 million Bitcoin in circulation,

and there will only ever be a maximum supply of 21 million Bitcoin. So the way that this is controlled is through a phenomenon known as having events, and having events refers to the reduction in Bitcoin block rewards that are issued to minors. These rewards are cut in half. So Bitcoin was created in 2009, which was 12 years ago. At the time of its creation, the initial reward for mining a block in the chain was 50 Bitcoin. But Bitcoin has it programmed in that after 210,000 blocks are created, then the rewards are cut in half. That's what's known as a halving event.

And historically, this has taken place about every four years. So 12 years ago, the reward for mining a block was 50 Bitcoin. Over the span of 12 years, there have been three halving events, and the rewards during those three events have dropped from 50 to 25, and then down to 12.5, and now, after the third halving event, we're down to 6.25. Now, the most recent halving event took place on May 11, 2020, at about 3 p.m. Eastern, and that was the event that reduced the reward from 12.5, down to 6.25 Bitcoin per block. And halving events are significant because they reflect the dwindling supply of Bitcoin. Every time there's a halving event, it's a signal that there are fewer Bitcoin available to be mined. Now, Bitcoin investors and cryptocurrency investors often react to this because when supply decreases, assuming that demand either stays constant or increases, then the value rises.

And so that's what we saw after the May 2020 halving event. So on the day of that having, Bitcoin's price was 8,821. Within one month and one day, by April 12th of 2020, Bitcoin's price had soared to 63,558, which was an increase of 651%. Now, that was a bit too much. It later dropped. And as of the time of this recording, it's around 33,000, 34,000. It's in that ballpark.

as of the time that I'm recording this. But this market behavior is consistent with what happened after the first two having events, which also saw an immediate, massive price surge to new all-time highs, followed by a decline and then a stabilization at a new value that is still significantly higher than what it was prior to the halving. And if you think about this, this is consistent with basic supply and demand, because prior to the most recent halving, there were 1,800 Bitcoin entering the supply per day. And currently, because of the having, there are only 900 new Bitcoin entering the monetary supply,

the Bitcoin supply per day. And after the next one, which is, remember, they happen on average every four years. So the next one is anticipated to take place in the spring of 2024. There will be, after that one, only 450 new Bitcoin entering the supply per day. It is because of that fixed supply that many investors believe that Bitcoin is a reliable store of value. You know, the advantage of a fixed supply that caps at $21 million is that Bitcoin inflation will eventually reach 0%. And the current estimate is that the last Bitcoin will be mined in the year 2140. So, to summarize, Bitcoin is programmed in a way that new Bitcoins enter into the circulation.

at a fixed rate, and that rate halves in predetermined intervals over time. And by contrast, fiat currencies like the U.S. dollar enter into the circulation, not at a fixed rate that's baked into programming language, but rather by the rate that's determined by whatever leader is in charge. And the rate of the creation of new currency is not guaranteed to have over time, and the circulation of this new currency is not directly tied to its production. in the way that it is with Bitcoin miners. Instead, sometimes special interest groups

are the ones who receive that newly printed fiat currency. Now, you may be wondering, if there are only 21 million Bitcoin out there, doesn't that mean it's not actually useful? Because there are 8 billion people on the planet. How can this become a worldwide form of currency if there are so few Bitcoin relative to the number of? of people. Well, fortunately, Bitcoin can be subdivided. So the smallest unit of Bitcoin is

one Satoshi, otherwise known as one Sat, and it's equal to one one hundred millionth of a Bitcoin. So one Bitcoin to the eighth decimal place. So the idea is that with that level of divisibility, Bitcoin will be usable for everyday transactions. Now, to be clear, I'm not making a prediction that this is how the world is going to work. I'm simply stating that it was designed and constructed in such a way that it could be, or at least it was designed and constructed in such a way that divisibility would not be the limitation that would prevent it from being used in daily transactions. Now, one of the major criticisms of Bitcoin is its environmental impact.

It requires a lot of computing power for computers to compete with one another in order to verify these transactions, mining, is very energy intensive. And there are a handful of different responses and solutions for that. First of all, Bitcoin requires 707 kilowatt hours per transaction. We know that because we can measure it. It's relatively easy to measure. The measurement that we do not know is the equivalent value calculated for the banking system, How much energy does our current banking system use?

How many carbon emissions does it create? What are the kilowatt hours per transaction? We know that metric when it comes to Bitcoin. We do not know that metric when it comes to fiat currency. We know certainly that the banking system is very energy intensive. There are more than 80,000 brick and mortar bank branches across the U.S. We also know that our current financial system draws some of our best and brightest talent.

And so there is arguably a loss of talent as the best and brightest choose careers in finance rather than in fields like medicine or technology. Not to say that a career in finance is bad, but simply to propose the curiosity of what our world may be like if some of those minds, not all but at least some of those minds,

went into medicine. What would our world be like? I don't know. But there is at least a reasonable argument that perhaps the size, the scope, the centralization, the power that our current financial major players have might not be the healthiest setup for our long-term future. Now, we also know that Bitcoin, of course, is not the only cryptocurrency. And there are other cryptocurrencies out there that are less energy intensive. Cardano, for example, is relatively energy efficient and uses far fewer kilowatt hours per transaction. Dogecoin, which was created as a joke and championed by Elon Musk, much to the chagrin of many people in the crypto community,

dogecoin is actually among the most energy efficient. It's also a joke. But rather than fleeing away from Bitcoin and towards some of these alternative cryptocurrencies, and I'm not saying that we shouldn't do that. I'm simply stating rather than giving up on Bitcoin, one of the other considerations when it comes to thinking about the environmental impact of these use cases of blockchain technology and of cryptocurrencies is by considering the distinction between a proof of work protocol

and a proof of stake protocol. So proof of work and proof of stake are both referred to as consensus. mechanisms, which is a fancy way of saying that these are both ways in which blocks of information are validated and added to the blockchain. But the way that they operate, the way that they are run is very different. Proof of work is highly energy intensive. Proof of stake is not. And that may be the direction that things are headed in the future. And so what we're going to do right now is we're going to take one last break for a word from our sponsors. And when we come back, we're going to elaborate on the differences between proof of work and proof of stake and talk about

what this means for reducing the carbon footprint of blockchain technology. All right. So first, let's talk about proof of work protocols. Now, this is what we highlighted earlier when we talked about the mining process. So with a proof of work protocol, computers, use computing power to validate blocks of transaction data and publish this data across this network of computers. And computers have to use a lot of energy, a lot of electricity, in order to compete with each other to be the first to verify a block of data. And so you have inefficiency in the system when you have all of these computers that are trying to do the same thing, competing to be the first. So let's talk about an alternative.

which is called the proof of stake protocol. Now, under this protocol, an algorithm selects which computers on the network will be the ones to validate the next block. So rather than having a bunch of computers competing to do the same thing, an algorithm is picking which computers will do it, meaning that the other computers aren't using energy to try to do that same thing. Now, in order for computers to participate in a proof of stake protocol, That computer, the computers on the network, need to stake, put up for stake some of their

cryptocurrency. They stake their money. They stake their cryptocurrency as collateral. And this crypto is held in a crypto wallet or in a smart contract. And then if that computer, if that validator verifies a block of transactions and that is approved by the rest of the network and added to the blockchain, then that validator earns a reward. But if the block of data that they have proposed to add into the chain contains fraudulent transactions or contains inconsistencies, then the validator gets penalized by losing some of

the crypto that they've put up at stake. So basically staking means you've got skin in the game. it means you've put up a little bit of money to prove that you're legit. And the idea is that this will make it cost ineffective to try to defraud the network. Because if the penalty is big enough, then the cost of an attack would be greater than the rewards. So under a proof of stake protocol, if a validator signs off on the block and proposes that the block gets added to the blockchain and it's valid, then cool, they get paid for that, but if the network detects fraud, then they get punished for it. And that's very different from the mining process in which there is nothing at stake. There are no penalties.

So computers that participate in a cryptocurrency network that uses a proof of stake protocol, this is referred to as forging rather than mining. The benefits include not only the fact that it's more energy efficient, but also that the more validators that exist on the network, the more decentralized to the network becomes. I mean, the same is true with mining, but again, mining is so energy intensive that it gets to the point where only a lot of computing power can do it, whereas there are lower barriers to entry to becoming a validator. So for the average mom and pop, crypto forging is much easier than crypto mining. Now, this discussion has come to light recently because the Ethereum network has transitioned from proof of work, mining, to proof of stake, forging. The Ethereum network is a software platform. So Bitcoin is a digital cryptocurrency. Ethereum is different.

Ethereum is a software platform that is blockchain-based that other developers can build software applications on. And so many developers are building applications on Ethereum software, and it's through these applications that are, you know, on Ethereum, so they're blockchain-based. It's through these that the decentralized finance movement, has really grown. Now, when people talk about investing in either blockchain or Ethereum, what they're really talking about is investing in Ethereum's digital currency, which is called

Ether. And Ether is the digital currency associated with Ethereum that was built in order to fuel the Ethereum network. So one major difference between the two digital currencies is that Bitcoin has a fixed supply. There will only ever be 21 million Bitcoin in circulation. Ethereum does not have a fixed supply. And again, as I mentioned, Ethereum exists in order to fuel the Ethereum network. So if a developer wants to build an application on the network, then they need to pay for the computing power and they need to pay for the space required. And they would pay using the ether currency.

And so the idea that some investors have is that as Ethereum becomes more popular and as more developers start building these decentralized applications on the Ethereum network, then in theory, the value of ether may go up. Now, Ethereum has faced and is facing some limitations. For example, previously it's grappled with some processing power limitations. It previously could only process 15 transactions per second. And if you're trying to build something that will gain mass adoption worldwide, 15 transactions per second really isn't that much. And so Ethereum right now is going through an upgrade that will allow for the capability of tens of thousands of transactions per second once the upgrade is complete. So switching from

proof of work to proof of stake is part of that upgrade. And sharding, which is a database management technique that involves subdividing large databases into smaller and faster databases and distributing these subdivided shards across a chain known as the beacon chain, which will ensure the consensus between the different shards connected to it. That practice, that subdivision, is another phase associated with the Ethereum upgrade. And so in phase one, 64 shards will be created and connected to the beacon chain. And if it works out, if there's consensus between all of these shards, then fundamentally what that means for Ethereum is that its capacity and its processing power

will be significantly improved because this means that computers that are connected to the Ethereum network don't have to store the entire blockchain database on them. They can simply store a shard, meaning a fraction of that database. And that will improve the speed and the power of the Ethereum network.

And so there are many people who are very excited about the upgrades that are being made to the Ethereum network. and what that means for its viability and its future uses. You remember at the beginning of this episode, we talked about how blockchain technology can revolutionize every industry because every industry uses record keeping, real estate, insurance, healthcare, education,

every industry keeps records, and therefore every industry could be fundamentally and forever altered by the improved record-keeping methodology that blockchain technology offers. But that can only happen when there is a software platform that allows for the creation of apps, decentralized apps. And so the fact that the Ethereum network

at the very meta-level is decentralizing itself improves the viability of app development, and that brings us back to our original conversation, which is that all of this, This exists. Bitcoin, Ethereum, Ether, other cryptocurrencies, like everything from Dogecoin to Cardano, all the stuff you see on Twitter, all the things you hear about in the headlines. This all exists not just for the purpose of being a meme trade, not just for the purpose of inspiring wild speculation. That has happened too. And some of the antics around

cryptocurrency, particularly as reported on social media, with crypto-twitter and Cryptalk, those antics have overshadowed the technological revolution that blockchain represents and the fundamental problems in our society, problems of record-keeping, transparency, accountability, over-centralization, the fundamental problem. in our society that blockchain technology exists to solve. Blockchain represents a decentralized road ahead, one in which no central authority, no central bank, will have the level of power and influence that they have right now.

And blockchain represents a future in which our legions of companies of companies that exist for the purpose of making sure that our records say what we think they say. Our title insurance companies. Blockchain represents a future where those may seem like relics of the past. Antiquated systems for an antiquated time when we as a society lacked the technology to be able to manage our own records in a decentralized, non-authoritarian system. Imagine a future in which county records aren't controlled by the county, but rather listed on a live running ledger that anyone can see.

Imagine a future in which, if you have a house that was built in 1911, you will know for sure that that house was built in 1911 rather than in 1910 or 1912. if those records have already been lost to history, then perhaps it's a future in which, if you have a house that was built, in 2111, a person who is living in the year 2221, won't have to ask that same question. Because all of the records of that home, not just its year of construction, but also every permit that's been pulled, every time the roof's been replaced, every time the windows have been replaced, every water heater, replacement. Imagine a future in which all of that is known to every future owner of that house, every mechanics lien that's been placed on there, every termite treatment, every solar panel upgrade. And imagine a future in which if I want to walk into a store and buy a t-shirt, that transaction can take place directly between myself and the store owner without a major financial institution needing to get involved.

A Capital One or a JPMorgan Chase needing to get their fingerprints on that transaction. Or worse, freeze me out of my account. Or freeze the store owner out of his or her account. Imagine a future in which no bank would have that power

because humans can transact directly with one another. That's what blockchain represents. It's not the meme stocks, it's not the wild speculation, it's not Hoddle and diamond hands and to the moon, the stuff you read on Reddit is entertaining, but the more that we get caught up in the speculative horse race, the more we miss the point.

I don't know if Ether versus Bitcoin is the better bet from an investing point of view, and frankly, I don't care. Because those types of speculative questions miss the point. the point is not to try to predict what type of five-year returns an investment of $1,000 into some type of cryptocurrency might make. The point is to recognize first and foremost what an incredible shift this technology represents, how we are once again living in the year 2000, and we have a sense that this new thing called the Internet might be more than just a fad. We're living in the year 2000 and we realized that this new thing called the Internet might change everything.

We're just not sure how. And we can't imagine how many use cases the Internet will affect. I mean, sure, the Internet's great for computers. or nerds, but could it really impact the distribution of soft drinks? Could it really impact the way that shoes are bought and sold? We're living in the year 2000, right now, and we're asking those questions.

Once again, blockchain will revolutionize every industry in ways that we don't yet have the foresight to recognize. And cryptocurrencies are fun as an investor, as a speculator, they're fun in that they get us to pay attention. They encourage interest and attention into this new world. But the real story here is not about Bitcoin versus Ether versus some altcoin.

The real story here is about the decentralization of banking and the decentralization of the monetary system. system. The real story here is that we might be pushing towards a future in which banks become obsolete. And if that sounds extreme, then perhaps sit with that for a moment. If banks are not completely obsolete, they may be reduced to a fraction of the power that they have now. And what would the world look like if that were to happen? I'm not saying it will. But it's worth asking the question. More than a billion people around the world are already bankless. Billions of people do not have access to a checking account, a savings account, a credit

or debit card. The bottom billion in our society? They've been frozen out of banking for years, but guess what happens the minute they get a smartphone. I was born in Nepal. A lot of households in Nepal never got grid of. electricity. That type of infrastructure, we didn't have the wealth for it. And so a lot of households went directly from no electricity to solar. We skipped the grid entirely. And similarly, a lot of households went from no telephone communication to cell phones. Again, we didn't have the infrastructure for telephone lines and electricity lines. We didn't have the infrastructure. We didn't have the infrastructure the hardware to be able to adopt that intermediary step.

And so household after household went from nothing to a cell phone and a solar panel. And I wonder if for the bank lists, if for the people who have been frozen out of our system, they may go from nothing to Bitcoin. If that is the case, then Bitcoin represents hope. This is the Afford Anything podcast. My name is Paula Pant. If you enjoyed this episode, please share it with a friend or a family member. You can subscribe to the show notes for free at affordanything.com slash show notes.

Thank you so much for tuning in, and I'll catch you in the next episode.