Danny Jones Podcast - #71 - Everything You Need to Know About Bitcoin in 2021 | Andreas Antonopoulos

Episode Date: January 18, 2021

Andreas Antonopoulos is a best-selling author, speaker, educator, and highly sought after expert in Bitcoin and open blockchain technologies. He is known for making complex subjects easy to understand and highlighting both the positive and negative impacts these technologies can have on our global societies. Learn more about your ad choices. Visit podcastchoices.com/adchoices

We're going to start posting each podcast episode that you see on YouTube a week earlier on Patreon. So feel free to join for early access to all episodes. Plus, we're going to start doing bonus podcast episodes every week. So if you want to join Patreon, it's patreon.com slash concrete videos. Next week's episode is already posted there. So feel free to go check it out. Hello, world. Andreas Antonopoulos is probably the most.

qualified human being on this planet to speak about Bitcoin. He is a bestselling author, speaker, educator, and highly sought-after expert in Bitcoin and Open Blockchain Technologies. He's known for making complex subjects easy to understand and highlighting both the positive and negative impacts these technologies have on our global societies. He's very good at explaining a very complex topic like this to a dummy like myself, which I really can appreciate. So without further ado, please welcome.

the amazing Andreas Antonopoulos. Let's do this. Great. Let's do it. Andreas Antonopoulos. Did I get it right? That's correct. Thank you so much for joining me, man.

I've heard a lot about you. A lot of people have told me about you. I have a very loose familiarity with Bitcoin and cryptocurrencies in general. I just had a guy on here two weeks ago who from the Atlanta area, Rich Clark, who sort of gave me a breakdown of it. I watched a documentary. But all that being said, I still don't believe I fully understand it. I mean, yes, that's absolutely understandable. So I'm thankful to have you on here.

So hopefully maybe you can clear up some of that misunderstanding I have. Let's see. I'll do my best. I appreciate that. So what would you say it is that you do in the crypto world? What is your significance to the world of? cryptocurrency and Bitcoin and blockchain and all of that? I'm the explainer.

Okay. It's as simple as that. I try to take these complex topics and explain them in simple terms. The majority of my career in technology, I have been focusing on education and trying to explain complex topics in easy to understand terms. And I'm a computer scientist by training. So I'm a technical expert, but I tried to speak the language of the non-technical expert. And that's what I do for Bitcoin and for open blockchains in general. I believe it came out in 2008 Bitcoin did.

Is that right? The paper was released October 2008, October 31st. And the actual network started live January 3rd, 2009. Yes. Okay. So when this first came out, where were you and what made you decide to? to jump into this? So I missed the first two and a half years, approximately, of Bitcoin's life.

I was interested in digital currencies and the application of cryptography to things like that since the early 1990s. But when Bitcoin came out, I didn't really pay attention to it or I didn't hear about it. I seem to remember hearing about this sometime in 2011, and I dismissed it out of hands because what I read was about a gambling site. I wasn't particularly interested in gambling, so I made assumptions and ignored it. And then in 2012, I heard about it again, and this time the article that I was reading had a link to the scientific white paper written by the inventor of Bitcoin Satoshi Nakamoto. and I read that white paper and completely derailed my life, my career, and very, very derailed the next four months of my life as I, I devoured everything I could find about Bitcoin,

all of the information I could find. And I spent 16, 18 hours a day, reading, writing, and coding, and not eating or sleeping much. So that was a pretty good derailment. First of all, where did you find this so-called white paper by Satoshi Nakamoto? So you can find it on the website, bitcoin.org. And in PDF format, as it was published October 2008. The article I was reading was on a geek news site called slash dot.org.

It's an old style geek news media site. it was about Bitcoin, but one of the links in the article was about, was directly to the white paper. And so when I read this, keep in mind, I was primed to get it. I'd worked for two decades in information security and distributed systems and network protocols. And as I started reading, I was like, okay, this is not what I thought it was. This is not just a system of money. This is not just some kind of token thing. This is not a company. This is a very sophisticated, elegantly designed distributed system. And it seems to have solved one of the main problems in this field, which is how do you make it decentralized and prevent people from cheating?

And that just blew my mind because I knew that a lot of people working on that problem. So I was primed and it pushed all my buttons. And I had that epiphany moment. As far as like, I like to use the term elevator pitch, if someone asks you, what is Bitcoin? Do you have like a boiled down one sentence summary of what it is, your own version? In its simplest form, Bitcoin is the money of the internet. Once you understand that, the next step is to understand that it's more than that. It's the internet of money. And then it's even more than that as you keep digging. It's not a company. It's not an organization. It's a software system that runs in thousands of different computers simultaneously where no one has direct control

over it. It's a collaborative open system. And it provides a currency and a system of payment that exists entirely online. Is there, do you see anything happening in the near future that's going to sort of tip the scale and make this sort of like a widely known thing that everybody uses? I think it's important to understand that it's already being used in some places and under some circumstances and for some applications because this is a technology that solves very specific problems that not that many people have yet. And it offers a number of opportunities and as it matures, that space expands. Whether or not the financial institutions start using it or not,

that's a bit like asking which phone company will start supporting faxes over the internet. That's not the point. Which horse carriage manufacturer will start using automobiles to do rides around Central Park? This is a system that allows us to not have financial institutions. It deinstitutionalizes finance. Just like the internet, deinstitutionalize news or media or entertainment.

So it's like which record company is going to use the internet as its main distribution? Well, kind of all of them, but that's irrelevant. because the whole point is that you don't need the record company when you have the internet. And in the same way, you don't need the financial institution to engage in the acts of finance. Finance becomes an application, just like media distribution becomes an application. There is no TV station company supporting what you're doing right now because a TV station is no longer an institution. It's an app you run on your desktop. So if you think of Bitcoin as that, as an app you run on your desktop that makes you the banker,

and then the question, when will bankers use this, doesn't really make sense because they won't. In fact, this kills banking, at least traditional consumer banking, retail banking, of the type of a checking account, a savings account, sending money from one friend to another, there's no need to do that any more than there's a need to. to print out a newspaper and distribute it in the era of the internet. So as for broad adoption, well, at the moment, in the Western developed world, Bitcoin

doesn't really solve a problem for someone. US dollars work, visa cards work, and most people, and that's about 85% of the population, have access to these tools. The issue is, There's 15% of the population, some 60 million people, in fact, here in the U.S. who have no access to banking. And as you go around the world, that percentage increases further and further. There are some countries where 75% of the population have no access to any form of financial service.

And then the really interesting thing is what happens if, for them, it's not about access to banking, it's simply about putting an app on a very simple smartphone. and suddenly that person, no matter where they are, has the same level of access to financial services as a licensed broker dealer on Wall Street. And that's where things get really interesting. It opens up the entire space of finance, democratized it, and makes it available to anyone with access to a basic computing device and some basic data services anywhere on the planet without vetting, without authorization, without middleman, without any kind of controls and restrictions. And that really changes the way we see finance around the world. So I guess my question is, what is the incentive for basically like an average everyday

blue collar person who has a nine to five job or is self-employed makes a decent amount of money, maybe invests in the stock market a little bit? What is the main incentive for somebody like that? to get into Bitcoin or start investing into Bitcoin? Well, if they're in the U.S. and they have access to financial services, then really investment is correctly the only area that might have some interest to them. What is the last thing you said? Sorry. Investments might be the only area they have interest in.

Right. You know, if you think of someone who doesn't have access those things, simply the ability to send money across borders to protect their wealth from. inflation, those are other questions. But let's take a blue-collar worker in Pennsylvania who is, has access to a simple checking account, maybe even has a 401K. So the real question is, what can they do with this? The main thing they can do is have an alternative form of investment that does not behave like the other investments in their portfolio. So right now, all of their investments are all U.S. dollar denominated in the American stock market. And, they're all responding to the same kind of signals.

They're all very traditional, and they're all responding to the same signals, which nowadays is basically how much stimulus is the Federal Reserve doing? Lots? Great. Not so much? Not so good. And it doesn't really matter which company you pick, which stock you pick, which bond you pick, the entire economy is going to the song of the Federal Reserve. That's not a very robust system. It's a pretty fragile system, and it leads to these boom and bust cycles.

And the US dollar loses value slowly, but through inflation, it loses value all of the time. So the thing about Bitcoin that's different is that while it is very volatile, it's not directly connected to these other things. So it behaves on its own tune. And so from that perspective, what I suggest is if someone's interested in investing in Bitcoin, they treat it. like adding cayenne pepper to their stew. A pinch will make it a bit spicy and interesting. Put the whole pot of pepper into your stew and you've ruined the stew.

I hear a lot of people who are like, I'm gonna take all of my 401K and stick it into Bitcoin. Well, that's probably not a smart first move. I would start small and maybe see how that goes. as you gain experience. But I'm not primarily interested in Bitcoin for its investment potential. As an investment, it's a new technology. It's got some interesting characteristics.

What's really interesting is about opening the world of finance to six billion people who have never had access. And connecting the world without barriers, without gatekeepers, without geopolitical games, without are you approved, vetted, documented, and politically correct enough to have access to this system? that is interesting. That is world-changing. I love the way you describe banks as being like Ponzi schemes.

Or you say the banking system is very similar to the structure of a Ponzi scheme. Can you explain that? Well, I mean, part of the reason that I have difficulty explaining Bitcoin is because most people really don't have in-depth on the of how money works and how the world of finance works. So if you actually understand how commercial banking works, how dollars are created, who creates them, how they're distributed, et cetera, the system is tilted in favor of those who have banking licenses and access to the centers of investment in such a way that they can make

enormous amounts of money taking very little risk. And they can engage in all kinds of fraud and corruption and never get punish more than a percentage fine, which they just wrap into the cost of doing business. And it's a system that's very easy to manipulate from the inside. So it creates a very fragile system that generates income inequality and absurd conditions of wealth in some areas and kind of ridiculous poverty trap for many, many people. Those are not bugs of the system. those are the natural outcomes of a system that is designed and architected in that way. You will always get those outcomes because of the way the system is architected.

Those who are closest to the sources of money can gain an enormous advantage simply by the features of the system. So there's a mechanism called fractional reserve banking, which means that for every dollar of deposits that is entered into circulation and held by the banks, the banks can issue $9 worth of loans out of thin air. So they take the $1 that you deposit and they issue another $9 for a total of 10 of money that doesn't exist, that they created out of thin air, which they lend to you at interest rates that far, far exceed the interest rates that they pay on money and make money on that.

Now, if they were also taking enormous risks with those loans, maybe that might be a smart system. But as we've seen again and again, anytime they get into any kind of systemic travel, they just get bailed out with another bucket full of money or a river of money or an ocean of money. And so this is a system that will continuously transfer value from savers, investors and the poor in the form of inflation and fees to, to those who are at the center of the investment system. It's a corporate welfare mechanism, basically.

The biggest welfare queens on this planet were $2,000 suits and work on Wall Street. Do you think there's any chance of, I mean, I see especially the U.S. government, trying to either, A, ban Bitcoin or B, try to create their own Bitcoin and make Bitcoin like illegal or something? Every government on the planet is going to try and do both of those things to some extent or other. Some will do it in a very ham-fisted

and short-sighted way. They'll try to go for an outright ban. Of course, the problem they face is this. There is no place in which Bitcoin exists. It exists everywhere on every computer that ever has participated in the Bitcoin system. So who exactly do you go after? It's not owned or controlled by any corporation or individual.

There is no center to it. It's a decentralized thing. It's like saying let's ban the web. Okay, which part of it? All of it at the same time? How? And ultimately what Bitcoin does at its very fundamental basis is it uses mathematics to secure the distribution of money as communication,

which means that as long as you can express transactions, money, in any communication medium, you can transmit it. I can take a Bitcoin transaction, I can convert it into emoji, I can post it on Twitter, and I've just transmitted a transaction. How do you know it's a transaction? You don't. It just looks like a bunch of emoji. My recipient does. They'll make sure to get that to the right place so that it works the transaction. I can take a transaction. I can embed it in the color variations of a photo of six kittens and post that on a Craigslist ad. Now the other person can take that.

So bottom line, money is communication. How do you ban money when money is communication? Well, the only way you can do that is by either banning all communication, which is impossible, or imposing enormously strict penalties or fines to people who dare touch this system of money. And then you run into some other problems. In countries where the rule of law matters, banning private individuals from engaging in legitimate commercial transactions for legal purposes, kind of doesn't make sense. And if you try to do it, you're going to get a lot of pushback and have to justify why you're doing it. In places where the rule of law doesn't matter, you can do that in a very ham-fisted approach, and then everybody up and down the line is going to ignore you, get bribed, probably in Bitcoin, turn a blind eye, and the game continues, because governments have never effectively banned anything.

really. They try, but saying it's in the law and actually making it happen on the ground, two different things, especially when what you're talking about is for many people the difference between feeding their family next month or not. How much risk are they willing to take? And so you get into this weird situation where what you're really talking about is banning legitimate commercial interactions between voluntary consenting adults in open markets. You can't really do that in democratic countries without cracking down on everything. So more likely, sophisticated governments are going to try indirect approaches. The first and obvious one is propaganda.

Bitcoin is only used by terrorists, criminals, pedophiles, and pornography. as I'm sure you've heard. The problem with that narrative, of course, is every now and then you meet a hairdresser or a dentist who uses Bitcoin and they don't look like a terrorist pornographer. So at that point, hmm, that creates some cognitive dissonance. Then you find out that refugees in Venezuela

using it to fight the regime and escape from a dictatorship, more cognitive dissonance, et cetera, et cetera. So propaganda has been the first measure. Every time they say, you know, money laundering happens through Bitcoin. Actually, it happens through Deutsche Bank and Goldman Sachs. But, you know, as you've said in your reports,

where you keep catching them and doing nothing about it, these propaganda techniques are largely failing to stop Bitcoin. Another approach is to make a tangle of taxation around it, or to make it very difficult to acquire or exchange. change from national currency or to national currency. Of course, the problem with that is if you cut off the on ramps and the off ramps, people just stay in the economy. So, okay, you stop me from converting dollars into Bitcoin.

So what I do is I ask to get paid in Bitcoin and I pay other people in Bitcoin directly without converting it back to dollars. So now you've encouraged me to stay in the economy. It's kind of like if you build a wall on the southern border, the migrant workers who used to leave every season because they could come back the next season, instead stay because they don't know if they can come back anymore. Right, right. There's this finicky thing called unintended consequences, and Bitcoin is a whole bundle of

unintended consequences. So anyway, I think the more likely thing is governments will try to compete by building things that they pretend are kind of like Bitcoin, form. of digital currency that are managed by the Federal Reserve or other central banks. In the industry, we call these CBDCs, which stands for central bank digital currencies. They're basically a neutered, half-assed attempt to copy Bitcoin that has none of the characteristics of Bitcoin. It's not open.

It's not borderless. It's not censorship resistance. It's not surveillance proof. It's not neutral to transactions. You can't join it without being vetted, et cetera. So it's taken away all of the industry. interesting things. It's kind of like AOL and CompuServe tried to do with the internet. It's like, oh, you like the internet. Well, here's our version. It's proper and curated and safe.

Right. Boring. And so we're going to see this is an ongoing battle. But basically what they're trying to do is stand in the way of the use of mathematics. and advanced technology by consenting adults to do commercial transactions with all of the economic incentives to bypass all of these controls. That's not going to work. So what would this, what would the world look like in your view without this, the banking systems we have now? I mean, everybody is so used to this as what we've always had is money backed by gold and a dollar, two dollars, three dollars, no one's ever thought of things in terms of value in any other way. How would the country or the world look without banks and only Bitcoin?

What would be the biggest differences? Well, so money has gone through five major revolutions since the beginning. If you start with early debt records from the Sumerians to shells and feathers and beads to precious metal nuggets and then pressed into coins and then paper money and certificates of deposit and then eventually kind of plastic credit card stuff. Surprisingly, a lot of people in 2020 think that money is backed by gold. I just heard you say that. our money is not backed by gold hasn't been backed by gold since um 1971 uh in fact really since uh the early 1900s there is no gold backing any of the national currencies anymore isn't it backed by oil now well it indirectly the u.s dollar is backed by oil only because there's this kind

of deal with the Saudis you know we bomb your enemies and protect your dictatorship and in return, you only sell oil to other countries if they pay with dollars. But that's just a dollar. All the other countries, and in general, money is backed by economic use. If there's an economy that uses this currency, then that creates the expectation that if you have a unit of the currency, then tomorrow you can use it to buy something useful like eggs. That basis is the basis of money, It's utility. I expect this will still be useful tomorrow because it was useful today and useful yesterday. That illusion doesn't always work.

Countries run into problems when that illusion is broken because the money doesn't actually buy as many eggs as you wanted, huge inflation, crisis, collapse of government, etc. But for the most part, that's what money is backed by, basically a social agreement and habit. So can it change again? Well, first of all, I don't think we're going to see a world where magically everything's going to get replaced by Bitcoin. Some Bitcoiners do. I don't see that. I think what we're going to see is a world where we had 194 currencies, each identified by a flag or a queen, to a world where there are thousands of currencies, 90% of them existing only in digital form, freely exchange.

and usable on the internet, a kind of mess, a kind of messy democratization of finance, where everybody can kind of choose to use whatever's convenient at that moment. And with software, we're gonna hide a lot of the nasty details so that maybe your software changes from one money to another without you're really noticing, so that it's not as confusing. I think that's the world we're going into.

And the reason I think that is because I've seen that happen of the internet and with previous technologies. Like there used to be for TV stations, right? Now there's tens of thousands of TV stations, but we don't really call them TV stations because it's really just independent programming whenever you want it. There used to be major newspapers.

Now, they're still there, but they're not as important anymore. There used to be only one airline per country, had it flag on the tail, just like the current CST, like the currency is today. Now if you told someone the only airline that can fly out to France is Air France, they'd be like, no, that's ridiculous. Why would you do that? So the idea is that the only money you could use in France

is the French money is also ridiculous. We just haven't quite seen that yet. The world is gonna get more complicated, more nuanced, but that also means more democratic, more open, more accessible to a lot more people because governments have abused their ability to control money consistently, as they do with many powers. So in the end, that happens at the expense of people who end up having to jump through all of these hoops simply to gain access to the main engine of economic activity and to essentially feed their family, protect their future. If you

if you create opportunities for that to happen without the interference, through private means, through online systems that are open to everyone anywhere, that creates a very interesting future, an initially very messy and confusing future, but ultimately, in my opinion, one that has much more choice. Another confusing thing to me is that, you know, there's also the original Bitcoin, which that the guy Satoshi Nakamoto, created with that white paper. But then since then, there's been like dozens of other alternate coins that people have invented.

Yes. So is that, do you kind of relate that to being like someone having like a YouTube or a Hulu or Amazon Prime? They're creating their own little like spin-offs of television? Yes, exactly. I mean, they're using the exact same program that Satoshi Nakamoto came up with, right? Just like changing it a little bit. Only some of them, especially the early ones, really modified the recipe very, very, only, only a tiny bit. And then other people tried to improve and modify.

You know, when you design a piece of software that has financial implications like this, every decision you make is a series of tradeoffs. And some people disagree with the tradeoffs. It's like, okay, Satoshi Nakamoto chose to make it very secure at the expense of making it not so fast. What about if we make it more fast but less secure? And some people like, yeah, that's a great idea. Okay. So now there's another one.

It's more fast, but less secure. If that's what you need, great. And every shade in between, on every axis of specialization you can imagine. So think of it as first there was the Ford Model T. It was black, one color, one chassis, one function. You want a truck? It's still a Ford Model T. You want something to run around town?

It's still a Ford Model T. You want it bigger? Sorry. You want it red? No. Now, you know, the difference between a Ferrari, and an agricultural tractor that is designed to haul logs through a forest is so vast that you might not even recognize them both as being effectively the same kind of automotive vehicle. And they've made different choices into how they treat the various tradeoffs.

And so you might say, well, the Ferrari is great. Not if I want to haul logs through a forest, it would be useless. It wouldn't get very far. And my agricultural tractor wouldn't go really, really fast around the Formula One track. So it really depends on what you're trying to do. And there is no one fits all purposes because the purposes are so varied and because you can't predict what the purposes are going to be. So this has led to, as we see in many early technologies, is first you have a prototype that establishes, okay, this is a viable concept, the Ford Model T. And then people tweak it in a thousand varieties and you get this explosion of variety, differentiation.

Everybody tries to make a slightly different thing. And initially, they're all mostly copies of that, but eventually they become quite differentiated. So that's what's happening with this. The interesting thing is that once Bitcoin opened the door, anybody can create a currency. And not only can they create a currency, but using this. recipe, they can create a currency that is from day one instantaneously, entirely global, unforgeable, quite secure, verifiable, runs on lightweight software on a myriad of devices. And at first has no value, but people might start using it.

So then that begs the question, how many currencies will we have? And the answer is a bit like how many YouTube stars will we have? how many podcasts will we have? Well, I mean, we're all copying the same one idea of I have a TV channel or I have a show. So in the end, you could have everybody in the world creating their own currency, just like everybody in the world could create their own podcast. And the vast majority would be crap. So for the most part, everyone would just use the most popular currency. There is a particular statistic distribution that arises out of these phenomena called the Pareto distribution parallel or long tail. We see this with also known as the 80-20 rule. So 20% of the music artists are 80% of the market. 20% of the YouTube channel are 80% of the views. You have a handful, five or so who dominate the market. They have the majority, more than 50% of all of the clicks. And but then what you have is a very, very long tail that goes off into infinity of these tiny, tiny little YouTube stars, channels, music artists, books, whatever the category is that have one reader or one viewer. But there's an infinity of them, right?

That's what I predict is going to happen in currencies. And in fact, we are beginning to see that distribution emerge. And it's a natural outcome when you have something that is socially distributed like money is and where there will be some affinities, some popular ones, or some ones that are just better. But there's nothing stopping everybody and their uncle from doing one. What is the advantage? What is the incentive for me to create my own currency? because I get a small percentage of each transaction?

Well, there's all kinds of things, but yes, of course, if you were conniving, what you could do is you create your own currency and then allocate a whole bunch of it to yourself before you give it to everybody else. That's called a pre-mine in cryptocurrency. And then if anybody else gets interested in and they buy it and trade it and give it some value, the many more units that you have already allocated to yourself acquire value.

It's a bit like starting a company and selling shares to it, which, by the way, also violates a whole bunch of U.S. laws if you do it in that way. So there's been a lot of these kinds of pyramid schemy, Ponzi schemy scams that people are doing because it's a very easy way to, if you're good at branding, at marketing, at chilling, at promoting these things, you can go out and persuade them that what you just built is the next Bitcoin. In fact, that's what they all say. And then if anybody pays attention, you can make serious amounts of money. Don't do this. It's both unethical and illegal, but people do anyway. So you should be skeptical. The really interesting thing is that in a way, this is a form of human

expression that is as old as time, because the idea that anyone can create money seems surprising when you're used to national money, but it's much less surprising if you walk into a kindergarten with the perspective of a sociologist or an anthropologist, and you watch kids turn rubber bands and colored wooden blocks into currency

that they use to establish social hierarchy, bonds, affinity, approval, association, and friendship. Social beings use the language of value to establish and reinforce social ties. And we see not just humans, in fact, you can teach primates to do this, and they will not only readily adopt money,

but they will very, very quickly evolve various uses from it, not perhaps the best uses. An experiment that was done with primates teaching them how to exchange tokens for bananas resulted not only in broad adoption in these, entire primate space that was being studied, but very quickly resulted in the invention of armed robbery, beat the other monkey, take his tokens, you have bananas, and prostitution, sell tokens for, give tokens for sex.

That was so funny. I was just talking to somebody. Somebody actually just told me about this last weekend. That's amazing that you just brought it up. Yes, but what this shows is it doesn't show us anything about money, other than. this, and I think this is a very interesting and important point. Ultimately, money doesn't have value. Money is a language. It is a language that we use to communicate value to each other, and it is therefore an artifact of civilization. It is an artifact of a social species engaging in acts

of society, an acts of civilization. As we build larger societies, the ways that we express value to each other become complex. You can no longer exchange favors or here's five chickens, give me a haircut. I, you know, I appreciate that you gave me some eggs last week, so why don't I help you fix your fence? Keeping track of all of the relationships, that numbers, and opportunities and the exchange rates of different types of favors becomes cumbersome. What humans do is they abstract this in linguistic terms by inventing money. And we invent total. that can be used to express that value. The tokens themselves don't have any value. They just have to have certain characteristics. They have to be rare. If you can find them everywhere around you, then you get inflation very quickly. They have to be unforgeable because otherwise people will just start creating them to increase their social status. They have to be easily transportable in most cases, although there are some interesting exceptions in history of the giant race stones, as they're known. And they have to be instantly recognizable and with a universal unit of measure.

Now, if you think about all of these characteristics, we've done this with physical things. And these physical things always have some disadvantages. And some of the tradeoffs we have to make involve getting a government in the game so they can produce them in a way that is scarce and unforgeable and trusted by everyone. But once you realize that as long as it has those characteristics that can work as money, then you realize that software can do this very effectively. And that's basically what Bitcoin is. It's the recognition that money is language, a language we use to express value, and languages encoded digitally become communication media on the internet.

And with software, we can manage the fundamental properties that ensure that this is good money rather than kind of useless money. We make sure that you can't just make more of it at a whim, that you can easily recognize it, that you can't forge it, that you can verify that it's real, that you can transport it easily, and that it keeps its value over time, that you can divide it into smaller bits if you only need a bit of it, but also bunch it together into bigger bits. All of these characteristics have been engineered into a software system. And turns out, because we can tweak these parameters in software, we can make money that is best. better than any type of money that has ever existed. And that's where things get interesting because add to that, that it is open and available for anyone to use without authorization.

And the world changes. You said it has to be scarce. Who determines how many bitcoins there are allowed to be? And how is it, how is it scarce? That's a great question. And in fact, the very concept of digital scarcity was a complete oxymoron, until the invention of Sadoci and Akamoto. So the way Bitcoin is produced is by a set of rules

that are enforced by everyone who participates at every step of the way. And so as new Bitcoin enters into circulation, it enters into circulation primarily as a reward for those who are ensuring that the rules are followed by doing certain security things. We call those miners.

But effectively what they do is they verify that every transaction is correct, it's properly signed by the person who wanted to do the transaction. They check that the money isn't being spent twice. They check that the person who is spending it actually has that money. They check that it was spent at the right time and various other conditions. In return for doing this work, they get rewarded, but they also have to put down kind of like a bond, a guarantee by spending energy. If they do it wrong, they've already put down the energy but they don't get any reward so they end up losing. If they do it right, they've put down the energy but they get reward so they make a small profit. And this keeps everything aligned. We don't

need to know who they are or why they're doing this because they're incentivized to do this. So basically we buy security with energy. The end result is that no one's in charge and the rules that everyone agrees on, which are written in software, get enforced by everyone. The miners check us. We check the miners. When I'm running the Bitcoin software, I'm checking everybody. And everybody's checking all of my transactions. If we think that one of the transactions is wrong, our software will flag it and reject it.

And then it doesn't go anywhere on the network. One of those rules is how much new Bitcoin enters circulation. And that was set at a fixed amount every 10 minutes back in 2009. and then every four years it gets cut in half. In a grand event that's called a halving, three of those have happened. The last one happened in July, and it was when the amount was cut to

six and a quarter of Bitcoin per block per 10 minutes. In four years, it's going to get cut to three and an eighth. Then four years after that, it's going to be 1.7, et cetera, et cetera. and it keeps decreasing until eventually 100 years into the future, the last block that has Bitcoin as a reward in it is issued and it only has the smallest unit, which is the Satoshi. If you do the math, you know, 50 every 10 minutes for four years, then 25 every 10 minutes for four years, then 12 and a half, then, and you keep going down that route, you end up with a number

that is 21 million. In fact, it's a few bulbs short. It's 20,99,99,99,999, 999.99.99. Something like that. Can't you break down a Bitcoin into like millions of bits? A single Bitcoin can be broken down into 100 million subunits called Satoshis,

and named after the owner. So 21 million Bitcoin is 2.1 quadrillion and Satoshis, which all get issued by the year 2140. And after that, the network continues to operate based on transaction fees, which pay the miners to do security. But there is no more Bitcoin issued. Now, interestingly enough, before 2009, scarcity in a digital thing was an oxymor. After 2009, a digital scarcity is now the most scarce thing that has ever existed.

Because we talk about other things being rare. Diamonds, which aren't rare, gold, you know, whatever. Yeah, gold is rare on this planet as far as we know. No, that's a scam cartel marketing plan by the De Beers Consortium that's organized, persuading you that they're rare. Really? Yes, they artificially inflate the price. They're not.

Interesting side story. They're not actually rare. They're at least 10 times more plentiful than the price would suggest. And they very, very carefully control the supply to keep them from having their price dump. Gold is somewhat more rare. We know that because we keep trying to extract it at great price. But then again, there could be an asteroid flying around the solar system on a thousand-year orbit. that's going to come by the earth pretty soon, that's made of 100 trillion tons of gold,

because gold is made in stars. So we don't know how much is out there. Well, we do know how much is out there. A lot, infinite amounts, right? So any physical substance is only rare in a certain context. You can say, okay, water is rare in the Sahara, but not in the Great Lakes region. It's really interesting when you think of a digitally created artificial scarcity that is more rare than anything that's ever been done because the constraints are mathematical. So we can say that the rules of Bitcoin, which make Bitcoin what it is, say you cannot make more than $21 million.

Those rules cannot be broken without breaking the system and creating something that isn't Bitcoin, which people would ignore. And based on those rules, we know exactly how much is going to be issued right now, and in the next 10 minutes, and all day today. And so that gives us a degree of certainty that has never existed. It's a fascinating design idea. It's a fascinating invention. And it has some really interesting implications for economists who have never seen anything like this. It's a very abstract idea in terms of it's thinking of money. It's not any like you have to completely restructure your understanding of money and how money works. Yes.

So every 10th. Revolutionary. Revolutionary. Absolutely. So every 10 minutes at the current at the moment, it's what, four Bitcoin or six bitcoins? Six and a quarter. Yeah. Every 10 minutes, all of the transactions of the past 10 minutes or whatever else is waiting.

to be included in a block to be verified, gets bundled in a block. A block is just like a bucket that we put all of the transactions and batch them so they can be recorded on the global system. So every 10 minutes, a new batch of transaction is recorded. And the first transaction in that batch is one that creates this new Bitcoin and issues it to the miner who completed the verification. All the miners around the world are there, they have. like CPUs or computer towers or something that are processing all this information from everyone

around the world that's making transactions and they're bundled into one block of information. That's correct. And the block inside it has a special number called a proof of work. And in order to find the special number that fits the puzzle, there is a mathematical puzzle involved, you have to spend a lot of energy. And the only reason you spend that energy is as a demonstration of your commitments that you've done the security correctly, that you've done the verification correctly. The energy isn't necessary to do the verification. And it doesn't matter how many transactions you're verifying. That doesn't cost anything to verify them.

The reason we spend the energy is as a show of commitment, it's the table stakes, quite literally, to participate in the mining process. and because only one minor wins each round of 10 minutes and because they have to spend all of this energy, if they went and did that and messed up the security verification, they would end up losing a lot of money. And that's just the system of incentives. The only purpose of that is to incentivize people to do security without having to know who they are, check their work, or chase them around or take them to court. It's just a mathematical system of rewards. So how many people are doing this around the world right now?

How many minors are? We don't know, which is really interesting. Again, it's one of those fascinating things about Bitcoin. We don't know. We don't know who they are. We don't know how many they are. We don't know where they are. And so we don't know why they're doing this.

Well, we do know why because it's profitable. Right. People can say, yes, I'm a miner and I have this warehouse. Here, come bring your TV crews. Let's do a tour. And we can calculate by reference how much computing is being used and how much energy is being used to do these calculations because the numbers are in the blocks. But we don't know how many different companies, individuals are doing this. It's hundreds, thousands, and anyone can join or leave this system anytime they want and new people join with.

new computers that are faster and more efficient all the time. And all these miners keep Bitcoin alive. It makes Bitcoin what it is today. They are among those who keep Bitcoin alive, but I'm not a minor, but I keep a copy of the Bitcoin blockchain on my computers, several copies, in fact. And my computers are also verifying all of the transactions, including verifying the work of the miners. If the minor is all disappeared overnight. The blocks would stop being issued, but I would still have a copy of it to be able to verify it. Interestingly enough, and here's another really incredible invention that happened here, Sadoji Nakamoto designed a system whereby if more miners join the gain,

what happens, practically speaking, is that as more miners are trying to find this proof for each block, they produce blocks faster than 10 minutes. And so every two weeks, the entire global system recalculates how difficult it should be to find this proof. If blocks have been produced faster than 10 minutes, then it gets more difficult. If blocks have been produced slower than 10 minutes, that it gets easier. So the game dynamically adjusts. Think of this as you've got a bingo board, right, or a Sudoku puzzle. And there's a bunch of people, there's 20 people in the room and they're playing. Well, you run a game every 10 minutes on average.

Now, if you double the number of people playing in the bingo hole, you'd probably be running games faster because someone would make a bingo somewhere in the room twice as likely because you have more bingo cards out there. So what you do is when the number of people playing in the room doubles, you make the bingo sheet twice as large. Well, now it's going to go back to the same amount of time on average to find one. If half your bingo players left, it would get slower for a while, and then after two weeks, you'd reset it, make it half as big, and then it would go back to the same time. So the 10-minute heartbeat is what stays stable, and the number of miners determine how difficult it's going to be.

and if more of them join, it gets more difficult so that we stay at 10 minutes. And if some of them leave, it gets easier, so we stay at 10 minutes. And that way, that algorithm has grown from one minor, Satoshi Nakamoto, on a laptop, doing blocks by themselves, to today an industrial infrastructure that produces a hundred billion dollars worth of computer systems a year. and electricity use and is doing the mining. And over time, through all of these adjustments every two weeks,

they're still producing blocks at exactly the same rate. And that's all done by the algorithm or the software that Satoshi Nakamoto created? Yeah. It's basically market economics implemented in a software algorithm. Supply demand. The demand is for a block every 10 minutes. And depending on the supply, we change the difficulty price to adjust. So it'll forever be 15 or it will forever be 10 minutes, 10 minutes.

Unless we change the rules. But in order to change the rules, you have to have everybody change the rules simultaneously and agree to change the rules. Meaning every user of Bitcoin? That's everybody who's verifying the rules, which is every user who's running the software, has to agree. Otherwise, if they see a block that doesn't have the necessary pre-referrales, conditions to be the correct difficulty, the correct timing, the correct amount of reward,

they will say, this isn't valid according to my rules, rejected. And this is the other fascinating thing, which is that this runs a radical democracy where every participant in the system is deciding whether to accept or not the results of the computation, every block, and every transaction in it based on a set of rules. And in order to change the rules, you have to have like a constitutional super majority. Everyone has to agree to change the rules, which means that it takes quite a bit of effort and coordination to change the rules, which means that you get a very high degree of confidence that the rules are not going to change arbitrarily.

What Bitcoin is doing today, I'm confident it's going to do tomorrow. Why? Because it's very difficult to change the rules. Now, remember when I said earlier on, one of the reasons or the main reason why money has value is because I'm confident that the dollar I have in my hands today will be able to buy me something more or less of equivalent value tomorrow. That confidence that it will remain useful, that it will remain running, that it will still mean something. Well, so Bitcoin does that with an algorithm. It makes sense. it's so difficult to change the rules that it can build a long-term expectation of continuity. And every day that goes by, people say, oh, Bitcoin's dead or it's dying. It's going to die. This time, watch my words. It really is going to die. And then you wake up the next morning and it's not dead.

And that becomes the narrative. I thought this thing was dead in 2013. I thought this thing was dead when they arrested the CEO. there is no CEO. I thought this thing was dead when X happened. There's a website for that. It's called is Bitcoin dead? I think dot com. And you go there and it just displays the word no. Wow. That just says no and big letter. It just says no. It's a bit of a, it's a bit of a silly meme. But actually what it tells you is about the narrative. that provides stability and robustness in this system,

which is that no matter how many times you've heard that this thing is dead, you then get up six months later and your idiot friend who can't stop talking about this thing reminds you that it's not yet dead. And that can confound people's expectations because very, very serious economists, very, very serious bankers, very, very serious government ministers have told them,

repeatedly that this thing is dead or will die imminently. What do you use, like every day, I'm sure you have a lot of people paying you for various things you do for speaking or whatever it is you do. Yes. Do you, does everybody pay you in exclusively Bitcoin? No. I take US dollars. I take Euro.

I take yen. I take Bitcoin. I take Ether. I take a bunch of other. digital currencies as well. I get paid in things that have value and I want to receive at the moment. And I also pay some of my employees in US dollars, some of my employees in euros and some of my employees,

quite a few in Bitcoin. Why? Because it's a hell of a lot easier for both me and them. So if I want to run payroll on a Friday, all of my US dollar employees are not going to get paid until the following Wednesday. that's as fast as the banking system will work, right? Three to five days, business days, not days. One day our grandchildren will ask,

Grandpa, what's a business day? And then we'll tell them stories of when it took three to five days to send a payment. And they'll laugh at us. So with Bitcoin, I have sold my car at 11 p.m. on a Saturday while the banks are closed with absolute certainty that I'm going to get paid by someone who wasn't even there, they were buying it for their brother from another state. Can't do that with banks. I pay contractors in all around the world. For example, in the Philippines, I have someone who works for me and they get paid an hour after I run payroll, whereas all of my

U.S. employees who get paid in U.S. dollars have to wait another three days plus the weekend. So, but they get paid right away because they get paid in Bitcoin. So cross-border transactions become very, very easy. Online transactions and e-commerce becomes very easy. There's a lot of interesting use cases. For example, if I get paid in Bitcoin, nobody's going to do a chargeback. They can't. That doesn't exist.

So once I have that, if I'm a merchant and I'm getting paid through PayPal, I just had the other day someone reverse a charge. They bought a T-shirt, paid with PayPal, and they reversed the charge. The charge happened on August 29th. I got paid on August 29th, but I didn't really because they just reversed it on November 15th. So it wasn't really my money because PayPal can do that, as can all of the banks. So if you're a merchant, when do you actually get paid? Well, maybe in 60 days it's final. I've had people try to reverse things 18 months after the payment has been made.

With Bitcoin, 10 minutes, one confirmation, done. No refunds, no refunds or anything like that. I can give people refunds. I do, in fact. But it's solely up to you, right? But it's solely up to me. There is no intermediary. It's exactly as if you paid me in cash.

In fact, that's why it is digital cash. and it has many of the advantages except for the fact that I can send it to the speed of light hole across the planet. So it stays. So I have the guy Rich who I just did a podcast with last week. He basically he installed this edge wallet thing on my phone. And he sent me, I think like five bucks worth of Bitcoin. This was like maybe a month ago. And it's like this was a month ago. About a month ago.

So it's like, it's like 0.000-44 now, and it's like $7. It's worth like $7. US now. Yeah, Bitcoin's done a bit of one of those price things again, as it tends to do. You know, it could have gone the other way. I'm afraid to sell you. So that $7 or 0.000-44-4-4 Bitcoin I have in my edge wallet on my phone, that's literally inside my phone.

So that money is basically like cash in my phone. It's not stored anywhere else. else it's on my phone, where else. Well, yes. The keys that control it are on your phone and nowhere else, which those keys, which are digital keys, they're basically numbers, allow you to prove to the entire Bitcoin network that you own that money and to do a transaction with it.

The Bitcoin itself is on the blockchain, was always on the blockchain, never left the blockchain rich. Was it? Yeah, Rich. Rich didn't send you Bitcoin. Rich recorded a transaction on the blockchain, the transferred ownership from his keys to your keys, and your wallet saw that this transfer of ownership had happened,

but the Bitcoin didn't actually move. All it did was an entry was recorded on the ledger, which is interesting because what that means is that Bitcoin doesn't exist in a place. It exists in every place where someone has a copy of the Bitcoin blockchain. And what exists in your phone is kind of like the 77 digit pin number that allows you to unlock that particular chunk of 0.0044 Bitcoin and prove to the world that you have the correct control over that. You can present that. It's the pin number. That's the value.

Yes. Okay. And that's what's on your small number. smartphone and hopefully also backed up in a number of different places. You have an edge wallet. They do the backup for you. So yes. Oh, they back it up for you. So if your phone gets stolen or something, it's your safe. You can use your password to recover that backup. They can take. You can recover it. Okay. Well, I think we're running low on time. I appreciate you doing this, man. I really do. Yeah, and I think it's important to say it's okay to not, to feel bewildered by all of this, to not understand it, to find that the more you dig, the more questions you have and the more it seems confusing and intricate and detailed it is.

What I want to point out is that for those of us who are kind of my age, this is the experience we had with the internet, right? And it's like, we watched all of these TV shows where people were going, so what is the internet? Is that the www? Or is that the at hotmail.com? And it's like, no, no, no, no, that's email. Yeah, but email is the, no, I don't get it. Exactly what it's like. Yes.

And if I was to try and explain to someone non-technical how routing works on the internet or how TCPIP works or how SSL works or how a browser works, then we're real or, you know, how complex infrastructure like Netflix. works, then we're going into, the important thing is that you don't actually need to understand how TCPI routing works or how the protocol works or how SISO work in order to watch something on Netflix. And so what we need to separate here is the engineering from the use. Like most technologies that humans build nowadays, we're building on top of layers of technological evolution that go back millennia. As a result, the little bit we add on top is on this

enormous complex foundation. And sometimes the bit we add is in itself intricate and complex. And most people have no idea how it works, whether it's the watch on my wrist, the car I drive, the TV I'm looking at right now. Most people who are not experts don't really need to know these things. But it's important to understand that just because the technology is complex internally doesn't mean that it's difficult to use. That's only the early days. So understanding why Bitcoin works is not the same as explaining how to use it. And I think for your viewers who are like, okay, this kind of sounds interesting, but also very complex and why should I care? I think the real answer is, when the internet first came out, you could ignore it. Now you can't. And it enriches

your life if you become adept at using this technology, whether you are in it or not. The same thing applies with these technologies. They are fundamental and revolutionary reimagining of how we do money, finance, banking, international relations, and a whole bunch of other things. And so, learning among the first how to do the basics, how to use it, back it up, send it, receive it, and be able to recognize the main things, what does an address look like? Okay, so if I wanted to send some to my friend, how would I do that? Just like, what is a browser? How do I open it? And then what do I type? I taught my dad in his 80s how to do these things because that allowed us to connect. There is value in learning these skills, even if you're not going to do much else with them.

And so when people ask, so what do I do next? Do I invest? Do I buy this Bitcoin thing? I say start with learn and then continue with earn. Learn the skills like anything else, because you don't have to get the price right or if you don't get it right, the knowledge is still yours and you don't have to time it and you don't have to, you can make mistakes and it doesn't matter. Then earn. Rather than think about buying or investing in Bitcoin, see if you could do something that someone's going to pay you for with Bitcoin. Maybe sell something at a garage sale. A lot of the times no one will, but someone might bite, and then you got an interesting experience.

And then maybe start thinking about invest, et cetera, because then you can start using and playing with this. It's a lot easier to demonstrate and an experience than it is to explain and understand. Right. It's just one of those things you have to do. Yes, exactly. And I can talk to you about how I balance on my unicycle and it looks fantastical from the outside. But in fact, that will not teach you how to ride a unicycle. Not only that, but I can't actually explain it that well.

Most people who use it can't. You don't have to understand how the light bulb works. You just have to be willing to flip the switch. Yeah, exactly. Exactly. That is the case. And, you know, there are some places in the world where this understanding pays very significant dividends. Those are places that are mostly dealing with crises of confidence, crises of politics, crises of government, or just straight up war, famine, problems like that. where if you have a mechanism to sidestep the traditional financial system, get money from abroad, transferred across a border without getting robbed, and things like that, that's a game changer. That's a life-saving skill. You know, I'll give you a simple example.

If you're a refugee and you're trying to escape Venezuela or Syria or whatever, along the road, everything you own will be stolen from you. This is the experience of every refugee on the plan. planet, right? And you will arrive with nothing. Well, except you can actually store Bitcoin on what is known as a mnemonic, which is 12 randomly generated words. This is what wallets use as backups. I can use a wallet. I can install it. I can generate 12 words. And that is basically control of all of the Bitcoin I'll ever use with that wallet. All I have to do is memorize them. Memorize 12 words in sequence. And then throw away your phone or it gets stolen at the first opportunity, cross 17 international borders, land in another country with destitute with nothing, find a phone, install a wallet, type in the 12 words and all your Bitcoin's waiting for you. Wow. And the fact that you can do that shows you how and why this may be something that in it, it's kind of like almost miraculous in

some ways, but at the same time, it's just like so alien to the way money works today, that it can actually be a game changer and a lifesaver under some circumstances. So back to your original question. Why would a blue collar worker in Pennsylvania want to invest in Bitcoin? Today, not that many reasons. It's more of a curiosity, a play thing, that might be some very interesting applications in the future. But if you live in a place where a dictator is making your money unusable or stealing it from you or making you run for your life. This is a technology that can literally provide an exit and a safe haven for you. Well, cool, man. Thanks again for doing this.

Where can the people listening and or watching it find more of your work? So I have a big collection of free videos where I discuss not only kind of the how, but more importantly, the why, the social, political implications of this technology, why it matters for humanity, why it's interesting, why I'm enthusiastic, why I'm excited about this. You can find that on YouTube, my username A. Antonop, which I use broadly. If you put that in the show notes, I'm sure people can find it easily. Beyond that, My website, I've written six books on the subject, three technical books. The third one is in progress now for software engineers. And three books called The Internet of Money, Volume 1, 2, and 3, which are my ideas on where this technology is going and why it matters. And people can find those everywhere. And I have some cool workshops on my website where you can take, for example, a free introduction to Bitcoin and Open Blockchain's workshop, where we run through some of the practical things.

What does it look like? How does it work? And so they can find that on my website, antonop.com. Awesome. Thanks again for your time, man. I really appreciate it, Endres.