Unchained - For Your Normie Friends: Answers to the Most Basic Crypto Questions - Ep.151

Episode Date: December 24, 2019

This fall, I had an idea to do a crypto show for my normie friends, and figured I’d release it over the holidays, when maybe my regular listeners would be with the very people in their lives who could benefit from such an episode.  I solicited questions from my own real-life friends, edited down the repeats and tried my best to make the explanations as simple as possible. I cover basic explanations of Bitcoin, blockchain and Ethereum, plus we go into questions around mining and electricity usage, and why anyone would use cryptocurrency. I hope this clears things up for some of your friends and family — and gets some of them to go down the crypto rabbit hole. Thank you to our sponsors!  Givewell: http://givewell.org/unchained CipherTrace: http://ciphertrace.com/unchained  Kraken: http://kraken.com Crypto.com: http://crypto.com Episode links:  Previous beginner episodes:  Crypto 101: https://unchainedpodcast.com/crypto-101-everything-you-need-to-know-about-bitcoin-ethereum-blockchains-icos-and-more/ How to Explain Cryptocurrencies and Blockchain to the Average Person: https://unchainedpodcast.com/how-to-explain-cryptocurrencies-and-blockchains-to-the-average-person/ Interviews with Vitalik Buterin: 2017: https://unchainedpodcast.com/vitalik-buterin-creator-of-ethereum-on-the-big-guy-vs-the-little-guy/ 2019: https://unchainedpodcast.com/vitalik-buterin-on-whether-or-not-ethereum-is-blowing-it/ Episode with Wences Casares: https://unchainedpodcast.com/xapos-wences-casares-on-how-bitcoin-makes-a-fairer-world/ Lolli: https://unchainedpodcast.com/how-to-get-7-of-your-purchases-back-in-bitcoin/ Cryptocurrency to evade surveillance: https://unchainedpodcast.com/alex-gladstein-of-the-human-rights-foundation-on-the-3-reasons-bitcoin-matters/ KHmap.live interview: https://unchainedpodcast.com/an-interview-with-the-anonymous-developer-of-hkmap-live/ North Korea's interest in cryptocurrency: https://unchainedpodcast.com/why-north-korea-is-interested-in-cryptocurrency/ Bitwise: https://unchainedpodcast.com/bitwises-latest-plans-to-get-a-bitcoin-etf-approved/ Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi, all, happy holidays. I hope this year was a wonderful one for you, full of growth, adventure, learning, fun, magic, and magic internet money. For the end of year, actually, end of decade, festivities, we at Unchained will be doing a giveaway. Woohoo! Of all kinds of nice items that we accumulated this year. If you want to win one of these nine lovely items, here's what you have to do. One, tweet about Unchained with a link to your favorite episode or the show itself. Two, give us a favorable review on a podcast platform such as Apple Podcasts. Three, send us links to your tweet and your review, plus name your top three swag items in order of preference, as well as how you'd like to be called when we announce the winners on the show.

Also include your mailing address, but don't worry, we will not be naming that on the show. Email all this to hello at unchainedpodcast.com with the subject line giveaway by midnight on Sunday, January 5th, 2020. These are the items we're sending to nine lucky winners. I will put the link, the text of this in the show notes as well so you can name your top choice items easily. A ballet crypto wallet. A ballet crypto wallet sample.

The main difference between these two is that the sample has less fancy packaging. A copy of the little Bitcoin book that I bought before I got a signed copy from none other than Jimmy Song. A copy of Bitcoin billionaires, which I got from. from the publisher to do the Ben Messrich interview on Unconfirmed, before Tyler and Karen Winklevoss sent me a signed copy. A 3 and 3 quarter inch unchained rabbit sticker. A black 3 inch unchained logo sticker.

A 5 inch unchained rabbit hole sticker. A mug of the Crypto Rabbit Listing to Unchained. An old school Unchained logo baseball cap. A white unchained Crypto Rabbit Hole T-shirt in extra small. a gray unchained crypto rabbit hole t-shirt in extra small, a black unchained crypto rabbit hole t-shirt in extra small. And that's everything. Since I don't imagine I have a ton of listeners who wear extra small,

this is the time for the ladies to step up. Or if you're a parent and want to give this to your child, because yes, if you squint hard enough, I could potentially be considered the size of a child, then these t-shirts are for you. If you are one of the winners, we obviously can't guarantee you'll receive your top choice swag. However, we will do our best. Again, to enter to win, tweet about the show with a link, review us on a podcast app, and then send the links to both of those to us at hello at unchainedpodcast.com with a subject line giveaway,

along with your preferred picks for swag by midnight on Sunday, January 5th. Good luck, and we will announce the winners and send the swag out in 2020. Happy New Year, everyone. Hi everyone. Welcome to Unchained, your no-hype resource for all things crypto. I'm your host, Laura Shin. This holiday season, how can your donation do the most good in the world? Givewell spends 20,000 hours each year researching charity, looking for the places where your donation will save or improve lives the most. They provide a free list of the most impactful charities they've found. You can find out more or make a donation at givewell.org slash unchained. First time donors using that link will have their donations matched up to $1,000. They accept traditional payment methods, Bitcoin, Ethereum, and several other cryptocurrencies. Keep this in mind while you make your end-of-year tax moves. Again, that's givewell.org slash unchained. Crypto.com, the crypto super app that lets you buy, earn, and spend crypto in one place. Get a metal MCO visa card with up to 5% back on all your spending.

Download the crypto.com app today. Cracken is the best exchange in the world for buying and selling digital assets. It has the tightest security, deep liquidity, and a great fee structure with no minimum or hidden fees. Whether you're looking for a simple fiat on-ramp or futures trading, Cracken is the place for you. Cipher trace cutting-edge cryptocurrency intelligence powers anti-money laundering, blockchain analytics, and threat intel. leading exchanges, virtual currency businesses, banks, and regulators themselves use cipher trace to comply with regulation and to monitor compliance. Earlier this fall, I had an idea to do a crypto show for my normie friends and figured I'd release it over the holidays when maybe all of you would be with the very people in your life who could benefit from such an episode. Plus, maybe it will take a load off your shoulders to refer people to it rather than trying to do the explaining yourself.

I solicited questions from my own real-life friends, edited down the repeats, and tried my best to make the explanations as simple as possible. Here we go. First question from Kate. What is Bitcoin? A short three-sentence answer? Also, a 10-paragraph answer. Here's my three-sentence answer. Bitcoin is two things.

A payment network native to the internet and a digital currency native to that network. Anyone in the world can either help run the network or see the transactions on it, and anyone in the world can also create a Bitcoin wallet for themselves to send and receive the coins. Bitcoin the currency has a fixed supply, leading many to call it digital gold. Now for the second part of the question, a 10-paragraph version, which I didn't actually count the paragraphs, but this is somewhere in that ballpark. The reason Bitcoin represents a breakthrough is that this is the first time it's been possible to send a digital object without simply sending a copy. Before, if I sent you a text message or a photo

or a word document, I was always sending you a copy. With Bitcoin, I can now send you that Bitcoin and the whole world can be certain that now you have it and I don't. By the way, self-plagiarism disclosure, I've used this explanation before. What makes this possible? Imagine the world was a really small place, the size of a village of 30 people. Then imagine that every time any of the 30 people in the village traded with each other, the two people involved in the transaction simply shouted the details of the transaction to everyone else in the village, and all 30 of us wrote down what happened and updated the ledger stating who owned how much. That in a nutshell is how the Bitcoin software works, but instead of people in a village shouting, it uses computers running the Bitcoin software

that are spread across the globe. And instead of handwritten ledgers maintained by every villager, there's a Bitcoin ledger, what we now call the Bitcoin blockchain, maintained by tens of thousands of computers around the world. The Bitcoin blockchain is a record of every Bitcoin transaction going all the way back to the first one that occurred in January 2009, which is when a couple of computers began running the Bitcoin software. So if you in California want to send a Bitcoin to someone in Hong Kong, you tell the network to send one Bitcoin to the Bitcoin address of your friend in Hong Kong, and then this transaction is placed in a sort of queue. This is the equivalent of you being the villager announcing this transaction to the other villagers maintaining their ledgers.

The Bitcoin equivalent of the 30 villagers who update their ledgers with your transaction are what we call miners. Miners are any computers that run the Bitcoin software and add transactions to the ledger. However, given that we're no longer in a village where everyone knows each other and has the incentive to keep the payment system of the village updated, how do you incentivize anonymous miners around the world to do so? here is where Bitcoin's genius comes in. First, the Bitcoin software doesn't let just anyone add new transactions to the network. It poses a really hard math problem to all the miners who are interested in adding new transactions to the blockchain. Whichever computer is the first to find the answer to that math problem is the one that gets to add the most recent batch of transactions to the blockchain.

in order for any computer to win at any given time, it has to spend a fair bit of computational energy in order to solve that math problem. Now here's the first bit of that Bitcoin genius. When your computer spends that computational energy to try to solve the hard math problem posed by the Bitcoin software, it makes it that much harder for a bad actor to commandeer the Bitcoin network to, say, create fraudulent trouble. transactions. Because in order for the fraudster to be the computer that adds the next batch of transactions to the ledger, they would need to solve that math problem before you and anyone else trying to solve it. And that means they would need to put in more computing power into Bitcoin.

So every single person who runs the Bitcoin software trying to add transactions to the ledger is also strengthening the network security, since they're making it harder for anyone else. to create counterfeit or fraudulent transactions. You might be thinking, why would anyone, just out of the goodness of their heart, want to make the Bitcoin network more secure? They don't. This is the second part of Bitcoin's genius. Each computer that solves the hard math problem and gets to add the new batch of transactions to the blockchain is rewarded with new Bitcoins that the software mince roughly every time, not roughly every time a new block of transactions gets added to the ledger, which is typically

about every 10 minutes. For about the first four years, the Bitcoin software ran, it dispensed 50 Bitcoins every 10 minutes. For approximately the second four years, that got halved to 25 new bitcoins about every 10 minutes. It's now dispensing 12.5 Bitcoins every 10 minutes, and in what is projected now to be May of 2020, that will drop to 6.25 Bitcoins every 10 minutes. These decreases in the new supply of Bitcoin are probably one of the factors propelling the Bitcoin price north. At the time of the first Bitcoin halving, a Bitcoin was worth about $12, so miners were winning roughly $600 each time they mined a block. At the time of the second Bitcoin having, the price was roughly $650, So each miner was winning about $16,000 whenever they mined a block.

At the time of this recording, Bitcoin is worth about $7,000. So each miner who mines a block earns about $90,000. Clearly, despite the fact that the software is minting fewer new bitcoins with each block, miners are earning much, much more than they were years ago. Lowering the inflation rate of new bitcoins is one of many factors behind the increase in the Bitcoin price. The supply of new Bitcoins will continue to decrease in this fashion, somewhat asymptotically, approaching a supply of $21 million. At a certain point, the halving will make the fraction of new bitcoins being produced every 10 minutes small enough that essentially the supply of Bitcoin's

will no longer increase. At that point, what will incentivize miners to keep running the network? hopefully transaction fees that users pay when they send Bitcoins on the network. While there are some questions about whether this will be sufficient incentive, not too many people are worried about it just yet, since the year when the so-called block reward, the new Bitcoins being minted by the software, is no longer dispensed. That's likely to be around the year 2140, when all of us listening to the show will be long gone.

By the way, one last note I want to make here before we move on to the next question is that the example I gave of how a village could have a payment system in which each villager maintains a ledger is actually from history. You can look up Rye Stones, R-A-I from the Micronesian Island of Yap. So in a way, you could say the concept of a blockchain or a decentralized ledger was first invented on the island of Yap. Next question. My friend Jeff asks, F is blockchain. Please explain like I'm the stupidest person you've ever met because I've had at least five people attempt to explain it to me and I still don't understand it at all. So Jeff, if you just were listening to the last question where I talked about the small village or island where people

shattered their transactions and everybody updated their ledgers, that's actually a really good way to think about blockchains. Another description that I like is one that I got from my friend William Mugiar. He likes this analogy. He says, and he's also an investor and author, he says that blockchain technology is to individual bank ledgers, what Google spreadsheets, are to Excel spreadsheets. Let's say you and your friends are taking a trip to Mexico and are keeping track of who owes money to whom. Back before Google spreadsheets, maybe each of you would track it on your own version of Microsoft Excel. Obviously, I'm making this up because hopefully, Hopefully none of you are that nerdy.

Anyway, later, if you were doing it this way through Microsoft Excel, you'd all have to reconcile any discrepancies. But now with Google spreadsheets, you and your friends can work from the same copy held in the cloud. Blockchains are similar, but they're even better than Google spreadsheets, because every change to a blockchain is timestamped. And due to the security characteristics I mentioned earlier, the likelihood of fraud is low. Plus, blockchains have another feature that make it really hard to change or commit fraud

on any transactions that are a few blocks back or older. The term blockchain is what it sounds like, a chain of blocks. Each block is a batch of transactions. So how do the blocks get chained together? This is yet another bit of the genius of Bitcoin. Every time a new block gets added, the data in that block is given a sort of handle that makes it easy to identify. The technical term for this is a hash, and in some ways, it functions like a name, since it's a shorthand way to refer to a much larger set of data. But it's even more like your DNA in terms of how unique it is to that data set. So if someone wanted to easily refer to you, Jeff, without needing you to be there fully in the flesh, but in a way where

they could be sure that it's uniquely you, they might use your DNA. Similarly, each time a blog gets added to the chain, the DNA of the previous blocks is added as a piece of data. This means that you have a snapshot of the whole entire history of the Bitcoin blockchain in every single new block. What's really cool is that since this quote-unquote DNA, the hash, is based on math, you can always use math to prove or disprove that each block is valid. If someone were to try to go back and change a transaction three blocks back in the blockchain, then the math connecting that block with the later two ones would no longer work.

Last bit on this part about blockchains. Earlier, I spoke about how Google spreadsheets are sort of like blockchains, and Microsoft Excel is similar to the ledgers that banks keep of their customers' balances. This is why it takes one to five business days for banks to move your money when you make a payment, because the various bank ledgers have to be reconciled. And that's because the banking system is not inherently digital. It's the same system that's been in use for decades long before the internet, and only in recent years have banks put up websites and mobile apps that give it a digital veneer.

Bitcoin, on the other hand, has no legacy system. It's native to the internet. It's made of software whose data is held in the cloud, not on any single computer. The other big difference you should note between Bitcoin and the legacy banking system is that like the internet, there's no one in charge. Just as there is no one company that manages the internet, there's no one company that manages Bitcoin. It's a piece of internet infrastructure and like, and many companies are built on top. But there's no CEO of Bitcoin. It's just a public technology that anyone can participate in or use. This is leading to an interest in so-called decentralized technologies. Hacks of centralized entities like Equifax or the misuse of data by the likes of Facebook have woken many people to the risks of having

a single company be in charge of the data of hundreds or millions, hundreds of millions or billions of people. That's why there is a lot of interest in remaking many of the major centralized web services today as decentralized versions that have tokens at the center, incentivizing entities around the world to offer the services that these centralized companies provide us today. Question from Margaret. Do people collect Bitcoins with a story in history? Like did anyone get any of Ross Ulbrix Bitcoins that keep them as collectibles? This is an interesting question for a number of reasons. First of all, Bitcoins are divisible to eight decimal places. 0.000000-1 Bitcoin equals one Satoshi, which is named after the pseudonymous creator of Bitcoin. This means that the coins,

that Ross Ulbricht owned at any given point in time could now have splintered into many fractions and then they could have been recombined with other fractions of coins when they were used again. That, however, doesn't mean that it's impossible to do what you described. Because Bitcoin transactions are shared on a public ledger, it is theoretically possible to trace the history of Bitcoin transactions. I say theoretically, however, because there are also a lot of technologies that make that harder. A lot of people don't want all their transactions to be public, and that's what would happen to you if, say, your wallet address became publicly known. People would then be able to

easily see what other addresses you transact with and in what amounts. This has led to a rise in services called mixers and tumblers, which take a bunch of transactions from a bunch of different people, mix them all together, and spit them out in a way that makes it extremely difficult to trace where the funds are going. For this reason, it might be pretty hard to find any coins that are still easily traced back to Ross Ulbock's possession. However, your next question leads me to a related question by my friend, Eddie. What are the other uses other than currency for blockchain technology?

So as Margaret asked about, with a blockchain, it's pretty easy to see the origin of something and trace all the transactions in its history. This has led a lot of companies to be excited about using blockchain technology to track the provenance of something, such as fair trade coffee, or to prove, for instance, that a diamond you're buying is not a blood diamond. It's also led to an interest in other kinds of financial goods that aren't currency, which includes everything from shares and companies to video game goods. Prior to the existence of blockchains, if you earned, say, a sword in a computer game, the tracking of whether or not you owned that sword depended on the game manufacturer recognizing

that you'd earned it and kept possession of it and crediting you with that ownership of it. With blockchains, you can own a video game goods such as a wand, and your ownership of it can be proved publicly on a blockchain without requiring a company to vouch for you. It can also be traded on a marketplace where the price isn't set by the game manufacturer, but instead by whatever the demand is for your wand. There are many other applications for blockchain technology, particularly around financial things, both objects of value as well as behaviors and activities. And that leads to the next question. This is also from Eddie. I've heard of Ethereum and Bitcoin. What's the difference?

As I mentioned, Bitcoin the network is a payment system, and Bitcoin the coin is the currency native to that payment system. Bitcoin has a fairly narrow purpose. It basically does that one thing. Many people liken it to how email was the first major application of the internet. Ethereum is a network that enables many of these other applications of blockchain technology that I named before, video game goods or shares in companies, and some different financial behaviors and activities. For example, theoretically, you could use Ethereum to set up an escrow service for home purchases. Right now, there are people and companies who offer such services to ensure that a purchaser doesn't make off with a house deed without paying for it and that a home seller doesn't take the buyer's money but keep the deed. But with

Ethereum, you could do that with a software program. The software could take the money from the buyer and then take the deed to the house from the seller and swap them simultaneously. You could extend this functionality out to a lot of other financial services, replacing financial middlemen with software programs. At the time that the creator of Ethereum, Vatelik Boutarin, had the idea for Ethereum, a lot of different developers were trying to use blockchain technologies for some of these other purposes. However, what he noticed is that they were each trying to build a blockchain for each specific purpose, sort of the way Bitcoin is dedicated to payments. It would be like if you had to plug one hardware device into your computer to use Chrome,

another one to use Excel, and yet another one to use Photoshop. Vatollic's idea was to create a blockchain system that had the flexibility to enable any kind of decentralized application be built on top of it, the way our computers today can enable any kind of application. That's why you may have heard people call Ethereum a world computer. It's a computer in the sense that it can power a variety of applications, but it's a world computer because, as I described in my Google spreadsheet example, the things built on it would be decentralized. They would be open to anyone just as the internet and email are open to anyone to use today. And indeed, since its launch in 2015, Ethereum has become a platform for a huge number of

decentralized applications or DAPs. Decentralized software programs that were created by a group of developers exist as autonomous code and don't have a company at the center, acting as a gatekeeper or holding onto anyone's data. In a moment, I'll explain. explain why you've probably heard about environmental concerns regarding cryptocurrency. But first, a quick word from the sponsors who make this show possible. Will the world follow France and advocate banning privacy coins? Will government-backed stable coins become the new fiat? Are distributed and peer-to-peer exchanges just a flash in the pan?

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2020. Sign up on the exchange now and stay tuned for more listings. Back to my explanations of crypto for my normie friends. Question from Jennifer. I've heard crypto, or is it blockchain, takes an enormous amount of energy and there are these massive computer facilities somewhere cold powering them. WTF exactly are people talking about. What you're talking about here is, is the competition the miners engage in to try to solve the hard math problem to win the new bitcoins being minted by the software. That is called proof of work, or a proof of work consensus algorithm. That's how the Bitcoin blockchain and many other blockchains ensure that the most commonly held version of the ledger is the one regarded as the single golden copy of the truth. It also,

as I mentioned before, secures the network against people trying to commit fraudulent or counterfeit transactions. Because so many more computers run the Bitcoin software than did in the past, there is a lot more competition to win those new Bitcoins. And that means the math problem has gotten a lot harder. Bitcoin's so-called difficulty algorithm resets periodically based on how much computing power is on the network. And its goal is to keep the interval between each block to roughly 10 minutes. If it weren't for the difficulty algorithm, Blocks that would have taken 10 minutes to mine in the early days of Bitcoin would now take a lot less, less than a second, in fact. As of the time of this recording, the difficulty is 13 trillion

times greater than it was when the software was first run in January 2009. That means if it weren't for the difficulty algorithm, we'd be getting a new block every 10 minutes divided by 13 trillion, or what apparently is every 46 picoseconds. All of which is to say that the math problem is way harder than it used to be. So it takes a lot more computer power and electricity to find the new block and win the bitcoins that come with it. That's why you can no longer just hook up your laptop and run the Bitcoin software and hope to win new Bitcoins.

Mining has become professionalized. And miners typically now run computers with chips that have been designed to do just one thing and do it incredibly well. Solve the math problem that wins them new bitcoins. Since solving the math problem takes a lot of energy, it generates quite a bit of heat when it's running. And so that's why a lot of mining equipment is placed in cold areas and also near cheap and renewable energy. Another question from Margaret. Is there a way to reduce the carbon footprint of blockchain? Yes, there are other algorithms that are being used that are less electricity intensive. The main one is something called proof of stake and variations thereof.

Before I explain how proof of stake works, let me just mention one last thing about proof of work, which is that over time, a Bitcoin miner will win a number of Bitcoins proportional to the amount of computing power they have on the network. So if you have 1% of all the computing power on the Bitcoin network, then over time, you will eventually mine 1% of all blocks and therefore or win 1% of all the new bitcoins being minted. Proof-of-stake uses a similar concept, but instead the percentage of blocks you mine is based on what percentage of coins you have staked

or have locked up in a deposit. Locking up your coins in this way turns you into a miner in the proof-of-stake system. And since people in crypto don't like making things easy, miners in proof-of-stakes systems are called validators, although not always. sometimes they're also called bakers, but let's not get into that. Anyway, however, while the terminology is different, the concept is similar. If you have 1% of all staked coins, then over time, you will validate 1% of all

blocks and earn 1% of all new ether being minted by the system. In a proof of work-based system, to try to create counterfeit or fraudulent transactions, you'd have to amass 51% or more of the computer power to force the majority of ledgers to the version of the chain that you want. In a proof of stake system, you'd have to amass more than 51% of the coins. But then if you actually did attack the system, the price of your coins would likely fall. So someone with that amount of coins would probably not be financially incentivized to carry out such an attack. Next question.

From Kate. How did Bitcoin get started? For years, there had been a number of efforts to come. create digital currency. The only thing is that all the previous efforts had various pitfalls, with one of the main ones being centralization. For instance, if a company with a headquarters and nameable officers had created a digital currency, then that meant that a government somewhere could put a stop to them. As I mentioned, however, Bitcoin is decentralized. The creator is unknown, but went by the name, went by the pseudonym Satoshi Nakamoto. He, she,

or they email the Bitcoin white paper to an email list known as the Cypherpunk mailing list, and that was popular with cryptographers and other people working on digital currency. Another developer on that mailing list named Hal Finney liked the proposal and urged Satoshi to code it up. Satoshi mined the first block on January 3, 2009, and Hal also began mining about a week later. In August 2010, a vulnerability in the code allowed someone, to create 184 billion bitcoins. But that has been the only exploit in Bitcoin's history and it was patched up. Next question from Kate. Why would one use Bitcoin versus regular currency? What are the

advantages and risks? This is a hard question for people in the U.S. and other places with well-functioning financial services to understand. So let me tell you the story of one of the most successful Bitcoin entrepreneurs, Wences Casares, the CEO of Zapo, who grew up in Argentina. He was born into a family of sheep ranchers in Patagonia, Argentina, a country with a long history of periods of hyperinflation. Growing up, he watched his family lose everything three times due to government and bank interventions. One story he tells is of how his mom took him and his sister out of school one morning.

She was a government receptionist, and that day she was carrying two plastic, bags full of cash. It was her paycheck. She took the kids to the grocery store and gave each child a list of things to get. Then they met at the cashier and each time they paid, if there was any money left over, she would send the kids back to get even more stuff. Once his sister asked why they weren't saving any of the money to spend tomorrow. And his mom answered, because tomorrow it won't be worth as much. This was also during the days when each item's price was to displayed on a sticker on the item itself. Because the value of the Argentine peso was depreciating so rapidly, one says would also see grocery store clerks going up and down the aisles changing the

prices. So one says his mom instructed her kids to run ahead of that person and grab the items before that clerk had placed a higher price on them. So a lot of people who live in places undergoing hyperinflation see the benefits of Bitcoin's monetary policy. and believe that over the long run, it should act as a strong store of value. Even for people living in the U.S. and other more economically stable countries, inflation is constantly eroding the value of our currency. For instance, a dollar in 1970 is now worth about 15 cents today. Or, in order to purchase one dollar of goods in 1970,

that would take $6.63 today. But this explanation answers why people might prefer to store their money in Bitcoin, or why people like Bitcoin's monetary policy, but that doesn't really answer why people would use it in commerce. And to be sure, because of Bitcoin's volatility, you have to be in a country with incredibly bad hyperinflation to make saving in Bitcoin worth it. You have to not need the money on a regular basis, since the price of Bitcoin is so volatile that after you buy it, the value of your Bitcoins could drop precipitously. For instance, The price of Bitcoin is currently down from its high in late 2017 or early 2018, which is when a lot of people were buying Bitcoin for the very first time.

So let's talk about why people would use Bitcoin or cryptocurrency for commerce. One reason is that cryptocurrency fees are generally cheaper than the fees charged for credit card transactions. However, as I'm sure you're well aware, the merchant pays those fees, not the end consumer. So the merchant might be motivated to use Bitcoin or another cryptocurrency, but customers might not be. So some merchants might incentivize payments via Bitcoin or cryptocurrency by offering something like a 1 or 2% discount on purchases. I know, I know. This didn't seem super compelling to me either when I first began reporting on Bitcoin. But hey, Apple Card gives 2% cash back when you use Apple Pay.

So this is a thing. Again, I'm sure these arguments aren't super compelling to people. living in well-functioning economies. However, they are appealing to people in countries with a large population that's unbanked, but has mobile phones. And that describes some countries in Asia and Africa. There, cryptocurrency is a viable option for people who want to, for instance, buy something via their mobile device, but who don't have credit cards. Then there's the last group for whom cryptocurrency solves a real need. That is people who have concerns about being surveilled through their financial activity. As you may have heard, during the protests in Hong Kong, many protesters have

been lining up at kiosks and train stations to buy their subway tickets with cash, rather than simply swiping their occupants, which could reveal their location and the route they took on the days of protests and be traced back to them. While cryptocurrency hasn't take off in any major way in Hong Kong yet, I did interview the administrator of HKMAP Live, a frequently updated map of the protest around the city. He said he's been accepting donations via cryptocurrency, and he uses that to pay for the hosting and other operations of the website, so as not to risk the site getting shut down. However, people should be aware that Bitcoin and most cryptocurrencies do not provide true anonymity. If you're not careful with how you transact, with some sleuthing, others could potentially figure out

how, if you were involved in a particular transaction. Famously, this is how the the creator of the Silk Road got caught. However, Bitcoin and other cryptocurrency transactions are at least pseudonymous, which provides some greater anonymity than transacting through the banking system. For those seeking true privacy, there are so-called privacy coins, some of which try to anonymize transactions by default, and others of which offer privacy as an option for any particular transaction. The other group for whom using cryptocurrency is appealing are those who are trying to circumvent so-called capital controls. Some countries, such as China, restrict the amount of cash their citizens can send out of the country. For instance, some reports from a few years ago

attributed the popularity of Bitcoin and China to the trend of using it to bypass the $50,000 cap on the amount of money that could be sent abroad. In general, circumventing the law is a big use case for cryptocurrencies. For instance, North Korea is interesting. in cryptocurrency and has been engaging in all manner of hacks, malware, and ransomware to obtain it. They're motivated because sanctions are depriving the dictatorship of cash. And so obtaining cryptocurrency enables them to get money outside the normal banking system. Another example, as you're probably well aware, the first time Bitcoin gained any transaction was with the Silk Road, the first online underground drug marketplace. Silk Road was not able to

exist before Bitcoin because drug sellers couldn't really easily accept credit cards or PayPal. Still, to this day, dark web marketplaces flourish, enabled by cryptocurrency. Before we move on, the last part of your question asked about the advantages and risks. One key difference between the way cryptocurrency works versus our banking system is that once a transaction is made, it cannot be reversed. There is no equivalent of a chargeback. There is no bank of Bitcoin to call to say, hey, this is a fraudulent charge, please reverse it. This is why if there's a hack of a cryptocurrency exchange, it is such a disaster. Because that exchange cannot simply make everyone whole again. The risks of trusting an exchange

to keep your coins safe for you are high. And that's why you'll often hear the phrase, not your keys, not your Bitcoin. Or not your keys, not your crypto. What that means is, if you're not in charge of the private keys that manage your own crypto, then you're trusting someone else, and if they get hacked, too bad for you. However, the alternative isn't necessarily better. If you decide not to entrust in exchange with your coins because you're nervous about it getting hacked, that no means you are responsible for not losing your coins or not getting hacked, fished, or otherwise outwitted by a hacker. And for a lot of people, especially those who aren't that comfortable with the technology, coming up with a bulletproof method for securing your own coins can be a big ask.

So last way, I want to answer this question that you asked about why people would use Bitcoin or cryptocurrency over regular currency. I actually want to rephrase the question slightly and explain why Bitcoin or other cryptocurrencies are technologically superior over other forms of money. Bitcoin is objectively superior to any previous form of money. Bitcoin is objectively superior to any previous form of money, whether paper money, coins, gold, or seashells. It's more fungible than paper money, which has been stomped on, gone through the wash, or bears traces of cocaine. It's more divisible, as I mentioned, divisible out to eight decimal points, ether is divisible out to 18 decimal points. Obviously, this level of divisibility isn't possible with dollar bills,

let alone copper pennies. It's more portable than cash. Giving someone $1 million a million Bitcoin is no more cumbersome than picking up your phone. And by that, I don't mean calling your bank and having them do it for you. What I mean is that with just a few taps on your smartphone, you could give someone a million dollars in Bitcoin. And that's without having to stuff a bunch of briefcases. Also, Bitcoin is practically impossible to counterfeit. The reason the creation of Bitcoin was so significant is that, as I mentioned earlier, for the first time in history, unique assets, not copies, were created. Finally, Bitcoin and other cryptocurrencies are programmable money. They can be programmed to execute functions when certain conditions are met. Try that with gold,

Benjamin, or seashells. Next question from Kate. How do you use it? There are many ways you could use Bitcoin. As mentioned, people can mine it, though nowadays for everyday people, the best way to mine is probably by joining a mining pool where you band together with others and pay for a portion of a mining operation and then are paid proportionally based on your share of what the mining pool earns. You can also earn Bitcoin and other cryptocurrency through some apps like Earn.com or lolly or fold. And of course, you can buy it outright on an exchange like Coinbase, Cracken, which disclosure is a sponsor, BitStamp or Gemini. And then you could just trade it or hold it if you expect that it will appreciate in value.

You can also buy it directly from another individual via a service like local Bitcoins, which connects buyers and sellers peer-to-peer style. If you already own Bitcoin or cryptocurrency, you should decide if you want to trust a company to keep your coins safe for you, or if you want to safeguard them yourself. If so, you'll have to create a custodial wallet, which you can do online at a place like blockchain.com or with a special device dedicated to keeping your coins safe,

such as Ledger or Trezzer. You can even create what is called a paper wallet. I'm not going to go into all the ways to manage a custodial wallet, but the main thing to note here is that there is quite a lot of Bitcoin lore around people who threw out hard drives or computers that contained a lot of Bitcoin or other cryptocurrency and later realized they had tossed millions of dollars worth. So if you go this route, make sure you know what you're doing and have backup plans that don't also make you vulnerable to hackers. Finally, once you figure out how to store it, you can spend your cryptocurrency or pay friends with it.

A number of stores such as Overstock, Microsoft, Cheap Air, and others accept cryptocurrency, and you can also spend cryptocurrency other major retailers such as Barnes & Noble, Bedbath and Beyond, Whole Foods, and Nordstrom. If you get really sophisticated, there's quite a bit more you can do, especially with Ether. But that gets into much risky, year and more experimental territory. So you can try these things after you graduate from being a

normie and have fallen down the crypto rabbit hole. Next question, also from Kate, what are the costs, fees, and exchange rates? I hesitate to name the price of Bitcoin because the information will be outdated pretty quickly. But just to give you an idea of how volatile it is, the current price of Bitcoin is about $7,000. And a year ago, it was at about $3,800. Two years ago, it was at about $16,000. Three years ago, it was at $800, and four years ago, it was at $400. As for fees, that will depend on where you buy it,

but it's usually a low percentage of the transaction. From Jennifer, should I be buying crypto or is it a bunch of BS? Whether or not you buy any substantial amount of crypto is up to you and depends on many factors, including your own personal financial situation. but I will say that you should at least learn more about it. And one way to do that is to buy $10 worth of it

and learn how to set up and manage a custodial wallet. Then send some to a friend or to yourself at a different wallet. For me, even after all these years, I feel a thrill when my coins show up in a different wallet within minutes or seconds. It feels so magical compared to the days that the banking system takes. Tom, how do I pick a crypto to invest in? If you want to buy to invest, you should learn more about the coins and see if you think it's worth purchasing or investing for any reason.

If you're not sure where to start your research, I'd start by learning about Bitcoin and then Ethereum simply because they're the most established and also have the most amount of information about them. No matter what, don't invest more than you can afford to lose, as you would do with any speculative investment. Next question from Vanessa. How do you dip in a toe as you can afford to lose? would buying index stocks on TD Ameritrade or something simple like that. At the moment, there probably

aren't enough coins worthy of investment for there to be an equivalent of an index fund of crypto. There are, however, ways to speculate on the sector without investigating each and every coin. Circle Invest allows you to buy collections of coins, such as those focused on privacy or payments. Bitwise Investments offers the Bitwise 10, but that's only available to accredited investors, who have a net worth of greater than $1 million or who have an annual income of $200,000 or more for the last two years, or $300,000 for joint income. A number of companies are aiming to deliver a Bitcoin ETF, but the Securities and Exchange Commission has not yet approved one. Until then, you can get exposure to Bitcoin in your retirement account via GBTC, the Grayscale Bitcoin Trust,

but that trades at a premium compared to the price of Bitcoin, since more people, want exposure to Bitcoin in their retirement accounts, then there is supply. There are also blockchain ETFs that claim to give exposure to the sector. But first, many of these companies only give oblique exposure to the crypto sector. And second, be aware that companies sometimes puff up their blockchain bona fides because of the positive press that generates for them, but they're not necessarily working on anything substantive. And that's it for the questions. I hope this has been an informative episode for the Normies or non-crypto people out there. Thanks to my real-life friends for submitting questions.

And for the friend who objected to the fact that I dubbed him a normie, let me just say I wouldn't be friends with you if you were a true normie. This is the phrase I'm using for non-crypto people. For listeners who are hearing this episode of Unchained, and it's your first episode of Unchained, if you want to learn more about crypto, we've got years worth of content for you here and on my other podcast Unconfirmed. Thanks to you all again for joining us today.

To learn more about some of the information in this episode, check out the show notes inside your podcast player. Want to show your love for Unchained? Check out our t-shirts, mugs, hats, and stickers at shop.com. Unchained is produced by me, Laura Shin, with help from Fractal Recording, Anthony You, Daniel Nuss, Josh Durham, and the team at CLK transcription. Thanks for listening.