The Insane World of Bitcoin.

something insane is happening right now there's this thing called bitcoin it has to be a giant scam right i mean it's just worthless internet money you're telling me that a digital coin named after an internet meme is now worth more than ford it's insane [Music] unless you've been living under a rock you've no doubt heard about bitcoin a completely virtual form of currency controlled by no government and no single individual created by a mysterious founder who remains anonymous to this day a currency that is now worth billions bitcoin the digital currency created a dozen years ago as an alternative to cash is exploding the fair case is that it's a giant pyramid scheme and uh people are getting sucked into it first i'll point out that bitcoin possesses all the attributes not only of good money but of supremely good money you probably have your own opinion on the subject whether it's confusion anger hope this bitcoin seems to stir up controversy and polarization wherever it goes why it's about time that we unveil the curtains and find out exactly what is going on behind all the noise and why bitcoin has stirred up the reaction that it has because at the heart of it all is something much bigger than just a digital coin and it's important that you understand it it's time that we place bitcoin on trial [Music] there's a temptation when you're first presented with bitcoin a temptation to mock and finally new rule nothing with crypto in the title ever turns out good you go to twitter and you see these profiles with laser eyes in them the memes the community the shouts of huddle not to mention some of the doomsday predictions of the us dollars collapse and the end of fiat currency as we know it it's a lot our gut instinct is to be cynical it's there's no value it's a bubble and i promise you and you're right it could go to fifty thousand it could go to a hundred thousand but i i'm certain that the end of the day it will end up close to zero how could a virtual currency something that was once literally labeled magic internet money be worth so much where is the intrinsic value that this thing provides to the world that's the first question that everyone almost always asks it's only when you're presented with an understanding of the technology and philosophy behind it all that you realize you've been asking the wrong question all along we've covered some of this in the first part of the series but to recap bitcoin is simply a bunch of transactions on a ledger that tell us who sent what amount of bitcoins to who in the same way a bank stores all the transactions you've made from your account with a bank however each transaction is validated by the bank themselves if you try to send 100 to a friend when you only have 50 dollars in your account the bank will notice that this is an invalid transaction and reject it the bank is a central authority bitcoin's goal is to be a decentralized form of currency which satoshi nakamoto its mysterious creator outlined in their white paper published during the 2008 recession instead of relying on a bank to verify that the transactions are legitimate transactions are instead validated by a bunch of computers that exist on the bitcoin network a network that anyone in the world can join by downloading the bitcoin software think of it like a voting system where each computer on the network costs a vote to determine the legitimacy of the transaction after a certain number of transactions are made a new ledger is created that links back to the previous ledger and so on and so forth which is what we've come to know as blockchain technology you see the real question isn't about the intrinsic value that bitcoin provides to the world look at the us dollar what gives it value take a second think about it in fact what gives any currency value the dollar itself has no intrinsic value it's just a piece of paper or a number on a screen what makes the us dollar valuable is the fact that the government decrees it has value and we agree that it does we trust that our dollars or pounds can be used to purchase goods or services because the recipient of our money also trusts in its value in other words the value of a currency comes from people's trust in the currency and the underlying stability of the state that is backing and issuing that currency the difference here however is that whilst fiat currency relies on the stability of the government bitcoin using its blockchain technology relies on computer code for a currency to be valuable it's important that the network of people using it trust in it bitcoin has been playing a psychological game of trust and reputation since its genesis a tug of war between good press bad press and the overall adoption of it from other users if there is demand then it has value bitcoin has clearly generated that demand the question we should be asking then is not about its value but rather its demand what's fueling it and more importantly can it last make no mistake the game of trust and reputation is not easy and until bitcoin gains mass adoption it is walking a tightrope between trust and fear and behind the scenes there are bigger and more concerning problems at play ones that threaten to snap the tightrope bitcoin walks on there has been a civil war within the bitcoin community for some time now behind all the memes hype and laser eyes one which questions bitcoin's legitimacy as a currency it's known as the block size war and it comes not from an external threat but from an internal one a problem that has been built into the very foundations of bitcoin itself the great problem of scalability satoshi nakamoto programmed it so that each block on the bitcoin blockchain can hold only up to one megabyte worth of transactions and to make things trickier there is a set difficulty level on the bitcoin blockchain ensuring that it takes 10 minutes to generate every new block with this single decision nakamoto had unintentionally lit the flames for conflict let's run some quick numbers an average transaction size is about 380 bytes therefore every block on the blockchain contains roughly 2759 transactions and if every block takes 10 minutes to generate it means bitcoin can guarantee only 4. 6 transactions per second visa on the other hand can handle over 24 000 transactions per second you see the problem nakamoto's design decision caused a split in the community a split between the big blockers and the small blockers big blockers argued that any legitimate currency needs to handle a lot of transactions far more than just 4. 6 a second they advocated for increasing the block size limit meanwhile the small blockers argued that increasing the block size limit would mean that the average person would not be able to run the bitcoin network due to its sheer size and scale causing it to be run by bigger corporations and therefore become centrally owned something that bitcoin was designed to oppose but that's not all because we haven't even talked about the energy problem yet on the 12th of may elon musk put out a tweet explaining why tesla that it once allowed their vehicles to be purchased using bitcoin was no longer doing so stating we are concerned about rapidly increasing use of fossil fuels for bitcoin mining and transactions this was a tweet that single-handedly sent bitcoin tumbling down in worth from the high fifty thousands to the high forty thousands remember it's a game of reputation and trust and musk isn't the only one who's expressed the lack of trust in bitcoin's energy use the energy problem has been around for a very long time in fact a recent analysis from cambridge university indicated that bitcoin uses more energy than argentina it uses a lot of energy the whole issue around energy remarkable just how much energy is involved in industry that consumes a lot of energy the question you're probably wondering is why why does bitcoin use up so much energy and yet again the problem is that satoshi had designed it to be this way every computer on the bitcoin network is casting a vote to say whether the transactions on a block are valid or not but how do we ensure that someone isn't able to simply cast as many votes as they possibly can and effectively rig the system this is where nakamoto outlined their proof of work system computers on the bitcoin network would have to prove the work that they've done to cast their vote and the way that they prove this is by solving a complex numerical problem that essentially forces a computer on the network to consume energy in order to solve it the first computer on the network to solve this numerical problem claims the reward of a few bitcoins for having successfully validated that block in other words it's like a lottery a bunch of miners attempting to solve this complex numerical problem consuming energy in the process in the hopes of being the first to claim their bitcoins as a reward nakamoto had made it so that each block must take 10 minutes to generate meaning that the numerical problem will adjust in difficulty so that it will take roughly 10 minutes to solve every time so the more computers on the network the more complicated the numerical problem will be in order to keep the block generation time at 10 minutes and the more complicated the problem the more energy and power is required to actually solve it it is a vicious cycle it used to be that a regular computer could be used to mine bitcoin during its early days but now there are entire mining farms created with extremely powerful computers in order to continue mining bitcoin the proof-of-work model was a clever way of preventing bad actors from rigging the bitcoin network but it was highly inefficient when it came to energy usage and scalability and with climate change and global warming it places a big ethical burden on bitcoin and its future or does it many in the bitcoin community snapped back at musk's decision calling these accusations propaganda designed to plant fear uncertainty and doubt into the minds of others comparisons of bitcoin's energy use to that of entire countries is unfair and disingenuous bitcoin isn't trying to be a country it's trying to be a currency or a store of value bitcoin miners are also incentivized to use renewable energies as they get cheaper to produce think about it as a miner you want to make money since energy costs are your biggest expense you're going to want to find ways of generating energy as inexpensively as possible as renewable energies like hydropower become more affordable you'll find that miners will gravitate towards it but it's incredibly difficult to predict just how much energy the bitcoin network is using is renewable energy some analyses predict the network to be using over 70 renewables whilst others say it's less than 30 percent and whilst our banking institutions and monetary system consumes more energy than bitcoin they are dealing with far more transactions and users but just when you think bitcoin has faced enough issues there is an even larger conspiracy looming in the background in 2019 a paper published by a professor and a student at the university of texas titled is bitcoin really untethered accused bitcoin's price of being manipulated by another cryptocurrency one by the name of tether tether is what is known as a stable coin it's a cryptocurrency that is pegged to the value of the us dollar in other words one us dollar is worth one tether coin no more no less converting a bitcoin into a stable coin is much quicker than trying to convert bitcoin into u.

s dollars and so many bitcoin holders will attempt to move their money away from bitcoin into tether when the markets become too volatile and according to a study by crypto compare 57 of all bitcoin trading was done in tether tether is a huge source for liquidity in the cryptocurrency market however the 2019 paper suggested that there had been unbacked creation of tether coins which were then swapped for bitcoin to artificially drive up demand this paper became a huge deal in the cryptocurrency space launching an investigation by the u. s justice department into tether limited and bitfenix the two companies behind the actual coin and there is this phenomenon of tither and every other day there's a billion dollar of it issued that goes to buying bitcoin the investigation found that the virtual currency tether was not at all times backed by the us dollar as previously believed which resulted in an 18. 5 million dollar fine tether is still around today with a promise of more transparency but it underpins a darker issue surrounding bitcoin the issue of market manipulation see there's something else i haven't told you about there are these things called whales not those kind of whales bitcoin whales individuals who own large sums of bitcoin according to coindesk the number of wallet addresses holding over 1 000 bitcoin in january was 2 30 satoshi nakamoto themselves is said to own roughly 1 million bitcoins from their early days of mining the currency that's more than 4.

7 of the total supply of bitcoin there will ever be so let me pose a new question what would happen if satoshi nakamoto would sell their coins it's unlikely that they whoever they are would but it emphasizes a new problem a bitcoin whale holds the potential to cause a larger price movement with their holdings especially if they were to sell there are twitter accounts literally dedicated to analyzing the movements of wallets holding large amounts of bitcoin and to make matters worse bitcoin's decentralization and anonymity makes it a place ripe for individuals with nefarious intentions who would be willing to manipulate the market to some degree how much of it is being manipulated is hard to tell so that's it then bitcoin's scalability issues it's poor energy efficiency and potential to foster large amounts of market manipulation render it a poor currency if that was where the story of bitcoin ended it would be a bleak one but where bitcoin's problems arise is where the world of cryptocurrencies and something much bigger begins [Music] the year is 2011. it's a time where the emergence of alternative cryptocurrencies or altcoins for short begin to make their appearance look a little deeper and you'll see that blockchain technology is not exclusive to bitcoin and in the wake of bitcoin's problems the development of these altcoins offered a solution or the creation of something entirely new i can't possibly outline every single one of them because there are currently thousands of altcoins out there each supposedly designed in their own unique way with a distinct purpose the cryptocurrency space is a wild west right now filled with debates about which coins are worthless scams and which ones are revolutionary dogecoin another alternative cryptocurrency was literally invented as a joke by two software engineers intended to make fun of the wild speculation in cryptocurrencies that joke is now at a market cap of 50 billion dollars at the time of recording that's worth more than ford is the cryptocurrency space currently in a massive mania and bubble probably but pause for a second let's go back to the 1990s and early 2000s tonight the information super highway and one of its main thoroughfares an online network called internet amidst what we now call the dot-com bubble this was a time when the internet was finally being commercialized and there was a buzz about its potential and what it meant for the future in all of our lives investors began pouring tons of money into some of these internet companies giving them ridiculously high valuations it was a mania with some companies simply adding. com to their names just to cash in on the hype some of these companies had no business plan no product and no profit and when capital began to dry up many of these internet companies that had no purpose or real business collapsed [Music] but even so years later internet companies are some of the largest in the world i believe that it's very easy to predict that they're going to be lots of successful companies born of the internet i also believe that today where we sit it's very hard to predict who those companies are going to be it's possible that the crypto space is in a similar situation right now in the year 2014 a 19 year old by the name of vitalik buterin stood on stage at a bitcoin conference unveiling their plans for what they called the ethereum network vitalik knew the blockchain technology was something much bigger than bitcoin that it had potential far beyond the world of finance blockchain technology is to bitcoin what the email is to the internet just one part of a bigger picture and that's what makes ethereum so interesting the ethereum network gives us the possibility to actually program and create decentralized applications or decentralized contracts commonly referred to as smart contracts now i won't go too much into the computer science behind it all because it's well beyond my comprehension but it is seriously fascinating and incredible stuff and we are only at the start of this thing everyone gets caught up on bitcoin because it was one of the first dominoes to start this all but bitcoin is a small part of what is a bigger picture do i personally think that bitcoin will be the global currency of the future no but that isn't to say that it doesn't have its uses other than being a currency when the internet was first getting started we didn't know that it would allow us to watch videos online by other people on a social media platform it was a process of evolution and although i have no idea where this world will go and which cryptocurrencies and uses of blockchain will last into the future it is exciting bitcoin isn't a scam or a fad it's much rather a story and it seems to only have just begun what about this internet thing you know anything about that stop giving me that pop-up ad for classmates.