Tai Zen: This is Tai Zen with PrisonOrFreedom.com and I’m broadcasting from 30,000 feet in the air on American Airlines flight 1054. And with me, next to me here my passengers right here on the same seat here is David, he is a high school teacher. And we were talking about Bitcoin and he asked me to explain to him what is Bitcoin.
So in this video, I want to give a nontechnical explanation of what Bitcoin the platform, the currency and how it works and the way, the how, the what, the when and everything. And thanks to American Airlines, they’re sponsoring us with ginger ale. First of all, just say hello, David.
David: How are you doing.
Tai Zen: David first heard about Bitcoins a few weeks ago and he got online and did some research on it and was still confused about it. So let’s go ahead and explain to him. Bitcoin is a public ledger, it’s a platform, it’s a public ledger, accounting ledger, it’s a platform and a network.
You can describe it in any of those manners. The easiest way to understand Bitcoin is to think of it as a highway system in your country. And that highway system is called Bitcoin. The rules, the laws and the regulations that govern how things travel through that highway network are also called Bitcoin. The actual vehicles themselves that travel through that highway are also called Bitcoin. So there’s the first confusion.
So now we understand that Bitcoin is a network. And the things that go through there are called Bitcoin and the rules that govern how things travelled through there are also called Bitcoin. Do you have a question? Does that I help you so far?
David: So far so good.
Tai Zen: Okay. So the objects that the vehicles that travelled through that network, that highway system right now is being used as a currency. And what is a currency? Currency is anything that people decide to use as an exchange value.
So throughout history, we know that gold has been the primary vehicle of value exchange. So I can give you an ounce of gold and you give me something in exchange for it. Any questions so far? Any confusion so far?
David: No, I think it’s still not totally clear. No, let me keep listening.
Tai Zen: So probably the first question that comes to your mind is that why did someone create this Bitcoin network or this highway system, right?
David: No, I think I understand there’s some attraction to a non-governmental, non-regulated…
Tai Zen: Universal.
David: Yeah, kind of universal form of currency. If that’s the intent, I understand why that would be of interest to people.
Tai Zen: Okay. So the question that probably comes to your mind is why are these vehicles that travel to these network being used as a currency and what is so special about these vehicles that people would want to use it as a currency? Why not just use gold or the US Dollar or the Euro or…?
David: I mean, that’s one of the big questions. I think the second big question is let’s say, I want to buy, I don’t know, an iPhone. Could I buy an iPhone using Bitcoins and how would that work and how would I feel secure that I’m getting value for my Bitcoins?
So the question that you’re asking is the iPhone example is very good right now, you can buy almost any electronic gadget or hardware or software, you can pretty much buy this plane ticket with Bitcoin.
All you have to do is go online and search for a business that accepts Bitcoin. You just search online and there is also a Bitcoin directory that lists businesses that accept Bitcoin.
So just like you have a business that accepts Visa or MasterCard or anything like that, or they accept the US dollar or the Euro or the Mexican Peso, then you just find that business that accepts it and they will give you the phone
And it’s not a gimmick, it’s not a scam if they say that on their website that accept Bitcoin. And they also have VISA, MasterCard, like for example, the Overstock.com accepts Bitcoin, so you can go there and buy your phones and stuff on there.
David: That’s helpful. So then my next question is, I understand I work, I earn a paycheck, I…
Tai Zen: Is your paycheck right now in US Dollar?
In US Dollar, I save up my money and I go to buy the iPhone in dollars. I know exactly where my money came from. I know exactly where it’s going. This is what I don’t understand with Bitcoin.
I have no idea how do I get the money to purchase my iPhone with Bitcoin and where does it… I guess it goes to the business if I’ve…of course it’s from the business, but I where does this money live?
Tai Zen: Who mints the money?
David: Yeah. That’s a piece of it.
Tai Zen: So the highway system that is also referred to in the Bitcoin world as a public ledger. It’s an accounting ledger and that accounting ledger technically is called blockchain, but you don’t need a blockchain and so this ledger was invented by a computer scientist and cryptographer named Satoshi Nakamoto.
David: I remember reading about this. So the term ledger to me, and maybe I don’t have the term right, implies a zero-sum. It implies it’s always going to equal out eventually.
Exactly, this ledger right now, whenever you get paid a paycheck is in US dollars, it’s stored at the bank. So that Bank of America they have a ledger that accounts for how much money you have in there. So if you were to send me some money, they would update that ledger. If I send you some money, they would update that ledger.
So in the Bitcoin World, the Bitcoin ledger is being kept and managed by the entire community. In other words, there is no centralized bank, there is no centralized computer, there is no centralized individual, there is no centralized organization that maintains that ledger.
When Satoshi Nakamoto invented this ledger, he released it to the wild, to the public, and he said that anyone can come in and help to manage that ledger. And so whenever you send a transfer Bitcoin to me it has to be updated in the ledger. So there are millions of people out there using the ledger right now. So they volunteered their computers to update the ledger.
So instead of having Bank of America update the ledger, if you want to, you can volunteer your computer to update the ledger.
David: And what does it mean to volunteer my computer? What if I volunteered my computer? It’s a little bit of storage or what am I volunteering?
You are volunteering your CPU and your graphics, your processing power. So right now when you transfer me a US dollar, Bank of America uses their servers to process the transaction.
So when you send me a Bitcoin, the transaction is being processed by the entire network, the entire Bitcoin community. And this is what technically is called a peer to peer network because everyone can volunteer their computers to help process the transactions.
David: As long as you’re online, it requires an Internet connection obviously.
Tai Zen: Now obviously there has to be… Why would you volunteer your computer for? So there are people that are investing and spending millions of dollars on computer hardware to help volunteer to process everyone’s Bitcoin transaction.
So like if I send you a Bitcoin right now or you send me a Bitcoin, it has to be updated in the ledger and it has to be secured so that my Bitcoins actually go to your account and it doesn’t go to someone else’s account. So the reward for volunteering your computer to process these Bitcoin transactions…
When Satoshi Nakamoto invented the network, the platform, he wanted people to help volunteer to work, there were two problems. How do you get the public to volunteer their computers to process the Bitcoin transactions and how do you mint new currency?
Because if Satoshi out of nowhere minted 21 million Bitcoins, people would say that’s not fair because now you’re like the Federal Reserve, you just minted all the money and it’s not fair to us. So to create a fair system and to incentivize people to volunteer their computers to process all these Bitcoin transactions that people are creating, he offered a reward in the form of Bitcoins.
So you get rewarded 50 Bitcoins if you’re willing to process all these transactions. So all the Bitcoin transactions that happened around the world in the last 10 minutes, it’s compressed together. If you volunteer your computer to process all those Bitcoin transactions and then compress it and then encrypted so that it’s correct.
And then you send it out to the network and every other computer out there on the network gets updated and they look at it and they go and they verify to make sure that it’s correct.
David: So when I’m volunteering, it’s literally just CPU space, not time. There’s nothing I actually have to do it.
No, the Bitcoin software does it by itself. And so what happens is after you process that block of information from the last 10 minutes of transactions and you submit it to that network and all the other computers in the network are going to jump on it to verify to make sure it’s correct.
Now I’m not a computer scientist, but the way that it was explained to me is that basically, it’s like finding a square root.
If you asked me, “Tai, what’s the square root of five?” I say that it’s two point something, right? Whatever it is, it’s going to take me a while, but once I find the answer to it and I give it to you, it only takes you a quick second to verify that it’s correct. So that’s how it gets verified immediately.
And if you’re the first one to process all those transactions and you’re the first one to encrypt it and it’s everything is correct and everything is legit, right? And you submit it to the network and they review it and they double check it to make sure it’s correct, then you get rewarded 50 Bitcoins for it, but it’s random.
So let’s say your son right there, his computer is doing the same thing and if he submits it, it’s first to come, first serve and it’s random.
David: Based on how much CPU space…?
Tai Zen: It’s based on whoever gets the transaction done first and correct and encrypted.
David: And how do you verify that it’s correct and encrypted?
Tai Zen: The software does it all automatically.
David: Your explanation makes it sound like I have some control. I get that it’s random…
Tai Zen: You don’t have control because what happens is once the software is installed on your computer, it processed the transaction, it submits it and it’s like a lottery system is submitting a lottery ticket and then whoever gets it. So everyone’s computers…
David: At some point basically if I’m on the Bitcoin network and my computer’s on the Bitcoin network, at some point I’m going to end up with some extra Bitcoins in my wallet just for having been on there.
Tai Zen: Yes. And if you get it corrected. But here’s the caveat though. If a million people started processing these transactions, guess what happens?
David: My chances go down.
Tai Zen: Your chances go down. So the difficulty level gets really, really hard.
Tai Zen: And the reason why Satoshi made it like that is so that someone doesn’t come in and try to overrun the system by taking control of over 50 per cent of the network.
David: Having lots of CPU just…
Tai Zen: Exactly, so it’s a security issue. And when you submit those transactions, there’s no guarantee that you’re going to get the 50 Bitcoin reward. So when Satoshi designed the Bitcoin network, he designed it so that the reward gets cut in half every 4 years. So when Bitcoin was invented in 2009 and released in January of 2009. In 2013, it gets the reward that cut in half from 50 Bitcoin reward to 25 Bitcoins.
David: And this is based on some assumption of growth.
Tai Zen: Yes, so there will only be a total of 21 million Bitcoins ever created.
David: So could I take my paycheck and converted from Dollars to Bitcoins?
Tai Zen: Yes. And vice versa. What you would have to do is…
David: I’m still not adding Bitcoins; I’m taking from the existing up to 21 million Bitcoins?
Tai Zen: Yes, and right now after the first 5 years that Bitcoin has been available to the public, there have been about 13 million Bitcoins that have been minted. So about over a half and all 21 million Bitcoins will be minted by the year 2140. According to the Bitcoin algorithm, according to the Bitcoin software and the math
David: 2140, how is that in 4 years, 5 years, they’ve done over half, why is it slow down?
Tai Zen: Because every 4 years, it gets cut in half. So in the year 2017, it will get cut down to 12 and a half Bitcoins and so on.
David: So theoretically then if there are more and more users, the value of each Bitcoin grows.
Tai Zen: Yes, exactly. That’s why when China in 2013, when the Chinese population found out about Bitcoin and they jumped on it, the value of Bitcoin went from $13 to over a $1,200.
David: You mean the effect of the exchange rate?
Yes, the exchange rate. So let me answer that question. You ask about getting paid in Bitcoins and getting converted to Bitcoins. What happens is if you work for a company or an organization or an individual that is willing to pay you in Bitcoins, then you get accepted in Bitcoins.
So for example, let’s say that if you were going to teach me some math and you said that you were willing to accept Bitcoins and I have some Bitcoins to pay you, well then obviously you can use those Bitcoins and not have to convert it to US Dollars or to the Euro, as long as you use it with someone else that is willing to accept their coins.
David: Help me understand it.
Tai Zen: So right now, let’s say that you want to get your first Bitcoin, there are several ways to get that. The easiest way is obviously if I just opened up your phone right now and I just send you some Bitcoin obviously, and that’ll take less than an hour long. It takes me to type in your address.
David: Why would you do that?
Tai Zen: I’m just…
David: I mean why would one do that?
Tai Zen: I would do that. I would send you a fraction of a Bitcoin just so you can see how fast the transaction is and how easy it is and how you need no ID. I just want you to see the ease of it. Obviously, we’re on the aeroplane went down, no Internet connection, so I’m not able to do it, I usually do that.
But let’s say that if you agree to tutor me in math and I agree to pay you X amount, then I would send you the Bitcoins with my computer also and I don’t need to go to no bank. You don’t need to go to no bank either. So does that help make more sense now?
So the reason why only 21 million Bitcoins will ever be created is that the inventor of Bitcoin did some research and there was something with how many digits that you can store on a computer and easy for people to type in, something like that. I read it somewhere, but I don’t understand the full math but there’s a technical reason why it’s there, so it’s not just a random or arbitrary number that he pulled out of left field somewhere.
Right now you have a lot of new copycat coins that created different numbers, like a billion coins for their new currency or whatever, or a trillion coins. They just made that an even number, 21 million was technically and specifically researched and created for a reason so that in case our technology evolves.
So the way that I would send you like right now, 1 Bitcoin is worth around $500 as we’re speaking. If I wanted to send you a dollar, then I would send you a fraction of that Bitcoin that equals a dollar. And that’s how I would pay.
David: So was I right that there are now Bitcoin ATM?
Tai Zen: Yes. So in addition to me giving you a Bitcoin or paying you with my Bitcoins, you can also go to an exchange to exchange your US dollars or Euros for a Bitcoin. And now like you mentioned, they have ATMs available to where you can go there and put it in US dollars or put in the Euro and then take out Bitcoins.
David: And taking it out means I scan my bit wallet and it gets put in, there’s nothing physical.
Tai Zen: No, all the Bitcoins are digital and if you want to you can print it on a piece of paper and have it in physical form, but it’s all digital right now. Just like over 90% of the US dollar and the Euro are digital. And if you want you can get some that are printed. You go to the bank and get some that are printed on a piece of paper or you know, refer to as the US Dollar and Bitcoin can be done the same way also.
David: Are people using this as an investment vehicle?
Tai Zen: There are several ways.
David: Are you using it in your coaching?
Tai Zen: No…hold on really quick here.
David: I think I understand now how it works. Very helpful. Now I’m curious about the operation and the organization. So there’s software obviously that involves finances and security, so it got to be fairly robust and then there’s also somebody doing currency exchanges.
Okay. So the thing is this, Bitcoin is the network and the currency and is a platform that you can use to make financial transactions, right? The software is being updated by volunteers.
And when Satoshi Nakamoto, the first couple of years, he contributed and wrote the software himself with volunteers helping because it’s an open source software so anyone can download the software, review it for bugs, security and things like that and offer a recommendations and code to patch the software, to upgrade it and to make it better.
So there is a team of people that develop the software. However, anyone can do it. And what that team is, that team was formally by a person named Gavin Andresen. He is the chief computer scientist for the Bitcoin Foundation. And the Foundation is as an organization that is set up to promote Bitcoins and to educate people on Bitcoin.
So what Satoshi did was that he looked at all the people that were helping him, that volunteered their work and their effort to develop the Bitcoin software and the code and contribute their time and energy and effort. And over the years he saw that Gavin Andresen was a very capable person.
He was a very good coder, computer scientists and understand cryptography. And everything like that. And computer security. So he handed the torch over to Gavin and Gavin was willing to be public. He was willing to be public and he’s out, I think San Francisco or Boston. It’s one of those two cities, I think he might even be in Boston, but he was left in charge of being quote-unquote the lead developer or the lead programmer for Bitcoin.
And what happened was just a couple of weeks ago, like two or three weeks ago, he announced that he would step down from that role and he had the role of the lead developer since 2010 when Satoshi left the Bitcoin project and he did not want to be…no one knows who he is.
No one knows what he looks like no one knows what he sounds like or seen pictures of him or nothing. And the name Satoshi Nakamoto is actually just a pseudonym that he used. So he’s a very private person and does not want to be in the public eyes.
And so when he released his code, he wanted people to focus the attention on the technology that he had invented, which is the public ledger technology instead of focusing on him. So he wanted the merit of his software and his technology to benefit humanity and not let people determine the value of Bitcoin based on him.
So he has chosen to remain anonymous from 2009. And then when he handed the role of the lead developer over to Gavin Andresen, he has disappeared since then, so no one knows how to get in touch with him. No one has been able to get in touch with him, contact or nothing.
So you know, anybody in the media that claims that they know who he is or they’ve gotten in touch with him is all bogus and they were just all phoney. Even the article by Newsweek, that’s just bogus. Everybody’s just laughed at that in the Bitcoin community.
There are two ways that people would know that it’s the real Satoshi Nakamoto because in the beginning when he first created the Bitcoin network and the platform, he was the main guy processing everyone’s transactions.
His computer was… so he set up a bunch of computers to process everyone’s transactions until new volunteers came into the network to volunteer their computer. So because of that, in the first few months that he volunteered his computer to process the transactions for everyone, he was rewarded 50 Bitcoins every 10 minutes basically.
So right now he has more Bitcoins than anybody else in the Bitcoin world. So he has over a million Bitcoins. So when Bitcoin was worth over a thousand dollars, he was a billionaire. Everybody complains, you know, some people might say that that’s not fair, that he has all that.
But keep in mind that he was the inventor of Bitcoin and he was willing to volunteer his computers to process everyone’s transactions. And then all the early adopters, they are all millionaires now.
Simply because they got in early and they were able to volunteer their computers and take the time to secure the network. Because keep in mind, not only are you volunteering your computer to process the Bitcoin transactions for the users, but you’re also securing the network to make sure that the users don’t get hacked or anything like that. The Bitcoin, not the user’s computer, but the Bitcoin network.
And so whenever you hear that the exchanges are getting hacked, keep in mind that the exchanges are a business. So that would be similar to saying that Bank of America branch got robbed by a bank robber, but just because Bank of America gets robbed at one of their branches, does that mean that the US dollar has collapsed?
David: Ok, that makes sense.
Tai Zen: Okay. So that’s the same thing. So the biggest exchange to collapse was an exchange called Mt, Gox in Japan. And they were the biggest and the oldest exchange. And when they collapsed, they lost a lot of people’s money
And the reason why they lost a lot of people’s customers Bitcoins was because they were told by the Bitcoin Foundation and other computer scientists and security specialists that their system was not good, was not secure, and they needed to connect to the Bitcoin network.
So what they did was they disconnected their computers and their system from the Bitcoin network, and so other people couldn’t volunteer to process the transactions for them. And the reason why they did that was to increase the speed of transactions, the speed of the trades.
And then after the transactions and the customer’s trades were done, then they would reconnect to the network to broadcast out to the network what had just happened, while during the time that they were disconnected from the network, they got hacked by computer hackers trying to steal their Bitcoins.
So when they connect it back, they found out that there was a discrepancy or a difference in what their ledger shows and what the public Bitcoin ledger shows. So that’s how they discovered and that’s what happened and it’s no one’s fault but their own, because they were told over and over since 2011 that this was an issue.
Tai Zen: Does that make sense? It’s not the Bitcoin communities fault, it’s not the Bitcoin network’s fault. It’s not the volunteers who process all the Bitcoin transactions it’s nobody’s fault except for the owner of the Mt. Gox exchange.
David: So I need to…
Alright, so thanks for joining us today guys. And I know this is of interesting that broadcasts from 30,000 feet in the air and American Airlines plane. But I appreciate you guys joining with me and I hope that this broadcast if you’re watching this and you’re new to Bitcoin that the conversation I had with David will also help you to better understand Bitcoin.
If you want to support our site and our channel and our efforts, you are welcome to make a Bitcoin donation. And I will use it to help other people understand Bitcoin. If you want to donate any other altcoins, we’ll be happy to accept it. And use it as to help other people to understand the alt coin in question.
Also, thanks for joining us guys and we look forward to doing future broadcast again from 30,000 feet in the air. This may be the first Bitcoin broadcast from 30,000 feet in the air. So if someone else has it, please let me know and I’ll love to check it out. Thanks, guys.