5 GREAT questions and answers about bitcoin (see description)

00:01 Hi everyone. Someone sent me five 00:04 questions that I thought were especially 00:06 insightful and especially indicated that 00:08 they were really thinking through how 00:10 does Bitcoin work? How do the pieces fit 00:12 together? How does it all fit together? 00:14 And I just thought they were 00:15 fantastically good. These are from like 00:18 a week or two or more ago and I am 00:20 finally finally finally getting a chance 00:22 to addressing each one. So, I pasted all 00:25 of the questions in the uh description 00:28 of this video. And as I drive here, I 00:30 will attempt to simultaneously drive. Uh 00:33 for logistics reasons, I am not driving 00:34 my Tesla at the moment, which means I 00:36 actually have to drive. Um I am driving 00:39 the family Honda Pilot, which does not 00:42 drive itself, sadly, and it means I got 00:44 to try to drive and read Q&A at the same 00:46 time. But I thought these were really 00:48 good. So, here we go. All right. First 00:50 question. Question number one. Is all 21 00:52 million Bitcoin owned by someone at this 00:55 time? The answer is no. Because the 00:58 issuance schedule for Bitcoin, the rate 01:01 at which Bitcoin miners mine, uh, is 01:04 such that all of the Bitcoin is slowly 01:07 mined between the year 2009 and the year 01:10 2140, 01:12 which isundu 01:14 115 years in the future, 115, long after 01:17 we're all betting on. Um, but all of 01:20 that was front-loaded. So 95% 95 95% 01:25 1920ths of all the Bitcoin that will 01:28 ever exist in the universe has already 01:30 been mined. So 95% of all the Bitcoin is 01:34 owned by someone. It is just the last 5% 01:37 that is yet to be mined. Now because 01:40 it's frontloaded, 01:42 four of those remaining 5% will be mined 01:44 between now and 20 uh 2034. So in the 01:49 year 2034 the Bitcoin network will be 01:52 down to the last 1%. We're already back 01:54 we're already down to the last 5%. In 01:57 the next 9 years uh the issuance 01:59 schedule which keeps dropping in half 02:01 which is called the having happens every 02:03 four years. Uh because that keeps 02:05 happening and the issuance schedule 02:06 keeps going down over time. uh it will 02:08 be down to just the last one percent of 02:11 the Bitcoin that will be mined in the 02:14 final uh in the final basically however 02:17 105 years 106 years. So the last 1% 02:21 takes 106 years uh the next 4% takes 9 02:25 years and 95% of the Bitcoin has already 02:27 been mined. So next question in the 02:30 beginning this is question number two. 02:33 In the beginning, did Satoshi Nakamoto, 02:35 the creator of Bitcoin, start out owning 02:37 all of the Bitcoin? The answer is no. 02:40 So, Satoshi Nakamoto wanted the Bitcoin 02:42 to be distributed to the world in a 02:45 completely fair way where nobody had an 02:48 advantage and nobody got sort of free 02:50 access. And so, the way the Bitcoin 02:52 mining works is you have to expend 02:55 electricity and computational power. 02:58 Satoshi Nakamoto announced Bitcoin to 03:01 the world on September 3rd, 2009. And he 03:05 embedded in the Genesis block, which is 03:07 the very first block of the blockchain. 03:09 He embedded a message that said, uh, 03:12 Times of London 2009, Chancellor on the 03:14 brink of second bailout, which was the 03:16 headline of the Times of London of that 03:18 day. He did that to prove that he had 03:21 not been mining Bitcoin prior to that 03:23 day. And when he released Bitcoin to the 03:26 world, everybody had an equal shot of 03:28 mining Bitcoin at the same time. So for 03:31 example, uh the actual mining and the 03:33 launch of the network happened on 03:35 January 9 night, January 9 of 2009. Um 03:39 and Hell Finny, the first person who 03:41 publicly posted that they were mining 03:44 Bitcoin was on January 10th of 2009. So 03:47 all of those people were mining Bitcoin 03:49 at the same time. anyone in the entire 03:52 world at the launch of the Bitcoin 03:54 network could have opened their 03:56 computer, downloaded the software, and 03:58 told it to mine Bitcoin. Now, you can't 04:00 do that anymore because you it requires 04:02 specialized computers to do that now. 04:04 But right now, anybody can buy a $200 04:07 Bitax Bitcoin miner and mine like anyone 04:10 else. Uh the Bitcoin miner I run, I have 04:13 two of them. They're never going to find 04:14 a Bitcoin. It's going to they're like 04:16 going to find that one Bitcoin block 04:18 every 115,000 years. It's like buying a 04:21 single lottery ticket for the Power Ball 04:23 and expecting to win every time or 04:25 something like that. You're just not 04:25 going to win. Statistically, that's 04:28 basically impossible to win with a 04:29 single Bedax miner, which means if you 04:32 want to actually find it and mine a 04:33 block, you have to have thousands of 04:34 them. But I got the same shot as 04:36 everybody. I might win just like every 04:39 other Bitcoin miner might win. I just 04:41 only have one of them. And if you want 04:43 to win mine a block once every year, you 04:45 need 15,000 miners. If you have one 04:48 minor, you're going to win a block every 04:50 15,000 years, which is not going to do 04:52 me any good because I'm statistically 04:54 not going to be alive. So, uh, anyway, 04:56 but Satoshi did not give himself any 04:58 special Bitcoin. So 100% of the Bitcoin 05:01 that is mined by anyone in the world and 05:04 100% of the Bitcoin that will ever be 05:06 mined was mined fair and square by 05:09 someone expending computing power and 05:12 computational resources and electricity 05:14 to get that Bitcoin. And in the early 05:16 days of Bitcoin, it cost just about as 05:18 much to mine Bitcoin. It's always cost 05:22 about as much to mine Bitcoin as the 05:24 actual price of Bitcoin. It's it's 05:26 slightly less otherwise people wouldn't 05:28 mind. 05:29 It's not like a big money maker. Even in 05:31 the early days of the Bitcoin, you know, 05:33 you were expending, you know, 30 cents 05:34 of extra electricity to mine Bitcoin in 05:37 a day, for example, and you might get 05:39 some Bitcoin, but the Bitcoin in the 05:40 early days had zero value. So, you're 05:42 expending money on electricity and 05:44 getting Bitcoin that had the zero value 05:46 because it had not even acquired a price 05:49 yet. Uh, which did not happen until the 05:51 middle of 2010 when the very first 05:53 person bought two Papa John's pizzas for 05:55 10,000 Bitcoin. Um, but anyway, um, so 05:60 all that to say, uh, nobody got a, 06:02 sorry, people are calling me and texting 06:04 me and I'm, you know, my phone is AI 06:06 generating summaries as fast as I'm 06:07 talking here. Um, but it's not 06:09 important. So, nobody got, so all of the 06:12 Bitcoin started by being mined by 06:14 someone and then it became owned by 06:17 someone else when they 06:20 Hold on. Hey kids, I'm recording a 06:21 video. um they uh the bitcoin became m 06:25 became owned by someone else when the 06:27 bitcoin miner sold it to someone else. 06:29 So when a bitcoin miner mines a bitcoin 06:32 they have to expend electricity and 06:33 computational power which is which costs 06:35 money. So it costs I'm going to pick a 06:38 number. It costs like 90% of the price 06:40 of a bitcoin to mine a bitcoin. And so 06:42 they have to turn around and sell that 06:43 bitcoin to people like you and me. 06:45 Otherwise they could not pay for their 06:47 electricity costs. Now that's a very 06:49 small percentage right now. you know, in 06:51 a year, the Bitcoin network generates 06:53 about 75% more Bitcoin, less than one 06:57 less than one, you know, less than 3/4 06:59 of 1% more Bitcoin to the Bitcoin 07:01 miners. And again, that gets smaller and 07:03 smaller and smaller as a percent by each 07:05 passing year, uh, due to the Bitcoin 07:07 having. But anyway, all that to say, 07:09 everyone, every Bitcoin that has ever 07:11 been acquired by anyone was either mined 07:14 fair and square by a Bitcoin miner 07:17 expending computational power 07:20 and electricity or it was bought by 07:23 someone from a Bitcoin miner who 07:25 expended computational power and 07:27 electricity. Nobody got a free lunch. 07:29 Nobody got a free ride. Nobody started 07:31 owning all the Bitcoin. Uh it's just 07:33 similar to gold, which is why people 07:35 call Bitcoin digital gold. Who owns the 07:37 original gold in the world? The answer 07:39 is nobody. It's underground. Who gets 07:41 the original gold in the world? Well, 07:42 whoever digs it up first. Who owns the 07:45 fish in the ocean? Nobody. Who who owns 07:48 them? Well, whoever catches one, that's 07:51 who owns it. So, Bitcoin works the same 07:53 way, just like digital gold. Um, the 07:56 person who digs it and digs it out of 07:57 the ground first owns it. And if 07:59 somebody else wants to own it, you got 08:00 to buy gold from somebody who dug it out 08:02 of the ground first. And Bitcoin works 08:04 the same way. It's completely fair for 08:05 everyone. All right. So, question number 08:07 three. One second. 08:11 Question number three. Who owned all the 08:13 bit Bitcoin to begin with? So, this is 08:16 one, you know, tailored to uh of 08:18 question number two. So, the answer is 08:19 nobody. Nobody owned all the Bitcoin to 08:21 to uh begin with. It was basically 08:23 sitting out there all 21 million waiting 08:26 to be mined over the course of 131 08:29 years. Between 2009 and the year 2140 is 08:33 131 years. And in that 131 years and it 08:36 just mathematically the way the Bitcoin 08:37 protocol works, it takes 131 years for 08:40 all of the havingings to happen and for 08:43 the ultimate new issuance of Bitcoin to 08:45 reach zero at which point instead of uh 08:47 right now the Bitcoin network is ramping 08:49 up. Initially the Bitcoin miners were 08:51 paid entirely by uh block rewards which 08:55 is the the mined Bitcoin because there 08:56 was no transaction fees. Over time that 08:59 has shifted and is shifting and uh over 09:02 time continues to shift to transaction 09:04 fees. And so in the year 2140 there will 09:07 not be a block block reward. You will 09:09 not be mining new bitcoin. The Bitcoin 09:12 miners uh who secure and audit the 09:13 network in the year 2140 will be paid 09:16 entirely by transaction fees which are 09:18 anticipated to be vastly higher uh in 09:21 total value due to the value of the 09:23 Bitcoin network than the combined total 09:25 of transaction fees and block rewards 09:27 right now. So in short, the Bitcoin 09:29 miners are likely to be paid way more in 09:32 the year 2140 than they are today. Even 09:34 though there's no new Bitcoin to mine in 09:36 the year 2140, it's all transaction 09:38 fees, but the Bitcoin network at that 09:39 point will be so valuable that the 09:41 transaction fees alone will be more 09:43 valuable than uh than current uh that 09:46 they than I should say in the year 2140, 09:50 the Bitcoin um the total transaction 09:52 fees will be valued at more than the 09:53 block reward and the transaction fees 09:55 combined today. Okay. So, nobody starts 09:58 owning Bitcoin just like nobody owns the 09:60 fish in the ocean before somebody goes 10:02 fishing. Just like nobody owns gold 10:04 underground before it gets mined. It's 10:07 just, you know, I guess there's 10:08 something, you know, called mineral 10:09 rights. But we're we're looking at this 10:11 like the uh you know, again, like all 10:13 the gold's at the center of the earth 10:14 and anyone can dig for it anywhere and 10:16 whoever gets there first gets whatever 10:18 they can mine. That's the way Bitcoin 10:19 works. And where did all the cash come 10:22 from that was used to purchase newly 10:25 mined Bitcoin and where did it go? Okay. 10:28 So, newly So, as with anything, a 10:32 Bitcoin miner, just like let's talk 10:34 about a gold miner. A gold miner uses 10:37 money to dig gold out of the ground and 10:39 then they sell that gold for a profit to 10:42 someone who wants gold for jewelry or 10:44 industrial uses or to sit on it for its 10:47 monetary value because obviously gold 10:49 the the vast majority of the value of 10:51 gold is its monetary properties. 10:54 Gold had value for monetary reasons long 10:57 before it had any industrial uses and 11:01 its decorative uses have always been a 11:02 relatively small percentage of gold 11:04 value. Its monetary attributes are what 11:07 give gold the vast majority of its 11:09 value. Okay. So the question here again 11:13 I'm doing a video here and while I'm 11:15 doing a video I've gotten like 26 11:17 messages on Signal, text message, 11:19 Facebook Messenger, multiple phone 11:21 calls. Forgive me. I should I should 11:23 have set my phone to do not disturb 11:25 before I even started this. So, where 11:27 did the cash come from? Well, just like 11:29 where did the cash come from uh on 11:32 digital on the yellow rock is somebody 11:35 put up the investment dollars to start 11:37 digging. They put up the investment 11:39 dollars to start digging. The gold got 11:41 dug out of the ground. Hold on. Let me 11:43 see if I can silence. 11:47 going do not disturb does not mess you 11:50 up if I do that live in the middle of a 11:52 video. Let's hope for fewer 11:53 interruptions. Um, all right. So, just 11:56 like with gold mining, a group of 11:58 investors puts up the money to buy the 11:60 equipment to dig the gold out of the 12:01 ground. When they're done doing that, 12:03 they sell the gold to people who want 12:05 gold in order to pay for the mining 12:07 equipment, the land that they're mining 12:09 on, the electricity to purify the gold, 12:11 all of that. So, Bitcoin works the same 12:13 way. uh the original money that is used 12:16 to get the Bitcoin in the first place is 12:18 put up by investors. Investors buy 12:20 Bitcoin mining equipment and they pay 12:22 for electricity. Eventually, their 12:24 Bitcoin miners mine new Bitcoin because 12:27 it's so expensive to buy Bitcoin. They 12:29 sell their Bitcoin at a profit, but 12:31 often not a huge profit. It's often a 12:33 relatively small profit. They sell their 12:35 Bitcoin into the marketplace and someone 12:37 who wants Bitcoin for its monetary 12:39 properties buys it from a Bitcoin miner. 12:41 Same with gold. uh investors put up 12:44 money to buy gold. The gold is dug out 12:46 of the ground. They pay back the people 12:48 for the equipment and the electricity 12:50 and the labor and all of that and which 12:52 leaves a small profit. Uh and the money 12:54 that it is used to pay for the gold that 12:56 got dug out of the ground comes out of 12:58 the hands of people who want the gold 12:60 that came out of the ground. Same with 13:01 Bitcoin. the the the money that pays the 13:03 Bitcoin miners to go get it, plus the 13:06 profit they have to pay to the Bitcoin 13:07 miners comes from people who value 13:11 Bitcoin because of its monetary 13:12 properties and want to own Bitcoin 13:14 because it has it is a better store of 13:16 value than stocks, bonds, real estate or 13:19 anything else. So because of Bitcoin's 13:21 monetary property and because it stores 13:23 value due to its scarcity, its scarcity, 13:26 fun, fungeability, durability, 13:28 verifiability, 13:30 um, divisibility, all of the attributes 13:33 of money, of which there are between 13:35 five and eight, depending on who you 13:37 ask, of primary attributes of what makes 13:39 a good money. Bitcoin is does a better 13:42 job on those between five and eight 13:44 attributes, depending on how you count 13:45 them, than anything else in the world. 13:47 Therefore, people want it because it 13:49 stores value. They can exchange it for 13:50 stuff in the future. They can carry it 13:52 across borders. All of the things that 13:54 make Bitcoin amazing. People want 13:56 Bitcoin for all of those reasons. And 13:58 so, they're willing to pay for it. And 13:60 so, they buy it from Bitcoin miners who 14:02 sell it, you know, into the marketplace 14:04 for a fraction of a penny less than you 14:06 could get that same Bitcoin from someone 14:07 who already owns it. Now, how do I know 14:09 that Bitcoin miners are selling it at 14:12 the same price or less than everyone 14:13 else in the world? Well, because nobody 14:15 would buy it from a Bitcoin miner unless 14:18 they could get it at the same price or 14:19 cheaper than they could get it from 14:21 someone who already had Bitcoin. And so 14:22 that's the way markets work. Everyone, 14:24 everyone for any commodity, it doesn't 14:26 matter if it's gold, silver, soybeans, 14:29 rice, you know, corn, Bitcoin, every 14:34 commodity, everybody wants it for a 14:36 price that's equal to or less than they 14:38 can get it from anyone else in the 14:40 world. So that's how I know the Bitcoin 14:41 miners are selling it for the same price 14:43 or less than anyone else is selling 14:45 Bitcoin anywhere in the world because 14:46 otherwise me and everyone else who is 14:49 accumulating as much Bitcoin as they 14:50 possibly can would buy it from someone 14:52 who already has it instead of from a 14:54 Bitcoin miner. So where does the money 14:56 come from? It comes from investors who 14:57 mine the Bitcoin or after it's been 14:59 mined, it comes from people holding US 15:02 dollars like me. It well I don't own any 15:05 Bitcoin, you know, any US dollars 15:07 anymore, but I used to. It comes from 15:09 people like me who used to own Bitcoin 15:11 dollars or sorry used to own US dollars 15:14 and determined that that was a bad place 15:16 to keep wealth and therefore converted 15:18 it to Bitcoin and then I sold my stocks 15:20 and bonds and converted those to Bitcoin 15:22 and any real estate I could ever get my 15:24 hands on I sold and converted that to 15:26 Bitcoin and it's just that simple. So 15:29 that's where the dollars came from. Next 15:32 up um the last of the five questions 15:34 number five out of five. 15:36 Where does all the cash come from that 15:38 is used to purchase the newly mined 15:39 Bitcoin? And where does that cash go? 15:42 And what is it that gives that Bitcoin 15:45 value without being owned ever by anyone 15:48 yet? Okay, so let me get a drink and 15:51 I'll answer. 15:55 Okay, so the answer is 16:00 I need to stop here at a gas station. 16:02 I'm not sure if this is the one. Um, 16:05 we're going to find out. Anyway, so the 16:09 answer is okay. So, money comes from 16:10 people who wants Bitcoin and that um let 16:14 me see what the specific Oh, and what 16:16 gives Bitcoin value? What gives Bitcoin 16:17 value is its monetary properties. It is 16:20 it has better monetary properties than 16:22 anything else that exists anywhere in 16:23 the world because it's more durable, 16:25 more funible, more scarce, more 16:27 divisible, more authenticable, more 16:30 verifiable, more uh all the things. 16:34 Scarce, mainly scarce, like scarce is by 16:37 far the number one thing. It is it does 16:40 a better job than anything else of those 16:43 things. Therefore, it is valuable. 16:45 Therefore, people are willing to uh to 16:48 it for those reasons. And again, with 16:50 the Bitcoin miners, uh the way that 16:52 works is people are willing to Okay, it 16:56 looks like I did not miss my exit after 16:58 all. Okay. Um so, bit people are willing 17:01 to pay Bitcoin miners for their Bitcoin 17:04 because their Bitcoin is just as good as 17:06 anyone else's Bitcoin. All the Bitcoin 17:08 in the world is equal. It's all durable, 17:11 fungeible, divisible, verifiable, 17:13 authenticable, and scarce. It's all all 17:16 of the Bitcoin, just like all of the 17:18 gold, is uniform. And therefore, Bitcoin 17:22 uh that has been freshly mined is just 17:24 as valuable as Bitcoin that was mined 17:26 back in 2009. It's all the same. And 17:29 because it's all the same, it's valuable 17:31 for the exact same reasons the existing 17:33 stock of Bitcoin is valuable. So, 17:36 anytime someone mines new Bitcoin, 17:39 someone like me or like you or like 17:41 someone in the world is willing to pay 17:43 them for that Bitcoin because of its 17:45 monetary properties. The exact same 17:47 reason they would buy Bitcoin from 17:49 anyone for its monetary properties. Um, 17:52 and again, as long as the Bitcoin miner 17:54 is selling their Bitcoin for the same or 17:57 one penny less than anyone else in the 17:58 world is is is uh is selling it for, 18:01 they will sell the Bitcoin. or the 18:03 Bitcoin miner can choose to sit on the 18:04 Bitcoin if they can afford to sit on the 18:06 Bitcoin after they have already paid for 18:09 all their electric bills, their labor 18:10 costs, the Bitcoin mining equipment, the 18:13 return on investor to their investors 18:15 after all of that is done if they still 18:17 have Bitcoin left over that they don't 18:20 have to sell to uh pay off all those 18:23 people. Well, then of course they can 18:24 keep it and that is their profit that 18:26 they can keep on their balance sheet. 18:27 And a lot of Bitcoin mining companies 18:29 have kept some Bitcoin, but typically 18:31 it's a pretty small percentage of what 18:32 they mine because they have all these 18:34 costs they have to pay for. So, um, 18:36 anyway, let me make sure I answered that 18:38 one. So, where does all the cash go? 18:40 And where did Oh, and where does the 18:42 cash go? Anytime you're buying Bitcoin, 18:44 it goes into the hands of whoever's 18:45 selling the Bitcoin. So, uh, if you, you 18:48 know, buy Bitcoin from a Bitcoin miner, 18:50 which they're always going to sell it 18:51 through Coinbase or River or something 18:52 like that, so you're never buying it. 18:53 You might be buying it directly from a 18:55 Bitcoin miner, but you would never know 18:57 that because they're just selling it on 18:58 exchanges like just like you and I can 19:00 sell Bitcoin on exchanges. Um, so where 19:03 does the cash go? Like whoever's selling 19:04 the Bitcoin. It might be a Bitcoin 19:06 miner. It might be somebody like me or 19:08 you who wants to go on a nice vacation 19:10 and is sitting on a bunch of Bitcoin 19:12 that's massively appreciated and just 19:14 decided that a nice vacation is worth 19:16 more than 0.001 Bitcoin or however much. 19:20 Um, and it could be but someone who 19:22 needs to pay off a medical bill. It 19:23 could be someone who has a down payment 19:25 on a house, but someone somewhere is 19:28 willing to to give up Bitcoin right now 19:30 at $108,000 per coin. Someone somewhere 19:33 is willing to sell the Bitcoin because 19:34 they need US dollars or their local 19:37 currency for something to improve the 19:39 life of them or their family. Or it's a 19:41 Bitcoin miner who needs to pay for their 19:43 mining equipment. They need to pay their 19:44 investors. They need to pay for 19:45 electricity. And again, just like with 19:47 gold, it's like where does the where 19:49 does the money go that pays for the gold 19:50 that comes out of the ground? Well, it 19:52 goes to the gold miner. Well, where does 19:53 it go if you buy gold from a a uh a 19:56 bullion dealer, which is people who sell 19:58 like gold by the ounce or by the, you 20:01 know, gram or whatever. And the answer 20:03 is, well, it goes to them and back to 20:06 someone somewhere along the chain who 20:08 decided they were willing to part with 20:09 gold for $3,400 an ounce or whatever it 20:12 is. Anyway, hope all that makes sense. A 20:14 lot of moving part. Fantastic questions. 20:17 Uh, and again, the last part of that is 20:19 what gives it value if it's never been 20:21 owned by anyone. The answer is because 20:23 it has all the monetary attributes of 20:25 every Bitcoin that's ever been mined 20:27 before and all the Bitcoin that's ever 20:29 been owned by anyone before. And because 20:31 Bitcoin is so amazing, it has all these 20:33 incredible attributes that make it super 20:34 valuable. And that's how that works. So, 20:37 uh, I especially appreciated these 20:39 questions because I thought they were 20:41 especially insightful and indicated that 20:44 the person who asked these questions was 20:46 really doing the mental hard work, the 20:48 proof of work, really doing the mental 20:50 hard work to link together. Okay, but 20:53 why this, but why this and where this 20:54 and how did that happen and why does 20:56 this have value? I just I thought this 20:58 was uh a group of some of the best 21:01 questions I've been asked in a very long 21:02 time. And I deeply appreciated those 21:04 questions and I'm glad I finally had a 21:06 chance to do a video answering those 21:08 questions. If you have any follow-up 21:10 questions, stick them in the comments 21:11 and I'll take my best shot. Thanks 21:12 everyone.