Bitcoin vs Fiat (Part 2)

00:02 We've never been able to solve this 00:03 problem until the invention of Bitcoin 00:05 in 2009. And the inventor of Bitcoin, 00:08 who's a person, we don't know who they 00:10 are. They went by the name Satoshi 00:11 Nakamoto, but we don't know who that is. 00:13 Nobody's It's the greatest mystery of 00:15 the internet, is nobody knows who 00:16 invented Bitcoin. Uh, but it doesn't 00:18 matter because they published it for the 00:20 world, gifted it to the world, and 00:22 disappeared. And so the the code nobody 00:25 needs to know who they are because the 00:26 code is open source which means anyone 00:28 can read it anyone can use it and and 00:30 once and there's a big group of 00:32 developers that maintain Bitcoin now but 00:34 uh so he that person has not been 00:35 involved for many years now okay so 00:37 Bitcoin was invented by somebody who 00:39 understand understood everything I'm 00:41 explaining and wanted to fix it once and 00:42 for all so what did they do okay so what 00:45 is Bitcoin exactly I'm going to try to 00:46 explain what is Bitcoin exactly okay so 00:49 Bitcoin is a money system that runs on 00:52 software ware. So, we are in the 00:54 internet age. Basically, everything runs 00:55 on software now, including stuff you 00:57 didn't even think runs on software. 00:59 Every car in that parking lot runs on 01:01 software nowadays, right? Software isn't 01:02 everything. And the Bitcoin software 01:05 works like a spreadsheet just like we 01:07 were looking at like a, you know, the US 01:08 dollar spreadsheet. So, that spreadsheet 01:10 runs on computers and it keeps track of 01:13 how much Bitcoin I own, how much Bitcoin 01:15 you own, and very importantly, it limits 01:18 the total amount of Bitcoin in the 01:20 system to 21 million. There is a hard 01:22 cap. It is the only money that's ever 01:24 existed in the world where we know in 01:26 advance how much of it there will ever 01:28 be. So this is how the Bitcoin system 01:30 works. And then that spreadsheet which 01:33 manages who owns what and enforces the 01:37 the limit that is what the Bitcoin 01:38 software does. It basically says who 01:40 owns what and does the total amount 01:44 owned exceed 21 million. Okay. So rule 01:46 number one, who owns what? So uh Bitcoin 01:48 is protected by encryption keys. I'm not 01:50 going to explain this other than to say 01:52 if all the computers in the world right 01:54 now tried to crack a single Bitcoin key 01:57 to to lock unlock someone's Bitcoin, it 01:59 would take a billion trillion billion 02:01 trillion years of all the computers in 02:03 the world all working simultaneously to 02:06 crack one key. And at the end of a 02:08 billion trillion billion trillion years, 02:10 they would have one key of one Bitcoin 02:12 owner and then they have to start all 02:14 over to get the second one. So, 02:15 Bitcoin's not crackable. I mean, it's 02:18 the most amazing system ever built. Um, 02:20 now that doesn't mean your account can't 02:22 get hacked at some institution, but 02:23 that's not Bitcoin being hacked. That's 02:25 like you lost your password or you 02:26 goofed something. But the Bitcoin actual 02:28 protocol is effectively unhackable. All 02:30 right. So, the Bitcoin software runs on 02:33 computers. Those computers connect to 02:35 each other and then they share who owns 02:38 what and they replicate that across the 02:40 world until there are more than 100,000 02:44 computers that have the exact same 02:46 record of exactly who owns what 02:48 everywhere in the world. And it within a 02:50 second or two of anytime someone uses 02:52 Bitcoin, it replicates so that all of 02:54 more than 100,000 computers that run 02:56 Bitcoin uh have the same record of who 02:59 owns what. In my case, you any anyone 03:01 can buy a little $500 computer and they 03:03 can run the software and it will check 03:05 and it'll check who owns what and it'll 03:07 connect and all that. Um, it's really 03:09 cool. So, um, all right. So, if I have 03:11 the the the key, that private key, I can 03:14 send Bitcoin to people and the fact that 03:17 I made that change is immediately 03:18 replicated to all 100,000 additional 03:21 computers. And that is how that works. 03:23 Okay. How does it enforce the 21 million 03:25 limit? Well, I I'll cite a few sources 03:27 first. This is the Wall Street Journal. 03:29 The computer code behind Bitcoin imposes 03:31 a hard cap of 21 million bitcoins. That 03:33 is the headline on a major Wall Street 03:36 Journal article about Bitcoin is behind 03:38 Bitcoin's rally is a simple fact 03:39 supplies are limited. This is straight 03:41 from the White House of the United 03:43 States of America that says this was the 03:46 creation of a strategic Bitcoin reserve 03:48 which was signed into law a few weeks 03:49 ago. And in the text of that strategic 03:52 Bitcoin reserve signed by the president 03:53 of the United States, released by the 03:55 White House, it says, "The Bitcoin pro 03:57 protocol permanently caps the total 03:59 supply of Bitcoin at 21 million coins 04:01 and has never been hacked." So trust the 04:03 Wall Street Journal, trust the uh the 04:06 White House or go look at it yourself. 04:08 It's like right there. The code's like 04:09 right there. Any software developer can 04:11 look at it and see. Okay. So all the 04:13 bitcoins will that it will ever exist is 04:16 21 billion. The you can't make more. And 04:18 the Bitcoin software is programmed to 04:21 disconnect anyone who tries to make more 04:22 than what 21 million. So if I went to my 04:25 little Bitcoin computer at my house, 04:26 which you don't actually need one. I 04:28 just run one for fun, but there's like 04:29 100 thousand of them, so it doesn't 04:30 matter. You really need All you need is 04:32 one, but there's like one Bitcoin 04:34 computer and basically 04:36 9999,999 backups. This is kind of the 04:38 way it works. But they're all the same. 04:39 They all talk with each other. Um, if I 04:41 went in my little Bitcoin computer and 04:43 changed the code so that there would be 04:45 more than 21 million, all of the Bitcoin 04:47 computers I'm talking to would cut me 04:49 off. They would say, "These are the 04:51 rules. If you are trying to make more 04:53 than 21 million Bitcoin, you are not 04:55 allowed to be on the network." It's 04:56 similar to the internet. If you start 04:57 talking a language that's not that's 04:59 foreign to the the language of the 05:00 internet, you're on an internet by 05:02 yourself. Like, nobody talks unless 05:04 you're talking the protocol and the 05:06 language of the internet. Okay? So if I 05:07 change mine to 21 million within a 05:10 couple seconds I am living on an island 05:11 by myself. No one will talk to me. I 05:14 have my own version of Bitcoin where I 05:15 have more and nobody recognizes that as 05:18 legit. It's I get cut off from the 05:20 network. Anybody? 05:23 Okay. So, so the value of Bitcoin is 05:25 going up as more people adopt it. And so 05:28 for the first time in history, you 05:30 actually have a choice in monetary 05:32 systems. a choice between using the US 05:34 dollar monetary system and which is 05:37 losing value or using the Bitcoin 05:40 monetary system which is gaining value. 05:42 And I'll talk a little bit about why the 05:44 price goes up and down over time. In 05:46 fact, I'll jump straight into that. 05:47 We'll I'm going to speed do this and 05:48 we'll do a Q&A. So, you may be 05:50 wondering, but wait, why is it volatile? 05:53 If this is a new monetary system, why 05:55 does it go up and down a lot? You 05:56 probably heard it goes up and down a lot 05:58 if it's being adopted by more and more 05:60 people every day. Uh the answer to that 06:02 is let's understand where that price 06:04 volatility comes from. We are super 06:06 early in the adoption of Bitcoin. Only 06:08 about 3% of the world uses Bitcoin. When 06:10 you're that early in the adoption of 06:12 anything, it is volatile. It will go up 06:14 and down because it is small. It is 06:16 getting, you know, blown around by uh a 06:18 gazillion different things. It's the 06:20 equivalent of online banking in 1996 06:22 when nobody was online banking. the 06:25 equivalent of social media in 2005 which 06:27 was Facebook was not even open to 06:30 regular users back in 2005 and the 06:32 internet in 1990 when probably none of 06:34 us were using the internet in 1990. That 06:36 is the stage of adoption Bitcoin is. So 06:38 it is early things that are early are 06:40 volatile. Okay. So we also live in a 06:43 volatile world. There's lots of stuff 06:44 happening. Thank you. happening in our 06:46 volatile world and the prices of 06:49 everything including Bitcoin respond to 06:50 the headlines and the moods and the you 06:53 know supply and demand of everybody 06:55 that's affected by anything. Um big 06:57 assets in the world respond less. So um 07:01 these are huge assets that represent the 07:05 wealth people own in the world. Money, 07:07 bonds, real estate, equities, gold, art, 07:10 cars, collectibles, gold. And the sort 07:13 thing is the US dollar is a huge market 07:14 in a huge worldwide uh thing. So it's 07:17 like a huge ship. So the US dollar 07:19 actually goes up and down quite a bit. 07:21 People just don't notice it because 07:22 everything's priced in US dollars. But 07:24 it's not uncommon in the course of a 07:26 year for the US dollar to go up a few 07:27 percentage points up and down compared 07:29 to every all the other currencies in the 07:31 world. You just don't notice because 07:32 your prices are in US dollars. Um so the 07:36 dollar is sinking but it's sinking 07:37 slowly. Bitcoin is tiny. Bitcoin is 1.3% 07:40 of the world's money. It is early. It is 07:43 small. And so Bitcoin is only 2% of 07:46 global assets. The short take is when 07:49 you hear Bitcoin, I want you to think of 07:52 this image. It is early. It is small. 07:55 Something early and small gets blown 07:57 around and it get every little wave 07:58 makes it go up and down. Um, one day 08:01 Bitcoin will look more like the US 08:03 dollar, a major major thing on the 08:06 surface of the water. It will get there, 08:09 but it's just going to take time. And 08:11 until then, until then, Bitcoin will go 08:13 up and down with each wave. You know, 08:15 every time there's some news article, 08:17 the price of Bitcoin goes up and down. 08:19 Eventually, it will be the most stable 08:21 thing in the world. Uh, between now and 08:23 then, there's a huge economic upside to 08:25 owning Bitcoin. You can make a a major 08:28 Bitcoin has been the best performing 08:29 asset in the world for the last 10 08:31 years, and I think the same will be true 08:32 over the next 10 years. Um, so there's a 08:34 huge amount of economic upside. At some 08:37 point in the future, the volatility will 08:38 be way lower, but so will the economic 08:41 upside. For example, nobody buys US 08:43 dollars and like, I'm waiting for them 08:44 to go up. It's like, no, they don't go 08:46 up. Like, because it's money that 08:48 everybody uses. Now, Bitcoin will 08:49 eventually will always go up some 08:51 because you can't make more of it, but 08:53 it's not going to go up the the rate it 08:54 has in the past. at some point 10 or 20 08:56 years from now, but between now and 10 08:59 20 years from now, the vast majority of 09:01 global adoption will happen over the 09:02 next 10 to 20 years. So, um, so when in 09:06 doubt, zoom out. So, this is the price 09:08 on a daily basis. If you look at the 09:09 price of Bitcoin every single day from 09:11 the beginning of time, it goes up and 09:13 down. Now, it's way higher here than it 09:15 is down there. It's radically higher. 09:17 But if you zoom out, the average price 09:18 over the previous two years looks a lot 09:21 smoother. The average price over the 09:23 previous three years 09:25 is extremely smooth. So like almost no 09:29 other asset if you pull back and say I'm 09:30 willing to hold it for at least three 09:32 years do you get this nice beautiful 09:34 graph like this. Um and over four years 09:37 same thing. Um so um this is a quote 09:40 that I love. We tend to overestimate the 09:43 effects of technology in the short run 09:44 and underestimate the effects in the 09:46 long run. So in the short run every news 09:48 headline makes the price of everything 09:49 go up and down. In the long run the 09:51 impacts of technology are much bigger 09:53 than people anticipated. It just takes 09:55 some time and it's like any investment, 09:57 you know, buy it and hold it. And if you 09:58 want to understand why it goes up and 10:00 down, this book explains why Bitcoin's 10:02 price goes up and down better than 10:04 anything else I've ever read. Um, I'm 10:06 not going to explain all the nuances, 10:07 but it just explains how technology 10:09 adoption works and why prices go up and 10:11 down uh in the early days.