What is Bitcoin? The Simplest Explanation Ever

00:04 My goal today is to explain Bitcoin in a 00:07 more clear, straightforward, and easy to 00:10 understand way than it has ever been 00:13 explained before. Hopefully, you can 00:15 forward this presentation to people you 00:17 know who need to understand Bitcoin for 00:19 the very first time. All right. Why do 00:22 we use money at all? We use money 00:24 because it makes it easier to trade with 00:26 each other. It is hard to trade eggs for 00:29 a cow. It is hard to trade a cow for a 00:31 house. It is hard to trade a house for 00:34 eggs. But we can use money to sit in the 00:36 middle. It makes it easier to trade with 00:39 each other. But money is also a system. 00:43 The US dollar is money. But it is also a 00:46 system we call a monetary system. And 00:50 that system is composed of banks, a 00:53 central bank we call the Federal 00:54 Reserve, the government, and of course 00:57 taxes. And a money system, which we call 00:60 a monetary system, has to do two very 01:03 important things. It has to keep track 01:05 of who has what money and the total 01:09 amount of money that is in that system. 01:13 Think of a money system as a 01:15 spreadsheet. And we're going to look at 01:17 the US dollar money system. All right. 01:21 So, this is the world's simplest 01:23 spreadsheet. And this is all most people 01:26 think about when they think about money, 01:28 which is how much money do I have? But 01:31 there's another number that is just as 01:33 important as how much money you have. 01:35 And it's this number, which is how many 01:38 dollars are there in the system. Because 01:40 your purchasing power on any given day 01:44 is your money divided by how many 01:47 dollars there are in the system. For 01:50 example, if you have $100 and there are 01:52 $1,000 in the system, you can buy 10% of 01:56 all of the things that dollars could buy 01:58 at that time in that system. But if 02:00 somebody increases it to $2,000, your 02:03 purchasing power drops from 10% to 5%. 02:07 There is a direct correlation between 02:10 the amount of dollars in the system and 02:12 the amount of stuff you can buy in that 02:14 system. And those prices are a 02:16 correlation. You can add extra money to 02:19 the system going from a,000 to $10,000, 02:23 but the price of everything just goes 02:25 up. It doesn't make more stuff in the 02:28 system. If it helps, think about all the 02:31 stuff and all the money on an island. 02:33 You can add more money to that system, 02:36 but it's not going to make more stuff. 02:37 It just makes the stuff go up in price. 02:41 So, how many dollars are there in the US 02:44 dollar system? There are $22 trillion 02:49 of US dollars in the system. So $100, 02:52 for example, could buy you a 1 g set of 02:56 gold earrings. So has the US dollar 02:58 system always had $22 trillion? And has 03:02 a $100 always bought you that much? The 03:05 answer is no. Shockingly, if you go back 03:08 to the 1960s, 03:10 we had only $286 billion in the system. 03:14 And the US has printed out of thin air 03:17 about 7% more dollars every single year 03:21 on average. Which means 286 billion has 03:25 increased by a factor of 75x 03:29 to the present, resulting in the 22 03:31 trillion we have today. So back in the 03:34 1960s, you could buy 88 gram of gold for 03:39 the same $100. that buys you one gram of 03:43 gold earrings today. So when that number 03:46 goes up, when the number of dollars in 03:49 the system goes up, the purchasing power 03:52 of those dollars in the system goes 03:54 down, which is why you see prices 03:57 rising. For example, the price of a Big 03:59 Mac is up by a factor of 12 since 1968. 04:04 The price of the same Campbell soup is 04:07 up by a factor of 10 since 1968. And in 04:11 general, all the things we need and all 04:13 the things we own cost about 10 times as 04:16 much as they did back in 1960. 04:20 Everything's rising. Now, you may be 04:22 wondering, but hasn't this number also 04:25 gone up, too? Hasn't the amount of 04:26 dollars that are earned gone up? And the 04:30 answer is yes, but only about half as 04:33 much as the prices have risen for 04:35 everything people need to buy. A typical 04:38 hour of work buys you about half as many 04:40 Big Macs and about half as much Campbell 04:42 Soup and about half as much of anything 04:45 as the same hour of work bought you in 04:48 1975. 04:50 What is going on here? If this seems 04:52 crazy, it is. Who manages this system 04:57 anyway? 04:58 The answer is each bank in the system 05:01 keeps track of who owns what money. 05:03 There is a central bank that makes sure 05:06 two people don't own the same money. And 05:09 the question is how are the dollars in 05:11 the system determined? For the US dollar 05:14 system, there is a central bank called 05:16 the Federal Reserve with a chairman 05:18 called Jerome Powell. And when they want 05:21 to increase the dollars in the system, 05:23 they meet and they effectively 05:25 doubleclick that number and they make 05:27 the number go up. They have a bunch of 05:30 fancy words that mean they're going to 05:32 print money out of thin air. But all of 05:35 these fancy words mean at the end of the 05:37 day, the total dollars in the system go 05:39 up, your purchasing power goes down. And 05:42 all of that is basically one big 05:44 spreadsheet that they're changing the 05:46 numbers on. technically called the 05:48 database, but it's a big spreadsheet 05:49 running on big computers. That is why 05:51 the number of dollars in the system is 05:54 on a tear. The dollar system runs on 05:58 politics and the politicians that run 06:00 that system are supposed to limit their 06:03 spending and they never do because the 06:06 politicians have a bunch of reasons 06:09 which are really excuses why they want 06:11 more free money to spend and the central 06:14 banks are always happy to oblige. And 06:17 again, as that number of dollars goes 06:19 up, your purchasing power goes down. In 06:22 the last 90 years, the purchasing power 06:24 of the US dollar is down by 95%. 06:28 95% just in the last 90 years. So, what 06:32 about gold? What if politicians couldn't 06:35 print the money out of thin air because 06:37 we tied the number of dollars in the 06:39 system to gold? Well, we tried that. 06:42 Paper money used to represent gold. And 06:45 if you zoomed in on a piece of paper 06:47 dollar, you could actually see that on 06:50 there it said, "This certifies that 06:51 there have been deposited in the 06:53 treasury $10 in gold coin payable to the 06:56 bearer on demand." 06:59 What could go wrong? Every time the gold 07:02 standard has ever been tried, the 07:03 government prints too much money and 07:06 breaks the promise. In 1971, the US 07:08 government broke that promise and they 07:10 actually changed the words on the dollar 07:12 to say Federal Reserve note. They 07:15 deleted all the words about how it was 07:17 redeemable in gold. What about other 07:20 governments? Are other governments 07:22 better at managing a money system than 07:25 the US government? Well, sadly, every 07:28 country prints money and most are much 07:31 worse than the US dollar. Whereas the US 07:33 dollar has lost 25% of its value or more 07:37 just in the last 10 years, other 07:39 currencies are down much more. For 07:42 example, the Venezuelan Bolivar is down 07:44 an additional 99.9% 07:47 on top of how much the US dollar is 07:49 down. The Argentinian peso, the Turkish 07:53 lera down 92 and 98% 07:56 in addition to how much the US dollar is 07:58 down. And even major currencies like the 08:01 British pound, the Indian rupee, the 08:02 Canadian dollar, and the euro are down 08:05 an additional 20 to 25% on top of the 08:09 25% of value that the US dollar has 08:12 lost. So you might be thinking, are 08:14 there any other options to this 08:16 insanity? And I'm thankful to say yes. 08:19 Now there is. Bitcoin is a better system 08:22 that results in better money. First of 08:25 all, what exactly is Bitcoin? Bitcoin is 08:29 a money system. We call the monetary 08:31 system that runs on software. And 08:33 Bitcoin is software that works like a 08:36 spreadsheet. 08:38 And that spreadsheet manages my Bitcoin. 08:40 It manages your Bitcoin. And most 08:43 importantly, it makes sure that the 08:45 total amount of Bitcoin in the system 08:47 does not exceed 21 million. That Bitcoin 08:51 software runs on computers. Those 08:53 computers connect to each other and make 08:56 exact copies of who owns how much 08:59 Bitcoin until there are more than 09:01 100,000 Bitcoin computers worldwide, all 09:05 with the same numbers. Those are called 09:07 Bitcoin nodes. And the Bitcoin software 09:10 has hard-coded rules about who owns what 09:13 and the enforcement of that 21 million 09:16 Bitcoin limit. First, who owns what. If 09:20 I have the private key of a Bitcoin, 09:23 it's protected at a security level 09:26 unheard of in the rest of the world. It 09:28 would take more than a billion trillion 09:30 years to crack one Bitcoin private key. 09:33 And if you have a Bitcoin private key, 09:35 or if that key is managed by you by 09:37 Coinbase or Binance or someone else, 09:40 then you can send or spend your Bitcoin 09:42 in the real world. And those numbers of 09:45 who owns what are replicated across 09:48 every computer in the Bitcoin system. 09:51 And every one of those computers is 09:52 making sure that there will never be 09:54 more than 21 million. This is a direct 09:57 quote out of the Wall Street Journal. 09:58 The computer code behind Bitcoin is 09:60 hardcoded with a hard cap of 21 million 10:02 coins. And straight from the White House 10:04 of the United States when they 10:06 established a strategic Bitcoin reserve, 10:08 the protocol limits the total supply to 10:10 21 million coins. So 21 million is all 10:13 there is. There will never be more 10:16 Bitcoin. And the Bitcoin software that 10:19 runs on Bitcoin nodes is hardcoded to 10:22 disconnect anyone who tries. So if you 10:25 change the software to be more than 21 10:27 million, you are rejected from the 10:30 network and kicked off. Bitcoin is 10:32 ultimately your money divided by 21 10:35 million and no one can change that. 10:37 Which is why Bitcoin is going up in 10:39 value over time. The US dollar is your 10:42 money divided by infinity because they 10:44 will never stop printing dollars, which 10:47 is why the dollar is perpetually down. 10:50 And now you have the ability to make 10:52 that choice. The first question people 10:54 have when they make that choice is 10:56 often, okay, it's better money, it's a 10:58 better system, but what about 11:01 volatility? The dollar is more stable 11:04 but going down. Bitcoin is more volatile 11:07 but going up. Why is Bitcoin volatile? 11:10 Well, news flash, the world is volatile 11:14 and prices of everything in the world 11:16 respond to what the world is doing. And 11:19 we are still very early in the adoption 11:22 cycle of Bitcoin. Similar to the very 11:24 early days of social media, online 11:27 banking, and the internet. And when 11:29 you're that early and Bitcoin represents 11:32 such a small percentage of the assets 11:34 that are owned, then Bitcoin is like a 11:37 small boat in a big ocean. It goes up 11:40 and down with the waves of every little 11:42 thing. As more people adopt Bitcoin, 11:45 Bitcoin gets bigger. And eventually, it 11:47 will be like a big ship on a big ocean 11:50 without the volatility. In the meantime, 11:53 the volatility is your friend and it's 11:55 in your favor. Over time, it goes up. 11:58 And if you zoom out to even 3 years, on 12:01 a rolling three-year basis, any 12:03 three-year time period is almost 100% 12:05 up. It is a better money. It is a better 12:08 system. That is my best shot of 12:10 explaining Bitcoin in the simplest 12:12 possible terms. And we now have this 12:14 choice between the tale of two systems. 12:16 And I am so thankful for the 12:17 transformational effect that Bitcoin has 12:19 had in my life and everyone that chooses 12:22 the better system with better money. 12:25 Thank you all so much.