hi this is Charles Hoskinson chief executive officer of input/output and I've decided to make a video explaining what is Bitcoin and what is the point of the blockchain industry this video is inspired by JK rowling x' recent tweet where she asked for the industry to explain to her why should we care about Bitcoin what's the point of it what's the purpose of it is it real is it not real so that was her call to action and I've answered that call to action and I've decided to make a video all right so let's talk a little bit about a $64,000 question what is Bitcoin I started in this industry in late 2010 early 2011 as an investor and a minor and then professionally I quit everything else I was doing in life in 2013 and actually entered the space as a full-time vocation so I've been in the cryptocurrency space now for about 7 years and I founded many projects in the space but I started with Bitcoin and I started with something called a Bitcoin education project and the goal there was to try to bring as many people as possible into our ecosystem and to also dispel a lot of the common myths fear uncertainty disinformation and misnomers and things that have been cropping up and in 2013 there certainly a lot of them and unfortunately today there's even more the reality is despite the fact that Bitcoin is pervasive with millions of people in our ecosystem and mainstream knowledge of it very few people actually understand what Bitcoin actually is it's point where it came from why it was created and where this industry is going why we exist what's the relationship for example between Bitcoin and blockchain this is something that not many people in the mainstream public understand so the purpose of this video is to start from first principles and kind of work our way up to what is Bitcoin and then explore a little bit about what the blockchain industry is as a whole and why it's such an exciting industry and why I've chosen to spend seven years of my life in this industry and my hope is that many other of the leaders in my industry can also make explainer videos to explain why they entered in what they feel is so special about the things that they do as well as giving a shot at defining Bitcoin so let's start from the very beginning in 2009 Bitcoin was created and Bitcoin was created by an unknown person or persons referred to as Satoshi Nakamoto basically this was a pseudonym and the creator remained anonymous in fact the anonymity of the creator is so strong that even after the email account that the creator used was compromised and the emails revealed to the general public no one has since been able in the 11 years to discern who Satoshi Nakamoto actually is so true to form Bitcoin has always had a bit of mystery from the very beginning but really what the point of Bitcoin was was to be an experiment and basically it's an experiment with frustration and passion so the passion component the passion component of Bitcoin was really about an exploration of what is money and can we create better money it's important to understand the context of where Bitcoin came from if we look at 2009 this was right on the back of the 2008 financial crisis which was the worst financial crisis for the world since the Great Depression and as a consequence people were starting to go back to first principles and ask fundamental questions of well are our central banks creating good money what makes good money can we create better money does money need to be controlled by centralized power do we need banks or it can you be your own bank what is the influence of the internet on money these types of questions and so if we deconstruct money in much the same way that Satoshi Nakamoto did and the people in our industry did we could look at a very nice economic definition that's existed pretty much every 101 textbook and we see that there are three properties that money has one it's a unit of account two it's a means of exchange and then three it's a store value it's kind of a funny thing that most of us spend at least 40 hours a week working making money we have jobs we chase said a lot of people dream of becoming millionaires but then when you try to actually deconstruct what are those silly pieces of paper that are in your pocket what are those numbers in your bank ledger when you log into your Chase app or your Wells Fargo app or whatever it might be you get your ATM receipt nobody really seems to think too much about what are these things what do they mean why do we use them so let's explore this a little bit and then hopefully we can kind of build our way up to where Bitcoin came from the passion side of things and then we can perhaps learn a little bit more about the frustration side of things so first off a unit of account what does that mean well it's so engrained into our culture now that we tend to miss this but what if we didn't actually have the ability to measure prices in a dollar or euro or a pound sterling so whatever instead of saying well my services will be $30 or instead of saying that that couch is $300 we had a non-standard unit of account so every time you went to a different store that actually charged different prices for different things like oh I need some 45 packs of green tea for this and that over there I'd like 50 pound bag of sand it would be pretty chaotic and it would actually be difficult to have price discovery you would never really know if something was expensive or cheap everything would be relative and it would almost be like a barter system so the point of a unit of account is this concept of standardization this gives you a sense of understanding how expensive things are how cheap things are relative to some standard that you understood that you know that you are familiar with you have a relative sense of whether a million dollars is a lot of money or a little bit of money relatives are the things that you can buy and trade with that other properties means of exchange is just that you have two or more parties they want to conduct commercial activity with each other they have something whether it be a product or service that you want and you're trying to acquire it from them so basically money is that middleman that allows you to efficiently exchange that value with your counterparty and then finally a store value is this concept that when you get this money it doesn't magically deteriorate doesn't disappear so as soon as you put in your pocket it evaporates in 24 hours or something like that or spoils or rots for example could you imagine using food as money you might be able to standardize it you might be able to actually use it for commerce and people certainly value it but food does tend to rot over time especially things like fruit or other commodities like that so store values this concept of the durability of value over a period of time and does it hold it does it lose it so these are the three fundamental properties that anything that aspires to be money must have and every sovereign currency whether it be the US dollar or the yen or some other currency has these properties at least arguably has these properties and for the most part they allow a sustainable stable economy to form then there are kind of level two stuff so these are those are the fundamental things so you can say level one the most foundational principles and these are things that go into the quality so the quality side of things are things like is it easy to move and transport it's kind of a silly concept but imagine gold as money well if you had gold is money very heavy it's very difficult to move around it's difficult to store I invites certainly people try to rob you these types of things so the transport ability of money is super important especially when you talk about large transactions across borders you imagine a system where people had to pay in gold for things that were occurring across the sea so for example purchased from the United States to the European Union let's say Germany and you had to mail the gold to the person and wait for it to arrive so transport is you know certainly a hugely important component durability is another good money should be somewhat durable for example let's see have paper money but that paper money is poorly printed and over time it tends to wear down very quickly to the extent that the bills are actually destroyed you consider that not to be a very good money or what if your money rots or has other properties that make it deteriorate quickly so we'd like money to be durable and this is why most monetary systems started with coinage building things from metal in fact metal is so durable i personally have coins that were issued during the roman empire they're still around so it gives you a sense that you can have high durability over a long period of time there's also things like fungibility this is probably one of those terms that you've never heard before or you can't remember the definition of it but it's a pretty simple idea basically you cannot distinguish or you don't really care to distinguish between two units of the currency so if I have a coin and you have a coin and they both say a dollar on them you don't particularly care or hold one and higher esteem this is not true for all things there are certainly cases like for example coinage that's been improperly minted and it's a collector's item or perhaps maybe your coin belonged to somebody special but in general fungibility is an extremely important component of money because you don't want the money itself to get in the way of commerce the means of exchange unit of account you want each unit to be identical from the other units and this is certainly true with digital movies the digital dollar that lives on PayPal is indistinguishable from the digital dollar that lives in your JPMorgan Chase account or something like that okay so we have the ability to transport the durability of the asset the fungibility and can you divide it so divisibility is a very important property as well imagine going to a swap meet or a garage sale and you only have a $20 bill and the person at the garage sale doesn't have change how would you actually conduct commerce and you want to buy something that's $11 so you have to kind of figure this out and so divisibility is one of those things of can we break it into sufficiently small pieces so that we can get very specific about the pricing of items so certain currencies enable this quite well especially digital currencies other currencies you're at the mercy of both parties of you know how do you break this down and in fact some currencies are losing some divisibility there's been many discussions throughout the years for example getting rid of the penny which is a fundamental unit of account so these are some of the properties that go into the quality of money the ability to transported the durability the fungibility of it the divisibility of it and then you can even go even further and you can talk about concepts like inflation deflation you can talk about concepts like credit and debt and they're all interconnected with each other and ideas about supply so even today despite the fact that it's 2020 there are still some definitional issues when you look at these things about what is actually the true definition of inflation or deflation there's an Austrian definition a classical economic definition and then in credit and debt are kind of interesting concepts unto themselves so as you go up levels you kind of start with some fundamental ideas and properties of unit of account means of exchange and store value and then you say well there's some things that we'd like our money to have to be high-quality and then if we have high quality money that has great properties that we have to kind of look the long-term viability of it and we have to look at our confidence in its ability to sustain an actual economy for all of modern economies to run you actually need credit and debt and for all monitor economies to run you need to be able to understand the value of money over time our else people will not have faith in confidence in it so this is basic monetary policy 101 and what Satoshi did with his experiment of passion was say okay I'm going to take a very particular set of opinions about all of these things and this overall goal of these opinions is the centralization that's the keyword and decentralisation from the perspective of when we actually try to make these systems work in practice so let's say we have Alice and we have Bob and Alice and Bob actually want to do commerce with each other they want to actually trade an exchange with each other well they actually want to do that they have to usually do it through some form of middleman okay and generally speaking many middlemen so let's say that Bob runs a coffee shop analysis by having coffee and she uses a Visa or a MasterCard to purchase that coffee there's actually multiple middlemen multiple networks multiple protocols that stand between Alice and Bob before final settlement occurs so even though Alice has a quick and easy payment experience to actually get that value over to Bob is a very complex heavily regulated very expensive and not super inclusive process in fact that process is so not inclusive about three billion people throughout the world lacked sufficient financial access to have real economic identity so we tend to turn them as unbanked the concept that decentralisation is saying can I listen Bob have the same kind of relationship that they would have with cash but do this over the Internet and this is a major major major question because with cash you'll notice something it does not require a central authority it does not require middlemen you can just simply directly hand somebody a $20 bill you can directly hand somebody a bag full of quarters and then purchase something with that and they hand you the product or service okay now that money does have some sort of meta data behind it has some sort of infrastructure behind it like nobody would just accept a piece of paper it has to say something like a Federal Reserve Note or issued by the Bank of England and so you trust the credibility of that so there's really two steps in this process one is how do you build an online money that doesn't require central authority okay no central authority and online and how do you get people to actually have faith in this currency and these are two completely different things it's one thing to construct a transaction system where Alice can do business with Bob it's another thing entirely to construct the transaction system or blob when he receives that unit that you've created that Bitcoin or whatever you want to call it that digital token actually believes it's worth something it's worth his time it's worth his products and services so this was an essence the experiment of Bitcoin can we create an online currency can we create some sort of online unit of account some sort of online proto money if you will that has a lot of really cool properties about it that replicates the utility and function of cash but does not require a central issue or a central bank like the Federal Reserve or the Bank of England yet still people would accept it for products and services Bob would actually want to use that money this was a hell of an experiment to conduct it required the invention of a lot of really unique technology for example proof-of-work and blockchain and very clever application of cryptography but at its core it was an experiment of passionate frustration the passion was can we create this new type of money that follows the concept of decentralization it allows Alice and Bob to have a direct relationship with each other we get rid of any central authority it's online by default and somehow it's built in a way that people have enough faith in it that it's going to be around it's gonna work it can't be hacked and it doesn't require a central authority to give it credibility the frustration component was that the money systems that we have today are now working so well for us historically all fiat currencies tend to eventually deteriorate and collapse because of the political and moral temptations to debase them for short-term gains at the expense of long-term gains for example the countries of Venezuela Argentina Zimbabwe the remark republic in germany there are many cases of hyperinflation there was one in Hungary throughout the years and many people are a bit concerned about the massive monetary expansions we've seen over the last 15 years in particular as a direct consequence of the 2008 financial crisis in the most recent the Kovan funding that's occurred six trillion dollars perhaps now 9 trillion in the United States and certainly more throughout the rest of the world so the frustration was saying can we remove people from this process so that we can have a bit more objective predictability and the objective predictability is basically saying that we know the supply ahead of time and we know by which rules the supply is going to change so we understand this monetary policy we understand that there's not going to be dramatic changes to the qualitative aspects of the system we understand what the terms and conditions are up front there is no there's no hidden end user license agreement there's no bureaucrat that can wake up on the rock side of the bed on Tuesday and then suddenly say we're going to massively increase the supply or we're gonna do it to help me win an election or something like that so that was the frustration component and certainly many of us live in that in that world so that in essence is where Bitcoin began it began in 2009 there's kind of this idea of money and said hey let's have some passion about it and that passion is gonna have a philosophy behind it of decentralize everything we can and buy decentralization we mean that people can individually do business with each other without any middlemen required and they can do that natively online no central authority is required for those transactions to work and they're gonna have so much faith in it that the system will be self-sustaining so sustainable and also valuable those two properties sustainable and valuable and the beautiful thing is that since 2009 to 2020 mission accomplished not only has Bitcoin grown from a very small network that was unstable and unsustainable it has grown to a point where it has become a global scale network worth over a hundred billion dollars and you can literally buy pretty much anything you want and get any service you want using a Bitcoin it's a truly extraordinary experiment from that particular perspective and we all in this industry are frankly in awe of just the durability the resilience and the remarkable growth of the underlying technology there are very few examples in human history where something has gone from a small group of people to over millions and millions of users in every country in the world and had such a pervasive impact on law and regulation and innovation of an industry as Bitcoin it's actually outpaced the growth of the Internet by a large factor so mission accomplished definitely as an experiment now the heart of Bitcoin what makes Bitcoin work it's really this idea of a blockchain so the problem is that if you're going to create a digital token you have to have a ledger somewhere and that ledger is basically just kind of a database and it's a very special kind of database it stores history so it's a database of facts Storrs history and what type of history does it store and stores transactions so ordinarily when you have Alice and Bob and they want to do business with each other online they're gonna use an intermediary like PayPal or something like that and there's a lot of things that go into this transaction before it even happens Alice has to prove that she actually has that money she claims that she wants to pay Bob with and there has to be some sort of address some sort of way of sending that value to Bob okay so the whole point of middlemen like PayPal or other payment processors money service businesses is to basically act as a proxy to sort all of that stuff out but the minute that you get rid of them he removed them from this process you're kind of left with this issue of well how does Alice prove that she has the money that she claims and how does she actually send it to Bob and then how does Bob know when he's actually received it when it's actually in his account it can't be taken back from him these types of things so where does Bob go and who does he trust and that was a tremendously difficult problem and this is at the core innovation of Bitcoin was to build a system in 2009 basically a blockchain to solve this problem so succinctly a blockchain is just simply a ledger and it stores transactions and those transactions allow you to verify anyone to verify Bob or anyone else claims such as I have this many units of Bitcoin so I have two Bitcoin for example if I say that Bob can actually check that this is a property called inclusive accountability basically we can all check each other's homework we can all see the record so what happens is that there's this database in the sky and the cloud and Bob can look at it and if Alice is trying to send the transaction to him he's actually able to say yes that's actually to Bitcoin it exists there you go and then he's able to confirm that when she initiated that transaction the network itself received it processed it and he actually has it so how that's done it uses something called cryptography it uses a mechanism of consensus called proof of work and a litany of other complex things and there beyond the scope of this introductory lecture but basically math and computer science is used to create some sort of database in the sky to ledger and we call that database a blockchain because once a record has been written it's a fact just like George Washington was president you can never change that no matter how much you'd want to or desire to it's just something that happened it's a record of history so it's a very particular type of blockchain of database that is immutable meaning you cannot change records inside of it and because it has this property called inclusive accountability it means that anyone in the world can actually verify that these transactions in these records happen if you assert you have something and you try to spend it everybody in the world who has this protocol can run it check it and that math and crypto actually allows you to verify that it's right this was a revolutionary concept because every attempt to do this previously required some trusted third party to maintain the line bitcoin was the first example of something that was released that did not require a trusted third party the network by its very mere operation would be able to simulate that and of course the minute that you create something very innovative and revolutionary it inspires people to dream and say hang on a second here the world is just not financial transactions this leads us to the second part of the lecture at the blockchain industry they say hang on a second here there are all kinds of things in the world that we are trusting third parties to do that we really would not want to for example voting I would love every time I vote to be able to verify that my vote first was counted in second that my vote was accurately counted so I'd love to be able to know that I when I have the right to vote it's been properly recorded and my vote has been recorded and know that for a fact for every other person I don't want to trust a third party to go count those votes for me I don't want to trust a third party to handle that system for me because it's a vector of attack and if we're making life-and-death decisions and deciding who gets to be President and how the economy is going to run we have to have a lot of confident than faith in voting so voting is another example of a system that you could do differently property is another example of a system you could do differently so currently property is managed by some form of registry so if you have a title or you have land somebody has to keep that database but what happens if somebody can manipulate or edit that database or what happens if the government changes like when Isis took over Syria then they can go and just decide to change history and then it becomes very difficult after things get back to normal to decide who actually owned what where what was the versions of history and in many cases because it's too expensive to maintain these systems millions of people throughout the world live on unneeded land what about different types of financial products so Bitcoin was focused on money and it was focused on what is good money and it's still a big debate of whether bitcoin is good money or not it's a good debate of what is money in general but it was very clearly trying to be one thing but we have other things like for example Microsoft stock debt instruments like bonds representations of things for example tokens representing gold or commodity like oil so are there different ways that we can represent these using the same systems that Bitcoin uses to represent a Bitcoin and not require trusted third parties to manage these systems and the answer is yes so a lot of people are looking at that supply chains are another great example of this so in supply chains for example right now we have a pandemic what about global supply chains for personal protective equipment or vaccines or medicine you have so many different actors touching things many claims about things and people are making life-and-death decisions based upon the stability of these supply chains and the fidelity of the information in them so it turns out that blockchain technology is actually quite good for this because you don't have to trust a central authority or a trusted third party or Federation of third parties to make sure that the records are accurate you can do it in a completely decentralized way in many cases identity itself is another example of that that's one of your most important assets you have a passport and a driver's license it's a birth certificate a credit score these types of things so who are you in the statements and claims about your reputation this is increasingly linked also with personally identifiable information so your data that Facebook and Google and other people mind how do you manage identity and right now it's given to you by trusted third parties your issue to passport your issue to driver's license you're issued some form of an identity asset through a private entity or government entity and then statements and claims are made about that identity again by credit agencies and perhaps governments with social credit for example you don't actually own that and you're not in control of that and your identities managed a lot by middlemen and third parties who at any time can manipulate the records against your best interest if it's in their best interest so the whole point of the blockchain industry is to take a look at that same core principle of decentralization getting rid of middlemen the key word is disintermediation and introducing inclusive accountability to all of these different topics so basically the idea is that you can check that the integrity of the records in these systems are as accurate as people assert them to be and you know that no one's tampered with the records they're time-stamped they're immutable they're auditable and these are super important properties and there's dozens of others so like all great experiments Bitcoin basically launched an entire movement of millions of people and in just a very short period of time from 2009 to 2020 we have seen a global conversation about what makes good money and our private money is possible and then the underlying heart of the system inspired many technologists and entrepreneurs to launch a new industry called the blockchain industry and to start constructing all kinds of protocols and cool new ideas to revolutionize the way that society and commerce works so in many ways this is one of the most significant human experiments ever conducted because as we enter the 21st century it's becoming increasingly clear that globalization is going to fundamentally change how the entire world operates we're moving from nation-states or moving from siloed economies into economies that are deeply interconnected and intrinsically transnational and many ways our laws how we live how we trade how we think are as interconnected to the affairs of other states as a our to our own backyard so just the product labels the packaging what goes into your food could ultimately be determined by transnational agreements by by other people in countries you've never been to or met and so given that we live in a world like that there's this really hard meta question to answer which is who is in charge and as we go through the 21st century it's not really clear how to answer that question historically how we've answered that question is through might might makes right an empire will form subjugate all others and then the Empire will standardize everything and then we just follow it by convention and consensus and then that's that but as we move to a global world where we don't really want to have a world war and centralized power around one of the authority we're trying to manage for the first time in human history a way of doing this without might way of doing this through diplomacy and reason and trade and the problem is that this is an inexact science and unfortunately the better angels of our nature sometimes get consumed by the worst angels the worst demons of our nature the entire point of the blockchain industry is basically trust regulation the idea that people have to work together who don't really trust each other but they have to find a way to do so for a common good to solve a common problem either to trade either to preserve the resources and value that we have to have sustainability and environmental policy to solve things like global pandemics and unfortunately the old systems that we have of trust regulation were through domination and hierarchies and the entire point of the blockchain industry is saying that we can accomplish trust regulation by answering this question who is in charge by saying no one you don't need somebody in charge conceptually if something as complicated as the world financial system can run and Alice and Bob are able to pay each other without using an intermediate or a middleman and then suddenly you can put things like democracy and property rights and thin tech and supply chains and identity into the same type of a structure then at the end of the day will be our own bank or self sovereign we're in charge of our own future and we'll have much better ways of interacting with the global markets with the terms and conditions up front and you'll have immutability and predictability in the way that the rules run there's really no difference in saying that we'd like our money to be objective and predictable from saying we'd like our democracy and our trade regulation to be objective and predictable the way we fund things to be objective and predictable so this isn't many reasons why people are so fanatic about Bitcoin in the blockchain industry because it isn't really about making money it isn't really about building a better business or making something more efficient or making payments a little bit faster if it was there's certainly be a lot of people in the industry but it would just be a job for them this is more about answering that fundamental question of who's in charge of the 21st century and we're left with one of two answers either it's going to be a transnational group of people that nobody knows much about we didn't pick and we just have to accept the edicts and mandates that they've made just like the totality of human history there's always been kings and Pope's and emperors and rulers that have done so or we can try something fundamentally different that's never really worked before but we get now as a consequence of technology in the internet where we can try to build a world where no one's in charge that's what the blockchain industry at its heart is really about trust regulation so that we can build systems where no one is in charge and those systems have inclusive accountability meaning we can all verify that they're working properly not just the trusted few there are objective and predictable the rules apply to everybody the least amongst us played by the same rules as the best amongst us so the richest and poorest are the same in that respect and they spread and propagate by their edges not by centralized effort there was no marketing committee to spread Bitcoin was no central authority to get Bitcoin mining power to where it's at it went from just a few computers in 2009 to giant warehouses of miners and places like Mongolia and Georgia and so forth and it all grew from the bottom up it's a very different way of thinking about the world but in many ways it's a much more natural way because ultimately it puts you in charge so that's what bitcoin is in a nutshell it was an experiment the point of the experiment was kind of two-faced one was a passion and the other was a frustration the passion was trying to solve a very old problem of allowing people to do business with each other without middlemen and the frustration was doing so with principles because the principles have been violated in the past and the killer app of its is spreading was my trying to create a better form of money it's certainly debatable what is good money and it's a nice conversation to have but the real value of Bitcoin the real experiment leveraged and turned into an entire industry the blockchain industry and that blockchain industry is about trust regulation with inclusive accountability so that we can get to a world where no one's in charge except for you for your own life so that's what is Bitcoin to me I hope that everybody else in the industry has saying this as well and says some cool stuff about it it really has been the privilege of a lifetime being in this industry because every day I get to be a different person some days I get to be an expert on Gov tech other days I get to think about medical supply chains other days I get to think about what are the nature of privacy and property rights some days I get to be a Wall Street guy and talk about the Bank of the future but at their heart they're all the same and that we're just regulating trust amongst people and entities that don't really trust each other for common good without having to put anybody in charge using science cryptography math these things and these systems are global by the by default so thanks for listening I hope this was helpful and have a nice day Cheers
