Transcription
I think that the internet is going to be one of the major forces for reducing the role of government. The one thing that's missing but that will soon be developed is a reliable ecash. A method whereby on the internet you can transfer funds from A to B without A knowing B or B knowing A.
What is a Bitcoin? What is Bitcoin? What backs a Bitcoin? You put some of your money, real money, online and it turns into Bitcoin. I don't even know why we call them coins except that they call it coins and mean.
I think Bitcoin has turned into a massive multiplayer online game where speculators are trying to outspeculate each other. Is it a a a means of exchange or an asset class? I see you taking my real dollars and then you give me virtual money in return.
Thanksgiving dinner, my grandmother asked me, "What the heck is this Bitcoin stuff anyway?" Right? And I said to her, "Do you remember when Visa cards first came out? You were used to paying with cash or with a check and then a Visa came out. It was this weird payment system that you didn't understand." and she said, "Yeah, I remember that." I said, "Well, Bitcoin is just the next evolution of another payment system."
Bitcoin. By now, you've probably heard of it. The wild fluctuations in its price has gained the attention of the mainstream financial media. But Bitcoin is much more than just your average investment. Beneath all the hype and hysteria lies what could be the most important technology of our lifetimes. So, what exactly is it? To fully appreciate the characteristics that make Bitcoin a potentially worldchanging technology, we first need to understand what money is.
Currency started developing uh 6 to9,000 years ago, some sort of medium of exchange, and people used something of value. Societies around the world though started to select gold and silver as their primary currency about 3,000 years ago. And then about uh 680 BC uh they became money when they were minted into coins of equal weights. Governments started creating representative currencies where uh you deposit your gold and silver or they have gold and silver in the treasury and they come out with notes that are basically a claim check on the gold. So they're supposed to be as good as gold because you can always convert them into gold.
Throughout history, precious metals were chosen as money, not through government decree, but because of their unique features. Gold is rare, easily recognizable, portable, durable, and divisible. Above all, because gold is difficult to find, and labor intensive to mine, refine, and mint, it has always been perceived as a store of value.
At Bretonwoods, New Hampshire, delegates from 44 allied and associate countries arrived for the opening of the United Nations Monetary and Financial Conference.
In modern history, as World War II was coming to an end, in 1944, the Allied nations met at the small town of Bretton Woods, New Hampshire. Here, they drafted a new financial system, which would stabilize the world's financial system once the war ended. With the United States poised to enter a golden age of prosperity, the US dollar was chosen to be the world's reserve currency.
The Brettonwood system was created after the Second World War at the Bretton Woods conference in New Hampshire. And rather than using gold as the means of exchange between uh countries as was the case under the old gold standard, the dollar was going to be used. The dollar was chosen because back then it was as good as gold. Under this new system, the countries of the world would tie their currencies at a fixed rate to the US dollar. And because most of the world's gold was held in US vaults, the US dollar would be backed by gold at a fixed price of $35 per ounce. This created a system where the currencies of the world were effectively backed by gold through the US dollar.
I have directed Secretary Connley to suspend temporarily the convertability of the dollar into gold or other reserve assets.
The Breton Woods system lasted for about 25 years. But in August of 1971, President Richard Nixon called for an emergency press conference where he announced foreign countries would no longer be able to convert their US dollar holdings into gold. This surprise move would come to be known as the Nixon shock. With this one announcement, President Nixon effectively created our current monetary system. A system where no currency is backed by gold or anything of value. This is what is known as a fiat currency.
Fiat currency is currency that's backed by nothing except government promises. The word fiat is a Latin word and it basically means currency that's circulating by force. If people have confidence in that currency and if there's enough government force that will enable the currency to circulate for a period of time until people lose confidence in the currency.
Money is a medium of exchange and the way it has evolved is that it's always something of intrinsic value until the modern age when the politicians say well we don't need anything of intrinsic value anymore. All we need is political decree. We can say this is money. This piece of paper is money. Now money has a new characteristic, but underneath it all there's this same concept in place that nobody ever seems to challenge and that is that governments have a right to declare something of of no value to be money and you must accept it. That's really the problem and uh it's still the problem today.
Without anything tangible backing the currencies we use today, governments around the world have been able to issue unlimited amounts of new currency without restraint. And with the advent of the digital age, currencies around the world are now digits in a global banking database.
So what is Bitcoin? Well, simply put, it's a digital currency, much like the electronic currency we use today. But it's also the payment network which facilitates the transfer of this new digital currency from one person to another. Bitcoin's a new internet protocol that enables the transmission of value over a communications channel. You can think of it like being able to send a gold coin as easily as you send an email. You can send any amount of money to anyone in the world any time. Can't be seized, can't be confiscated, can't be frozen. Uh very useful technology.
So, Bitcoin is a digital currency. Uh and it is a payment system. Um, so it's a payment system in the same way that uh bank networks are or PayPal. Those are those are all payment systems, but it's also a currency. So PayPal and banks use the dollar as their currency. The Bitcoin payment system uses bitcoins as its currency. So they both have the same name.
What is your opinion of disruptive digital currencies such as Bitcoin? If you're looking for the idea that that a currency doesn't really have to be something physical, it can be something that's virtual. That's the system we already have, you know, u and if you want it to be I want a way to make payments um electronically, that's, you know, credit cards. I mean, so exactly what it is that this thing is supposed to be doing that we don't already mostly do.
Bitcoin is different from other fiat currencies uh in a couple ways. Um but not the way people think. So most people think it's different because it is a digital currency, but fiat currencies are also digital, right? So the dollar is a digital currency, the euro is a digital currency. They're all just ones and zeros in the banks of the world. So it's not that Bitcoin is digital that makes it unique. It's unique uh in that it cannot be created out of thin air. So dollars, euros, yen, these can all be created out of thin air by people who have permission to do so. Uh which is generally a central bank. Bitcoin has no ability to create it out of thin air. So, it is a scarce digital asset.
Unlike the banking system we currently use, where bureaucrats meet behind closed doors and determine and regulate the supply of new currency, mathematics and cryptography are used to regulate the creation of new bitcoins. The Bitcoin network is decentralized, meaning that instead of transactions and account balances being stored on a central computer or database, Bitcoin's ledger of accounts, more commonly known as the blockchain, is distributed across tens of thousands of computers around the world.
There is something called Napster. We all remember Napster. We could download music and movies from Napster. But after a while, it got so big and popular, the government came in, shut it down because of copyright infringements. No more Napster. Right? So then somebody created something called the Bit Torrent network. What's this? This is a a software people run on their computers that allows people to fileshare. So if you run the software, you can go to things like Pirate Bay or Views or BT Junkie and you can download any music or any movies you want and they can't stop it because it's not a centralized location. Well, Bitcoin is the currency that runs on the Bit Torrent network.
Why was gold and silver considered money for the last 4,000 years is because it took work and effort to make that nice, beautiful coin. They had to dig it out of the ground and refine it and the crucibles and the furnaces and stamp it into a nice beautiful coin and that took work. So, you didn't have to trust anybody that they were going to work for you. The work was already done. Well, Bitcoin proof of work is the same thing, right? You have to hash away and solve all these math problems. You have to have the chips and the electricity and yada yada yada to create a bitcoin. It would cost today about $800 to make a bitcoin.
I believe that bitcoin has multiple levels of intrinsic value. Uh the properties like being unconfiscatable properties like this censorship resistant value transfer that no one can stop you from sending. Uh more importantly, what gives it intrinsic value is the productive capacity and the brain power of some of the brightest developers in the world that have chosen to work on this opensource protocol. And this productive capacity of some of the brightest minds that are building it is what truly gives it value.
All Bitcoin transactions are cryptographically verified by thousands of computers on the Bitcoin network. These very powerful computers known as miners expend a massive amount of energy and processing power to verify the integrity of each and every transaction. So the miners basically validate transactions. All these transactions are flying around and um they have not yet been formally vetted by the network. If the minor believes the transactions are valid, it will uh put them in the block and the block then becomes part of the blockchain. And over time that becomes the record of truth. And so that what that means is that if you receive Bitcoin and a few blocks happen after you receive it, no one can ever take that money away from you because the blocks have been stuck into the blockchain. They can't be reversed and you know that the money is um is truly yours.
The decentralized nature of the Bitcoin network eliminates a single point of failure and makes it impossible to be hacked or to be shut down. Bitcoin transactions are transmitted peer-to-peer without the need for a third party, meaning that the user is in complete control of their money.
It's impossible to be shut down. That's the beautiful thing about it is that there is no place there is no Bitcoin place. You can't shoot Bitcoin.
It has no center of gravity. It has no headquarters. You can't shut it down. The only way you could is to shut off the internet.
Your average person has absolutely no idea how their email works, but it works and that's all that really matters. And Bitcoin is very similar to that. But as far as what I would do to tell people or describe to people uh who don't know about Bitcoin to uh what it is, I would say it's a form of money that you can just use on your phone or your computer in today's digital age where everyone's on the internet. Uh that is much faster to send uh than most of the banks. uh and it has for at least since its inception in 2009 risen in value.
For new users, the inner workings of Bitcoin can be quite complex and daunting. But what's important is how this revolutionary technology changes how money is transferred globally. Right now, every single payment that you make to another person goes through an intermediary uh either PayPal or bank or Visa or Mastercard. And more importantly, the governmental jurisdiction decides if you're allowed to make that payment. That payment could be stopped halfway through and then you have to try and get your money back. With Bitcoin, no one can stop it. The moment you decide to send another person digital value, you can just send it. And there is nobody in your way. There is no one that has to give you permission to pay another person money. and all they need is an internet connection.
This has the potential to displace the need for banks as a trust institution. If you and I exchange currency or or you know have commerce using Bitcoin and it goes on the ledger on the blockchain, we don't need a bank to confirm that that is a valid transaction.
One of the differences between Bitcoin and the banking system is the it doesn't require a third party to perform. When you make a deposit into a checking account or a savings account, you are actually loaning the bank your currency. They now have title to it and they have a liability on their books to pay you back one day, but they get to do anything they want with it. And you have this intermediary, this third party counterparty that has to perform for you to be able to get your currency back.
Cryptocurrencies invert the power structure. uh it isn't a few people at the top controlling a whole bunch the of people at the bottom. The power goes to the individual. In the same way that the internet flattened access to information and allowed anyone in the world with an internet connection to learn basically anything they wanted to know and to communicate with anyone else on Earth. Uh Bitcoin does that with money. So now anyone on that planet no matter their age or the arbitrary uh geographic location in which they were born or the arbitrary rules of the people that uh govern over them that person can now engage economically with anyone else in the world directly. That's profoundly powerful. Um you do not need a bank account to interact with Bitcoin. You do not need a bank account now to receive an honest payment from someone else in the world and know that the money is uh is legitimate and good and can't be rescended. So money now can't be censored. Any two people can send it between each other through Bitcoin.
Cryptocurrency Bitcoin has once again defied naysayers by spiking above $18,000 at one point today.
Bitcoin hits a new high. We had this incredible runup in the fall going into the holidays and then we've seen a pretty big pullback.
This is a 30% loss in the week and a 50% loss in the year.
The past year has seen the price of Bitcoin rise and fall in dramatic fashion, getting the attention of Wall Street and the investment community. Bitcoin is now seen by the public as a speculative asset class that can be traded. But the core fundamentals of this important technology cannot be overlooked. The use of Bitcoin is particularly vital in the developing world where billions of people are without basic banking services.
People who see the price all the time, especially in advanced societies, they focus more on the price and they think that Bitcoin is an investment solely and that it goes up and down like a stock based on news and expectations. But the fact is probably there's more people in these kind of third economies. They don't own a lot, but they own it. And they own it because they need it, not because they expect to get rich or hope to get rich, because they need to protect themselves against both destroyed fiat currencies and against capital controls. So when people think of it as an investment, they have to realize that the reason that Bitcoin is so exciting is because it's a future money for the world, not because it's something that could become a great investment. And it just so happens to be that both can be accomplished at the same time.
One of the great powers of whether it's Bitcoin or any other cryptocurrencies, if we can figure out how to scale the technology, we can solve a lot of problems in the financial system. We can transact with each other globally at very low cost and very efficiently. And there's tremendous market power in that. Has nothing to do with anyone in the financial system. People want to be able to communicate and transact with each other simply and quickly and the hunger to do that is enormous.
Today, Bitcoin is seen as a financial asset. But as the technology develops, the blockchain that powers Bitcoin may be used to verify transactions other than the transfer of money. Each Bitcoin is divisible into a 100 millionth of a Bitcoin called a Satoshi. These tiny fractions of a bitcoin can be programmed to represent assets other than money. In this way, the Bitcoin blockchain can be used to verify transactions of all kinds of items without the need for a central authority.
The Bitcoin blockchain is a tremendous technological innovation that enables uh distributed consensus. people are able to come to agreement on what the state of this ledger should be and what it is and that enables people to have trust without trusting any other party or person or institution. So anywhere we need to have trust where we need to be able to verify uh what is the true and correct state of something that has an application to be put on the Bitcoin blockchain.
For 6,000 years of recorded history, we've always had this problem when we want to engage in consensual exchange. That is if we're strangers, can I trust you? And what's happening with Bitcoin and the blockchain, the technology that powers Bitcoin is is now possible for us to have trustworthy exchange without those third parties. The trust is built in through the cryptography. Uh that's guarantees the exchange of value. Well, that means that there's this technology that is it is as disruptive as the internet was to publishing, but this is disruptive to these hundred different institutions that that really are the the glue that pull society together. You know, everything from as mundane as notary publics to the land titling to coining money to voting. All kinds of these things are going to be recreated in the blockchain in a way that we will finally be able to fully trust. What that means is what we've seen technology do to lots of private industries is now going to start doing government function.
The thing for me is understanding the implications of what this is. You can take a 100 million bits of a bitcoin. Each bit is called a satoshi, right? And you can program that to be anything of value. It can represent titles to automobiles or real estate or diamonds or gold or votes in elections. Anything of value can now be digitized and tokenized, put up on the blockchain and transacted, can be sent across the internet without having to go through a trusted third party. I think the blockchain and Bitcoin, it's going to change the world. I think it's going to change everything in terms of protecting people's identities, allowing people to own property. Bitcoin is for the two billion people that don't have bank accounts, the five billion people that can't prove they exist, they don't have title to real estate and stuff. That's what Bitcoin is going to change the most for those people is because, you know, they're going to jump from the third world to the first world. It's really going to revolutionize Latin America, Africa, Southeast Asia, uh where people can finally now own real estate. We can have a transparent election that can't be hacked. Imagine that's going to change the world in and of itself.
Tempers are beginning to flare. These people have already been in quue for more than 3 hours now. Carrying currency notes the government suddenly backed on Tuesday night.
Because anyone can start using Bitcoin by simply installing an app on their phone, Bitcoin can be used by the developing world to protect their wealth from unstable currencies and government control.
We're seeing it behave as a crisis currency in Venezuela, in uh Nigeria, in Zimbabwe. When these countries can't get a grasp on their own monetary policy, people flood to Bitcoin.
The fate of the unbanked and underbanked population no longer lies in the hands of corrupt governments, centrally planned economies, and central banks. It really there's a new option, a plan B. Personally, I live in the United States and a lot of people in the US get bank accounts very easily, have credit cards, debit cards, and all of that. and they don't find that there are too many frictions and pain points. But in a country like India, there are 233 million individuals who are unbanked, who don't have access to a traditional financial um infrastructure. And so they're operating cash payment to cash payment. But Bitcoin has become a gamecher. So individuals in essence can hold on to it. They can spend it. They can transfer it internationally. There are so many use cases.
Currently, Bitcoin transactions can sometimes carry a significant fee, making it unsuitable for use for small transactions. But Bitcoin is programmable money, meaning that new layers and technologies can be integrated into it. In the near future, one such development called the Lightning Network will help reduce the cost of Bitcoin transactions.
At the moment, Bitcoin is actually suffering from being too popular. One of the challenges that Bitcoin has is every transaction needs computational power to process. So at the moment, Bitcoin can settle about 4 to seven transactions a second. And in the future, each of those four to seven transactions a second can contain a million transactions within it. And that's what the second layer and lightning is trying to do. It will just make it so much more efficient and so much cheaper for the average person.
The integration of the lightning network into the Bitcoin protocol will scale Bitcoin into a fast, cheap, and efficient payment system. Once implemented, this will have enormous implications for the developing world. One of the stumbling blocks to doing international business is the payment system. And to be honest, if you're taking credit cards from some countries, the those countries are so associated with fraud that your your rates on all credit cards you take just become astronomical and it becomes prohibitive.
Something like 33% of the credit card transactions coming out of Africa are fraudulent. So nobody wants to take business from Africa. It's just too risky. With Bitcoin, you know, the funds are good. So as a merchant, yeah, pay with Bitcoin. I'll sell anything you want, you know, that's legal to Africa. That has tremendous implications, you know, to be able to get access to these types of products and services so seamlessly. And then they're able to start having property rights. and property rights is really what's going to help lift them up out of poverty.
Closer to home, in today's digital world, governments have started to phase out cash, replacing it with digital currency. In this environment where concerns over personal privacy are very real, Bitcoin provides monetary sovereignty outside the control of government policy. When you have a situation where the government is trying to control, they don't want people to have the means of hiding anything from them, not just from a tax standpoint. They want to know what everyone's doing in big brother fashion. So, you know, the way that I look at Bitcoin is it's the ultimate monetary weapon uh that the people have never had in history.
Every government in the world wants to go cashless. One of the reasons is that in a cashless society, you are not able to exit the banking system. When people panic, they run to the ATM machines. They run to the bank and they withdraw money. The other thing is the governments are starting to run out of money and governments don't build anything. They just use other people's money. So, they are treating everyone as a tax evader. I believe the main reason why Bitcoin is so popular and important is not because of its finite supply and being gold. It's because of anti-money laundering laws preventing people from doing what they want with their money.
One of the main functions of government is to create currency. Uh and uh Bitcoin is uh successful only because of its potential for circumvention. uh o lack of oversight. So, it seems to me it ought to be outlawed. Uh it doesn't serve any socially useful function.
As to whether or not Bitcoin is is illegal or should be seen to be illegal. Cash has been used for a whole heck of a lot more illegal things than Bitcoin has through the years and still is today. Uh cash is untraceable. Uh it's easily transportable. Nobody knows where that dollar has been and how it's been moved from hand to hand to hand. So, it's just a matter of making that connection that a cryptocurrency is really not a new thing. It's just a different version in a digital form of something that's existed in our society and legal structures for millennia.
Bitcoin is shifting the paradigm and challenging the legacy financial system. Recently, Jaime Diamond, chairman and CEO of JP Morgan Chase, America's largest bank, was quoted calling Bitcoin a fraud. Why is Bitcoin a fraud? Here's the reason. Governments, the first thing they do is form a currency. They like to control the currency. They control it through a central bank. They also like to know who has it, where it is, where it's going. Wait until someone gets hurt. wait until it's used for illicit purposes, which it is somewhat used for illicit purposes. They close it down.
You got people like Jamie Diamond, a serious guy, calling it a fraud. Um,
a fraud. You mean like those hundreds of of billions of dollars of securities that Jaime Diamond sold the public a decade ago called Mortgage Back Securities? He's calling Bitcoin a fraud. Is that going to go to zero? Like his securities that he sold the public? You know, first first with respect to asking a banker about whether they like Bitcoin or not. That's kind of like asking a king, "Do you like democracy?" It it's just so thoroughly frustrating and insulting when people who know very little about what we do watch an upand cominging technology and have the audacity to call us all criminals. You know, we're not the criminals here. The whole damn reason this ecosystem exists is because they're the criminals. And you know, it doesn't really matter at this point what he thinks. The genie's out of the bottle. Somebody in this room or somebody at this conference or somebody around the world is going to solve the problem of decentralized lending and value stable currencies and decentralized exchange. And within 5 to 10 years, banks will become less and less relevant, just like landline telephones are becoming less and less relevant. And we're going to wake up one day and we're going to be in charge of our own money. And Jaime Diamond in retirement can watch the world as it is, not the world as he would like it to be.
The Bitcoin blockchain is built on decentralized consensus outside the control of a central party. However, with the hype in the rise of cryptocurrencies such as Bitcoin, both central banks and commercial banks have started to develop their own digital currencies under the guise of what they call blockchain technology. My big fear is that what is going to happen is blockchain technology will be adopted by uh governments and fiat national currencies will be uh run on blockchain technologies and and the entire s the whole monetary system globally will eventually become cashless and at that point if it's centralized and there's an entity that runs the blockchain they can lock you out of it if they don't like what you're doing and they can trace everything that you do, every transaction, everywhere you go will be recorded. And so, uh, you know, if we're not careful, this has the ability to enslave us or free us.
I think blockchain or any kind of open ledger distributive database will have a tremendous impact on our world. My fear is that and this is used to centralize digital technology gives a banker the ability to put a chip in you to tax you whenever they want to interface with a money system with you physically and to perfect the collateral. So I love the innovation and the question for all of us is how can we innovate and make the financial system more efficient and do it in a way at the same time where we we distribute the power lines in the political system.
The blockchain is a technology which is a good technology. We actually use it. It will be used for a lot of different things. God bless blockchain. Cryptocurrencies and digital currencies I think are also fine. You know, JP Moore moves $6 trillion of dollars around the world every day. We don't do it in cash. It's done digitally. If it can be done digitally with the blockchain, so be it. But it still be a dollar cryptoc currency.
A majority of the people are using the word blockchain and they don't really care whether it has this decentralized mining. The government is going to just have a digital representation of the dollar there. They can call it a blockchain, but there's not going to be mining. There's not going to be decentralization. It's going to be a centralized coin. Whether they call it a blockchain or not is irrelevant. The whole purpose of a blockchain is to remove control from a central party. If you're a a central bank and you make a blockchain for dollars and then you have dollar coin, if you still have full control over the dollar coin, you can create how much of it you want. You can control where it goes. There was no point in having a blockchain at all. you might as well just have a a centralized database like a banking system. Um to really use blockchains in any meaningful way, it it means that there is no person in charge. And so a central bank by definition is the one who is supposed to be in charge of money and thus they would never uh create a blockchain or a cryptocurrency that they couldn't control. So that's why they will likely be made redundant because the market can choose what kind of money it uses and it now has a choice between a a digital currency that can be controlled by central parties and inflated without limit or a digital currency that cannot be controlled by any central party and that has a fixed amount and can't be debased over time. That's going to be a very obvious choice.
Bitcoin and the blockchain behind it are incredibly powerful technologies. As the future unfolds, these technologies could be used to restructure the financial system into one of fairness and equality for all, a system outside the control of the banking elite. We have millions of people now taking an interest in what is money? The question of what is money? What should it be? and they're learning, especially a lot of young people.
Precious metals were once money. Then came the era of paper money. Could we now be entering a golden age of decentralized digital money? Only time will tell.
Bitcoin is first and foremost about changing how the financial system of the planet operates. Uh however, Bitcoin is also a financial asset itself and it goes through these bubbles and people have made many millions of dollars uh when they buy it low and then it goes up in value. But that's not really what matters at all. What matters is that it's actually going to change the entire ecosystem of the planet, how all humans interact with each other. And that's a very exciting thing to be part of.