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Speaker 1: Welcome to brain Stuff from How Stuff Works. Hi, I'm

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Speaker 1: Christian Seger. This is brain Stuff, and I've got some

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Speaker 1: bad news for you. Money is imaginary. Now, I don't

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Speaker 1: mean that printed pieces of paper are make believe. I

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Speaker 1: can feel a dollar's texture and the ink even smudges

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Speaker 1: on my hands. But when you compare it to a

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Speaker 1: blank piece of paper, what's really the difference. Well, one

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Speaker 1: is a recognized currency and the other isn't. And the

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Speaker 1: reason why people agree that one piece of paper is

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Speaker 1: a dollar and has value, that's where money's worth comes from.

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Speaker 1: We all pretend it's a currency. This is one reason

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Speaker 1: why the digital currency bitcoin appeals to some people. It's

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Speaker 1: not tied to any political system or government, so it's

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Speaker 1: not vulnerable to any of their failings, like the economic

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Speaker 1: collapse in two thousand and eight. All it needs is

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Speaker 1: for people to believe in it. But lately, well some

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Speaker 1: people are having a crisis of faith. That's why today

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Speaker 1: on brain Stuff, we're going to quickly establish some facts

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Speaker 1: about bitcoin to better inform your beliefs about it. Basically,

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Speaker 1: it's virtual money you can use to buy and sell

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Speaker 1: things online, and it mimics real world limited resources like gold,

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Speaker 1: for instance, it's also a cryptocurrency, meaning it's encrypted in

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Speaker 1: a way that prevents it from being copied. See every

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Speaker 1: bitcoin transaction is recorded using a blockchain. That information acts

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Speaker 1: like a ledger that is encoded onto the bitcoin itself.

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Speaker 1: This prevents people from spending the same bitcoin more than once,

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Speaker 1: since everyone else on the currencies peer to peer network

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Speaker 1: knows that it's been spent. It's essentially just a number

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Speaker 1: associated with an Internet address. You can store it on

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Speaker 1: your phone or a hard drive until it's used again.

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Speaker 1: Here's some ways you could acquire bitcoins, accept them as

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Speaker 1: payment for goods and services, exchange them for a more

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Speaker 1: traditional form of currency. Or you can mind them. That's right,

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Speaker 1: Like gold, bitcoins are mind not by old timey grizzled prospectors,

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Speaker 1: but by powerful computers. And like gold, the more people

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Speaker 1: mind bitcoins, the less there are to be found, so

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Speaker 1: they become harder to find. Instead of physically mining with

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Speaker 1: the pick axe, you can attempt to solve math problems

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Speaker 1: with a computer. Imagine the problem is something like X

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Speaker 1: plus Y equals fifteen. If you can figure out what

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Speaker 1: X and why are, you get a bitcoin with little competition.

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Speaker 1: The problems are easier to solve. But when more people

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Speaker 1: join the search, you've got a race, and the problems

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Speaker 1: get way more difficult. People start teaming up, crunching numbers

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Speaker 1: by networking multiple parallel processors together. Suddenly it's like Deadwood

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Speaker 1: meets Silicon Valley and them bitcoins ain't so easy to

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Speaker 1: find no more, especially because there's a limited supply of

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Speaker 1: about twenty one million bitcoins. These can be divided down

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Speaker 1: fractionally to eight decimal places. So the more we mind,

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Speaker 1: the less bitcoins there are possible to find. Mind. In fact,

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Speaker 1: every four years the amount of bitcoins you can find haves.

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Speaker 1: We're at a point now where people need computers specifically

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Speaker 1: designed for bitcoin mining to even have a decent chance

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Speaker 1: of getting them. But as bitcoin miners dwindle, the math

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Speaker 1: problems will get easier again. To ensure the flow is steady,

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Speaker 1: their value is boosted and they remain inflation proof. Not

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Speaker 1: all have been mined yet, and we expect they won't

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Speaker 1: be until around So let's say you just heard all

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Speaker 1: this and you thought, well, I want to grow up

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Speaker 1: and be a professional bitcoin miner and trader. Well, there

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Speaker 1: are a few risks you should probably know about first.

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Speaker 1: For instance, because there's no regulatory agency setting a bitcoin's value,

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Speaker 1: it tends to fluctuate wildly. Let's go back to the

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Speaker 1: dollar bill. Today, I might be able to buy a

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Speaker 1: candy bar with it, but what if tomorrow it could

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Speaker 1: buy dinner at a nice restaurant, or a week later

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Speaker 1: it could buy the entire restaurant itself. Bitcoin is kind

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Speaker 1: of like that, except the dollar would suddenly drop in value,

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Speaker 1: so you couldn't even buy a piece of gum with it,

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Speaker 1: And why would you spend it anyway if it could

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Speaker 1: be worth a hundred times more tomorrow. Another bitcoin problem

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Speaker 1: is security. Actually, the format itself is fine, but that

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Speaker 1: doesn't protect it from hackers who targeted the banks and

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Speaker 1: exchanges that deal in bitcoins. So, for example, Mount Cox,

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Speaker 1: one of the largest bitcoin trading floors, was hit for

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Speaker 1: the equivalent of around four hundred and eighty million dollars

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Speaker 1: that's seven percent of the world's supply of bitcoins. Flex Coin,

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Speaker 1: a bitcoin bank, announced to all its users that their

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Speaker 1: accounts had just disappeared, and when the online market silk

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Speaker 1: Road was shut down in October, the FBI became one

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Speaker 1: of the largest holders of bitcoins in the world. Now again,

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Speaker 1: This isn't the fault of the currency. If a bank

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Speaker 1: was robbed, you wouldn't blame the dollar bill for getting stolen, right. So, yeah,

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Speaker 1: Bitcoin has its slumps, and for it to become widely used,

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Speaker 1: its volatility needs to settle down quite a bit. It's

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Speaker 1: currently a high risk currency that is totally unpredictable, and

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Speaker 1: we didn't even get into the mysterious identity of Bitcoin's founder,

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Speaker 1: Satoshi Nakamota. Check out the Brainstuff channel on YouTube, and

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Speaker 1: for more on this and thousands of other topics, visit

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Speaker 1: how stuff works dot com.