Speaker 1: Welcome to brain Stuff from How Stuff Works. Hi, I'm
Speaker 1: Christian Seger. This is brain Stuff, and I've got some
Speaker 1: bad news for you. Money is imaginary. Now, I don't
Speaker 1: mean that printed pieces of paper are make believe. I
Speaker 1: can feel a dollar's texture and the ink even smudges
Speaker 1: on my hands. But when you compare it to a
Speaker 1: blank piece of paper, what's really the difference. Well, one
Speaker 1: is a recognized currency and the other isn't. And the
Speaker 1: reason why people agree that one piece of paper is
Speaker 1: a dollar and has value, that's where money's worth comes from.
Speaker 1: We all pretend it's a currency. This is one reason
Speaker 1: why the digital currency bitcoin appeals to some people. It's
Speaker 1: not tied to any political system or government, so it's
Speaker 1: not vulnerable to any of their failings, like the economic
Speaker 1: collapse in two thousand and eight. All it needs is
Speaker 1: for people to believe in it. But lately, well some
Speaker 1: people are having a crisis of faith. That's why today
Speaker 1: on brain Stuff, we're going to quickly establish some facts
Speaker 1: about bitcoin to better inform your beliefs about it. Basically,
Speaker 1: it's virtual money you can use to buy and sell
Speaker 1: things online, and it mimics real world limited resources like gold,
Speaker 1: for instance, it's also a cryptocurrency, meaning it's encrypted in
Speaker 1: a way that prevents it from being copied. See every
Speaker 1: bitcoin transaction is recorded using a blockchain. That information acts
Speaker 1: like a ledger that is encoded onto the bitcoin itself.
Speaker 1: This prevents people from spending the same bitcoin more than once,
Speaker 1: since everyone else on the currencies peer to peer network
Speaker 1: knows that it's been spent. It's essentially just a number
Speaker 1: associated with an Internet address. You can store it on
Speaker 1: your phone or a hard drive until it's used again.
Speaker 1: Here's some ways you could acquire bitcoins, accept them as
Speaker 1: payment for goods and services, exchange them for a more
Speaker 1: traditional form of currency. Or you can mind them. That's right,
Speaker 1: Like gold, bitcoins are mind not by old timey grizzled prospectors,
Speaker 1: but by powerful computers. And like gold, the more people
Speaker 1: mind bitcoins, the less there are to be found, so
Speaker 1: they become harder to find. Instead of physically mining with
Speaker 1: the pick axe, you can attempt to solve math problems
Speaker 1: with a computer. Imagine the problem is something like X
Speaker 1: plus Y equals fifteen. If you can figure out what
Speaker 1: X and why are, you get a bitcoin with little competition.
Speaker 1: The problems are easier to solve. But when more people
Speaker 1: join the search, you've got a race, and the problems
Speaker 1: get way more difficult. People start teaming up, crunching numbers
Speaker 1: by networking multiple parallel processors together. Suddenly it's like Deadwood
Speaker 1: meets Silicon Valley and them bitcoins ain't so easy to
Speaker 1: find no more, especially because there's a limited supply of
Speaker 1: about twenty one million bitcoins. These can be divided down
Speaker 1: fractionally to eight decimal places. So the more we mind,
Speaker 1: the less bitcoins there are possible to find. Mind. In fact,
Speaker 1: every four years the amount of bitcoins you can find haves.
Speaker 1: We're at a point now where people need computers specifically
Speaker 1: designed for bitcoin mining to even have a decent chance
Speaker 1: of getting them. But as bitcoin miners dwindle, the math
Speaker 1: problems will get easier again. To ensure the flow is steady,
Speaker 1: their value is boosted and they remain inflation proof. Not
Speaker 1: all have been mined yet, and we expect they won't
Speaker 1: be until around So let's say you just heard all
Speaker 1: this and you thought, well, I want to grow up
Speaker 1: and be a professional bitcoin miner and trader. Well, there
Speaker 1: are a few risks you should probably know about first.
Speaker 1: For instance, because there's no regulatory agency setting a bitcoin's value,
Speaker 1: it tends to fluctuate wildly. Let's go back to the
Speaker 1: dollar bill. Today, I might be able to buy a
Speaker 1: candy bar with it, but what if tomorrow it could
Speaker 1: buy dinner at a nice restaurant, or a week later
Speaker 1: it could buy the entire restaurant itself. Bitcoin is kind
Speaker 1: of like that, except the dollar would suddenly drop in value,
Speaker 1: so you couldn't even buy a piece of gum with it,
Speaker 1: And why would you spend it anyway if it could
Speaker 1: be worth a hundred times more tomorrow. Another bitcoin problem
Speaker 1: is security. Actually, the format itself is fine, but that
Speaker 1: doesn't protect it from hackers who targeted the banks and
Speaker 1: exchanges that deal in bitcoins. So, for example, Mount Cox,
Speaker 1: one of the largest bitcoin trading floors, was hit for
Speaker 1: the equivalent of around four hundred and eighty million dollars
Speaker 1: that's seven percent of the world's supply of bitcoins. Flex Coin,
Speaker 1: a bitcoin bank, announced to all its users that their
Speaker 1: accounts had just disappeared, and when the online market silk
Speaker 1: Road was shut down in October, the FBI became one
Speaker 1: of the largest holders of bitcoins in the world. Now again,
Speaker 1: This isn't the fault of the currency. If a bank
Speaker 1: was robbed, you wouldn't blame the dollar bill for getting stolen, right. So, yeah,
Speaker 1: Bitcoin has its slumps, and for it to become widely used,
Speaker 1: its volatility needs to settle down quite a bit. It's
Speaker 1: currently a high risk currency that is totally unpredictable, and
Speaker 1: we didn't even get into the mysterious identity of Bitcoin's founder,
Speaker 1: Satoshi Nakamota. Check out the Brainstuff channel on YouTube, and
Speaker 1: for more on this and thousands of other topics, visit
Speaker 1: how stuff works dot com.