WEBVTT - Bitcoin

0:00:03.560 --> 0:00:08.119
<v Speaker 1>In August, the value of a single bitcoin reached a

0:00:08.280 --> 0:00:13.600
<v Speaker 1>staggering four thousand dollars. What's the story behind this cryptocurrency?

0:00:14.080 --> 0:00:26.439
<v Speaker 1>I'm Jonathan Strickland, and this is tex Stuff Daily. Let's

0:00:26.440 --> 0:00:30.000
<v Speaker 1>imagine it's Halloween two thousand and eight and we're listening

0:00:30.040 --> 0:00:35.000
<v Speaker 1>to tales from the crypt oh currency. On that day,

0:00:35.120 --> 0:00:39.040
<v Speaker 1>a mysterious person or persons going by the name Satoshi

0:00:39.159 --> 0:00:42.080
<v Speaker 1>Nakamoto published a white paper about a new type of

0:00:42.120 --> 0:00:46.480
<v Speaker 1>currency that wouldn't be tied to any nation or bank system.

0:00:46.520 --> 0:00:49.520
<v Speaker 1>It would exist on a peer to peer network of computers,

0:00:49.560 --> 0:00:53.160
<v Speaker 1>and the record of transactions using this currency would become

0:00:53.159 --> 0:00:56.400
<v Speaker 1>an intrinsic part of how it worked. The white paper

0:00:56.640 --> 0:01:01.280
<v Speaker 1>called the currency Bitcoin. In that paper, Nakamoto laid out

0:01:01.280 --> 0:01:05.600
<v Speaker 1>the case for a new currency. He or she or

0:01:05.720 --> 0:01:10.880
<v Speaker 1>they said that transactions between two entities online necessitated the

0:01:10.920 --> 0:01:15.840
<v Speaker 1>involvement of a third party that would facilitate this transaction,

0:01:16.240 --> 0:01:19.400
<v Speaker 1>which in turn required trust to exist between all the

0:01:19.440 --> 0:01:22.559
<v Speaker 1>parties in question. Now, in the physical world, you could

0:01:22.600 --> 0:01:26.119
<v Speaker 1>stride up to a vendor, plunk some physical currency down,

0:01:26.200 --> 0:01:30.080
<v Speaker 1>and purchase something with no other party's involvement. Not so

0:01:30.200 --> 0:01:34.039
<v Speaker 1>with online transactions that need for trust brings other issues

0:01:34.080 --> 0:01:36.960
<v Speaker 1>to the foreground. For example, to limit abuse of the system,

0:01:37.200 --> 0:01:40.160
<v Speaker 1>third parties might request a great deal of information about

0:01:40.200 --> 0:01:44.280
<v Speaker 1>the two entities making transactions. People concerned about their privacy

0:01:44.400 --> 0:01:46.800
<v Speaker 1>might be worried that this data could potentially come back

0:01:46.840 --> 0:01:49.720
<v Speaker 1>to haunt them, and from the third party's perspective, there's

0:01:49.720 --> 0:01:53.200
<v Speaker 1>always the chance someone commits fraud, leaving the third party

0:01:53.320 --> 0:01:56.440
<v Speaker 1>liable as the one that facilitated the transaction in the

0:01:56.480 --> 0:02:00.480
<v Speaker 1>first place. The peer to peer cryptocurrency approach by passes

0:02:00.560 --> 0:02:04.040
<v Speaker 1>this problem. It all gets a bit technical, but we

0:02:04.080 --> 0:02:08.000
<v Speaker 1>can explain it on general terms. Imagine a network of

0:02:08.040 --> 0:02:13.000
<v Speaker 1>computers joined through using a common suite of cryptocurrency software.

0:02:13.280 --> 0:02:16.560
<v Speaker 1>These computers are scattered across the world, and they share

0:02:16.600 --> 0:02:21.480
<v Speaker 1>information about every transaction that happens using this cryptocurrency. The

0:02:21.480 --> 0:02:27.040
<v Speaker 1>computers pack these transactions into blocks. Those blocks form a chain.

0:02:27.560 --> 0:02:31.960
<v Speaker 1>Every single transaction is part of this blockchain, with computers

0:02:31.960 --> 0:02:36.080
<v Speaker 1>in the network constantly validating transactions so that no bitcoin

0:02:36.120 --> 0:02:39.360
<v Speaker 1>may be spent by the same person twice. The peer

0:02:39.400 --> 0:02:43.560
<v Speaker 1>to peer network creates a decentralized structure. No one entity

0:02:43.760 --> 0:02:46.119
<v Speaker 1>is in charge of the fate of bitcoins, so there's

0:02:46.160 --> 0:02:49.560
<v Speaker 1>no single point of failure. When people first began to

0:02:49.680 --> 0:02:53.400
<v Speaker 1>use bitcoins, they weren't worth very much. A single dollar

0:02:53.600 --> 0:02:56.959
<v Speaker 1>was equal to more than one thousand bitcoins. Oh, how

0:02:57.000 --> 0:03:00.400
<v Speaker 1>the tables have turned. While Bitcoin has experienced from matic

0:03:00.480 --> 0:03:03.760
<v Speaker 1>ups and downs. In August, the value of a single

0:03:03.760 --> 0:03:08.160
<v Speaker 1>bitcoin hit the incredible four thousand dollar mark. This volatility

0:03:08.200 --> 0:03:12.320
<v Speaker 1>has led some people, including myself, to suggest bitcoin is

0:03:12.360 --> 0:03:15.640
<v Speaker 1>more like a commodity than a currency. When the value

0:03:15.680 --> 0:03:19.320
<v Speaker 1>of your currency fluctuates wildly, there's less of an incentive

0:03:19.360 --> 0:03:22.360
<v Speaker 1>to use it as an actual currency. How would you

0:03:22.400 --> 0:03:24.920
<v Speaker 1>feel if you paid a dollar for a candy bar

0:03:25.320 --> 0:03:27.800
<v Speaker 1>only to find out the next day that this same

0:03:27.840 --> 0:03:31.920
<v Speaker 1>dollar could have bought four thousand candy bars. There's a

0:03:31.919 --> 0:03:34.640
<v Speaker 1>lot more to bitcoin as well. For one thing, there's

0:03:34.639 --> 0:03:38.320
<v Speaker 1>a finite number of bitcoins that will ever exist. Eventually,

0:03:38.400 --> 0:03:41.560
<v Speaker 1>every bitcoin that can exist will be in circulation. That

0:03:41.680 --> 0:03:45.320
<v Speaker 1>number is just three bit sents short of twenty one

0:03:45.560 --> 0:03:50.880
<v Speaker 1>million bitcoins. The way more bitcoins inner circulation is through mining.

0:03:51.280 --> 0:03:55.360
<v Speaker 1>Mining is the process of validating and storing transaction information

0:03:55.440 --> 0:03:59.440
<v Speaker 1>in the bitcoin blockchain by solving complex mathematical problems with

0:03:59.480 --> 0:04:03.280
<v Speaker 1>a computer. As you apply more processing power to this operation,

0:04:03.520 --> 0:04:07.560
<v Speaker 1>the operations get more complex. There's no perfect analogy for this,

0:04:07.640 --> 0:04:10.080
<v Speaker 1>but imagine a gold mine in which the gold could

0:04:10.120 --> 0:04:13.720
<v Speaker 1>actually hide itself further away if miners were bringing in

0:04:13.800 --> 0:04:18.080
<v Speaker 1>heavy duty mining gear. The slighting difficulty scale helps ensure

0:04:18.080 --> 0:04:22.359
<v Speaker 1>that bitcoins inner circulation at a pre established rate. In addition,

0:04:22.560 --> 0:04:25.120
<v Speaker 1>there's a schedule to release a certain number of bitcoins

0:04:25.160 --> 0:04:29.200
<v Speaker 1>every time a new block is mined. That schedule requires

0:04:29.200 --> 0:04:32.200
<v Speaker 1>a smaller number of bitcoins issued as a reward per

0:04:32.240 --> 0:04:36.400
<v Speaker 1>successful mining operation over time. For example, when they first

0:04:36.440 --> 0:04:39.760
<v Speaker 1>came out, you could get fifty bitcoins for mining a block.

0:04:40.360 --> 0:04:44.760
<v Speaker 1>Before June nine, the rate was about twenty five bitcoins

0:04:44.760 --> 0:04:47.919
<v Speaker 1>for successfully mining a block, and after that date it

0:04:48.040 --> 0:04:52.000
<v Speaker 1>dropped down to twelve point five bitcoins. Over time, this

0:04:52.120 --> 0:04:55.320
<v Speaker 1>number will again be reduced by half, and then again

0:04:55.640 --> 0:05:00.520
<v Speaker 1>and again until sixty four. Divisions will happen, and reward

0:05:00.560 --> 0:05:03.400
<v Speaker 1>will reach its lowest point until all the bitcoins that

0:05:03.440 --> 0:05:08.000
<v Speaker 1>will ever exist have entered circulation. And like most currency,

0:05:08.320 --> 0:05:12.040
<v Speaker 1>you can divide a bitcoin into smaller amounts. With American currency,

0:05:12.240 --> 0:05:16.240
<v Speaker 1>we have quarters, dimes, nickels, and pennies. With bitcoin, you

0:05:16.279 --> 0:05:19.919
<v Speaker 1>can divide down to eight decimal places. So while a

0:05:20.000 --> 0:05:24.120
<v Speaker 1>penny is point zero one of a dollar, the smallest

0:05:24.160 --> 0:05:29.120
<v Speaker 1>increment of a bitcoin is point zero zero zero zero

0:05:29.240 --> 0:05:34.720
<v Speaker 1>zero zero zero one bitcoins. Why are bitcoins worth so much?

0:05:35.000 --> 0:05:37.680
<v Speaker 1>That's because people put that much value in them. When

0:05:37.720 --> 0:05:40.200
<v Speaker 1>you get down to it, a currency's value depends upon

0:05:40.279 --> 0:05:43.479
<v Speaker 1>the faith placed in it by a population. If the

0:05:43.520 --> 0:05:46.679
<v Speaker 1>confidence drops away, no one will accept the currency as payment.

0:05:46.920 --> 0:05:51.760
<v Speaker 1>There's nothing intrinsically valuable about it. To learn more about bitcoins,

0:05:51.800 --> 0:05:54.640
<v Speaker 1>be sure to subscribe to the tech Stuff podcast, where

0:05:54.640 --> 0:05:57.520
<v Speaker 1>we explore topics like this in detail. If you've ever

0:05:57.560 --> 0:06:00.280
<v Speaker 1>wondered how the large Hadron collider works, or you want

0:06:00.279 --> 0:06:03.440
<v Speaker 1>to know the story behind the Night three video game crash,

0:06:03.760 --> 0:06:07.040
<v Speaker 1>you should check out tech Stuff. Episodes publish every Wednesday

0:06:07.040 --> 0:06:09.839
<v Speaker 1>and Friday. That's all for me for now, See you

0:06:09.920 --> 0:06:10.360
<v Speaker 1>next time.