Bitcoins and its origins - Blockchain Tutorial

- All right, let's talk about bitcoins and why it was created. So first of all, we already addressed some of the problems with traditional money, currency, bartering. You know, things like silver, gold, which are commonly, or were commonly used before currency to trade things are a little difficult. How do you actually figure out what the value of gold is? Yeah, we know what the value is now because we have a currency attached to that, but how do you actually divide that up? You have a block of gold. Am I going to really, like, start cutting it up, and dividing it up? It's going to be a little difficult. So, you know, one of the reasons currency was invented. Also, remember, when we're talking about division, we're talking about precious metals. but what about when you're doing barter? That's even more difficult when you have an animal trying to divide up to get some vegetables makes it a little more difficult. Paper money was invented to solve some of those problems. Of course, paper money has its own issues that we had discussed. One of the big issues is that paper money is not backed by a physical metal anymore, like tangible metal. $1 now in your pocket does not represent $1 in the Federal Reserve, or in the national banks anymore. It's a credit. And that makes issues because now the only thing that money is worth is the faith that you have in that government. Of course, that can be worth a lot if you have a lot of faith in that. It can be extremely valuable or not. Just kind of depends on what's happening in the world. So bitcoins was really meant to solve all those problems because all money is essentially credit in some way, or some form, or at least some sort of belief that the government is going to back that currency up. If you want to get away from all that bitcoins were an attempt to solve that problem. An attempt to decentralize currency from government. So bitcoins were probably invented to solve this problem, right? And then when I say probably it's because it's an open-source protocol. There was an inventor, but there was a lot of reasons why people are using bitcoins and why the protocol has been updated and changed. All right, so let's talk about bitcoins itself. So on August 18th, 2008, this is, as we say, the day that will live in infamy. Maybe not the correct term there, can be used for more historical purposes, I guess, but at least it was an important day for us in the digital currency world because on August 18th, 2008, the domain bitcoin.org was actually registered. Now nothing happened with that domain until October 31st of 2008 when a white paper "Bitcoin: A Peer-to-Peer Electronic Cash System" was released by an entity named Satoshi Nakamoto. Now first of all, I say an entity named Satoshi Nakamoto because we actually don't know who Satoshi Nakamoto is. There's a lot of controversy behind Satoshi Nakamoto. Was it a person? Was it an organization? Was it a government entity? We don't really know. A lot of people have guesses. A lot of people have claimed to be Satoshi Nakamoto. You know, they've either been disproven, or they haven't been completely accepted if they have, you know, actually, claimed to be Satoshi Nakamoto, or not. I personally have my own personal feelings. I feel like anyone that has claimed to be Satoshi Nakamoto isn't really them. The reason I believe that is because at the very end when anyone's being asked for real proof, like, prove, hey, you know, like, do some transfer, do a money transfer from your original wallet address, or sign something with your PGP key, the person that's always claimed to be Satoshi Nakamoto has come back with an excuse saying like, oh, it's too much stress for my family, you know, I can't prove it, don't worry about it. I don't need to prove it to anyone, or there's been a lot of contention, a lot of fights within the community, but, you know, the fact is we know that this white paper was signed by an entity, or a person named Satoshi Nakamoto. We know that same entity got involved in a lot of forums. At first it was Usenet groups on the internet, and then the more popular forum was bitcoinforums.org. That was extremely popular in 2008, 2009, where this entity was communicating about a lot of different things. And they were at least, you know, for all purposes considered an inventor of bitcoins. Now, although bitcoins, the protocol has changed quite a bit since 2008, I would recommend everyone download this paper. You can Google "Bitcoin: A Peer-to-Peer Electronic Cash System" and read it. It's actually a very simple read. It's not too long, I believe it's, like, 13 pages if I remember correctly. Something around that effect, very, very simple. A lot of that paper does go into proof of work, which we'll talk about, which is kind of the math behind bitcoins. So if you're not used to that it can get a little complicated, but the paper does explain it really well, how that works. You don't have to be a crypto genius or anything to figure that out. Actually, I think it's kind of amazing how well bitcoins work and how simple the white paper is describing bitcoins. So like I said, the white paper itself described a method of doing electronic transactions without relying on a central trust. So there is trust, obviously, because if I'm giving you money, any type of payment, I'm going to be trusting you to some extent because I'm entering, you know, a relationship with you, right? An exchange relationship. Like, you know, if I'm buying something off of you, but it doesn't rely on a central trust. What I mean by that is it doesn't rely on a government agency, or entity, or a bank, you know, regulating bitcoins. So on January 3rd, 2009, the bitcoin network actually came into existence. Satoshi Nakamoto, you know, we don't know if he actually mined the first block or not. When you read the white paper on bitcoins, there has to be more than one player involved to mine blocks. So we don't know if Satoshi actually mined the first block. We do know some blocks that are confirmed that we do know that he has mined, but the first block of bitcoins were mined on January 3rd, 2009. That's what we call a genesis block because it's the first block, you know, Genesis from the Bible, or from "Star Trek" depending on your pop culture references. The block actually had a reward of 50 bitcoins. That means whoever mined the block at 50 bitcoins because they solved the proof of work, or the computational math problem. I know you don't know what that means. We will talk about it throughout this course, and we'll go over that in a little bit of detail. Now, one interesting thing is the genesis block actually had a message attached to it. And it says, basically, "The Times" January 3rd, 2009, "Chancellor on the brink of second bailout for banks." Now, if you think about that message, there's a lot of, you know, speculation on who Satoshi was. I believe, you know, my personal belief, and this is what a lot of people believe is that Satoshi was someone that, you know, was probably a little tired of central governments of, you know, central authorities. Think about what was happening in 2008, 2009, you know, in the global economy. Like, in the United States, we had our housing market meltdown. We had a global recession happening in 2008. There was a lot of what we call "Too Big to Fail." You know, governments bailing out very large corporations maybe at the potential expense of the middle class, or the lower class with taxes, and other bailouts as well. So a lot of people I think were kind of frustrated with the central governments of the world, and Satoshi could've been one of them. There have been speculations, people have looked at and analyzed, like, the times that he logged onto different forums, and people think that, you know, he was possibly from the East Coast, United States, or, you know, Europe. You know, I think mostly, you know, a lot of people with the language that he's using is Europe, you know, with the name Satoshi, we don't know if it's a real name or not. People kind of guess, like he may have, you know, had some Eastern influences. We don't really know. That's the thing is we don't know who Satoshi was. and we don't know if it was a real person or entity, or whoever. Now it's estimated, and this is with a little bit of controversy, right? So there's a lot of speculation around this, and there's a lot of people that actually say, you know what? This is actually what a lot of people say, but it's completely not true, but a lot of people believe that Satoshi Nakamoto mined over one million bitcoins making him a multi-billionaire. Now, like I said, there is a little bit of controversy because we do have only a few confirmed blocks that we know he mined, but it's assumed that he mined other blocks as well. So just keeping that in mind, that number could actually be a lot lower. Nakamoto, actually, like, you know, in a sense he handed over the reins of the development of bitcoins to Gavin Andresen. Now there's no corporation called bitcoins, but if there was, like, a face of bitcoins, if there was a public entity of bitcoin, it'd probably be the Bitcoin Foundation. And Gavin Andresen was one of the lead developers of the Bitcoin Foundation. So he was very involved in the forums. They were discussing like, you know, things on how to protect bitcoins against denial service attacks. around scalability, about other things as well. And Gavin Andresen was one of the kind of leading developers on helping the protocol get more secure and more scalable, making changes in the protocol, helping release more, you know, releases of the protocol. And so when Nakamoto left, Gavin kind of took over. Now Nakamoto didn't just say like, hey, you know what? I'm leaving, you know, like, I've done my work. A lot of people kind of assumed that he did. He kind of was kind of hinting that, you know, it was never about him. It was never, you know, about him making money that he wanted to give this gift to the world and like kind of be done with it, but he just basically, you know, didn't log onto the forums one day and that was it, so it wasn't like an official handoff, but Gavin Andresen and the Bitcoin Foundation really kind of took over as the face of bitcoins. And that's, also, when we talk about changes in cryptocurrency, when we talk about other types of cryptocurrency. We call them altcoins, alternate coins. When we talk about Ethereum, when we talk about Monero, when we talk about Litecoins. All these other cryptocurrencies that came out after bitcoins, they were really there to solve a problem that people felt like bitcoins didn't solve. And a lot of times those problems were because there was a disagreement between the Bitcoin Foundation and people backing up the Bitcoin Foundation versus other groups. And because of that, there was a split in the group, and usually that meant a split in the cryptocurrency, or what we call a fork in the cryptocurrency, another version. And that's why other cryptocurrencies were invented. Almost all other cryptocurrencies that came in after bitcoins in the early days were because they were trying to solve a problem that they felt like bitcoins didn't address. And the community as a whole couldn't get a consensus into updating that so a new cryptocurrency was invented. So the value of bitcoins. Why is bitcoins worth anything? If I have a bitcoin, if we look at the value of bitcoins, you know, it's been as high as 65,000, you know, in the last couple years it's been as low as, you know, 3,000 in the last couple years. And, you know, before that it's been much, much lower and much higher. Well, not higher than 65, that was an all-time high, I believe. So why are bitcoins valuable? It's because people believe they're valuable. Like, wait a minute, what are you talking about? Well, it's just like the Island of Yap, what we talked about in lesson one. Those limestones at the Island of Yap were valuable because people believed they were valuable and assigned value to them. Same thing with bitcoins. They're valuable because people believe they're valuable. Now they do have some mathematical, you know, components to them that, actually, like, ensure some rarity. When things have to be valuable, they have to be rare. There's a finite amount of bitcoins that can ever be mined. So there are other things that kind of stabilize its value, but for the most part, value is assigned because what people believe how much it's valued. There is an interesting story. You can actually look at the archives on bitcoinforums.org and follow the whole thread, but essentially someone was trying to get pizza. They're like, "Hey, can I buy pizza with bitcoin?" And eventually it was negotiated that someone would basically buy this individual two pizzas for about 10,000 bitcoins. Now how much is 10,000 bitcoins worth, or how much was it worth back then? Well, how much are two pizzas worth, you know? I guess it depends on the toppings, it can get very expensive, but at the same time, that's how the value was negotiated. Now this is a really interesting story because this is the first time bitcoins kind of were used to kind of trade something in the digital world mainstream that got attention, you know, to the physical world. They were used before that, but this story got picked up at that time by a lot of news media by other places as well. And people were like, wow, I can actually use bitcoins to buy something in the real world. And because of that, they started taking off and they started gaining more value and becoming more and more valuable because more people started putting their faith into bitcoins as well. So let me go back and talk about Satoshi Nakamoto. So the name is assumed to be the creator of bitcoins. We know that's the name that actually registered, you know, the domain that released the white paper, the bitcoin white paper. And it is also the same entity that participated in the forums, and claimed to be the creator, and, you know, release the versions of bitcoins. Now there has been a lot of widespread speculation on who is behind this identity. You know, who is Satoshi? A lot of people do think it's not one person. A lot of people think that it may be a government entity. There's a lot of conspiracy theories around that. And, like, maybe was it, like, the government trying to, you know, try and pass off something else? Were they trying to do something, you know, different government? Was it just someone that was tired of the government? Who knows, right? I will tell you, I do think, and a lot of people do believe that the math behind bitcoins is very elegant and it's very, very simple. It's not complicated. In fact, a lot of the more current, a lot of the later cryptocurrencies that were released later are much more complicated from a math standpoint. Bitcoins really aren't. And I think that's one of the values. And also one of the things that makes bitcoins very powerful is because it is a very simple concept to understand. So one of the more famous people that claim to be Satoshi Nakamoto is Craig Steven Wright. Craig Wright has publicly claimed to be Satoshi Nakamoto. There's been a lot of pushback. A lot of people don't believe that Craig is Nakamoto. And a lot of people, you know, some people have believed that he is. Some people claim that Nakamoto is probably worth millions to billions of dollars. There's a big range there. I know there's a big range, but that's because we don't know exactly how many bitcoins that he mined. There has been one estimate that I've seen, or a few estimates that I've seen that people believe that Nakamoto has, or with today's currency and value, over 54 billion worth of bitcoins. That could be, like I said, very, very subjective since we don't know exactly, we can't trace exactly, you know, which blocks that he actually mined. So Satoshi posted a message around denials to risk what we call DoS attacks on December 12th, 2010 on bitcointalk.org. He logged onto the forum on December 13th. So he posted a message on December 12th of 2010, and then he actually logged on the forum on December 13th, but he didn't post any messages on December 13th, and that was it. We never heard about Satoshi after that. So on December 12th, he wasn't talking about, you know, I would say anything too revealing, or anything. I mean, he had multiple talks about like, you know, scalability of bitcoins when it should be used. Mostly on December 12th the messages were posted around how to protect bitcoins from denial service attacks. And, you know, he was participating in the forums. The same account logged on December 13th and that was it. That account has never been logged on after that. It's disappeared after that. So we don't know, you know, what it is. Craig Wright, a lot of people have asked him for very specific types of proof to see if he was Nakamoto. People believe that he hasn't provided that proof. So, you know, there's some contention between the community and Craig Wright between that as well, but he's been the most public person to have claimed to be Satoshi Nakamoto. I don't know, like I said, I don't have an opinion on it. You should definitely read about it. It's definitely some interesting things happening, but as I said, you know, a lot of people are skeptical and, you know, probably, you know, like I said, not outrageous, but with extraordinary claims, you probably need extraordinary proof. And I think that's what is being asked for Craig Wright, and I think he'll decide to see if he wants to reveal that proof or not.