Video - Bitcoin 101 - Introduction to the Future of Money
This is part of a talk which took place on October 19th 2016 at the Bitcoin Wednesday Meetup in Amsterdam, Netherlands. He speaks about crypto-currencies as well as how it would affect the economy and those third party player in finance universe.
ANDREAS ANTONOPOULOS: Welcome. Hello, everyone! It’s so awesome to be in Amsterdam. This is my second time doing a conference in the Netherlands. Last time I was in Rotterdam but this is my seventh time visiting Amsterdam, one of my favorite cities in Europe, really, really happy to be here. How many of you have Bitcoin? Okay, so this is a complete beginners’ class, right? How many of you do not have Bitcoin yet? All right. Now look around you the people who raised their hands every (0:00:47) wallets and get some Bitcoin today, right? So we had about – about a dozen people maybe who did not have Bitcoin. You are surrounded by the highest concentration of people with Bitcoin that you will ever find in the Netherlands and so this is your opportunity, right? And I’m sure many of them will be happy to give you some so they try the technology and if not I will be happy to give you some so you can try the technology.
So, I’m here to talk about a payment technology that is really important, it’s a fundamental part of who we are as a human civilization. It’s an instantaneous person-to-person, direct payment technology with no fees, no surveillance, no control that works for any product or service and which has had very wided (0:01:43) option for approximately two to three thousand years and that is cash.
You’ve heard of cash? Yes. Cash is the ultimate peer-to-peer technology, right? It’s direct between people. When you make a cash transaction there is no corporation involved, PayPal (0:02:06) nobody else, just you and the person you’re dealing with. It allows you to have local coverage in your community. It is instantly identifiable, unforgeable, portable, easy to use. It’s faster than those chip and PIN cards we have like remove card now? No, no, still wait, no. Remove card now? Now remove card, yeah. Well, cash is faster even than that, right? So we’ve advanced technology by three thousand years and now it takes longer to make a payment with a chip and PIN card.
Cash is about people connecting with other people. But cash has one small disadvantage and that’s you can’t e-mail it to the other side of the planet and that’s where Bitcoin comes in. because Bitcoin isn’t a payment network, Bitcoin isn’t credit card system, Bitcoin isn’t a system of credit, Bitcoin isn’t a company, Bitcoin isn’t an institution. Bitcoin is an electronic, peer-to-peer system of digital cash. And just like cash that means that the value is in the Bitcoin itself. It’s not a promise, it’s not a debt, it’s not a credit. It is value itself that you transfer and you transfer directly to other people without intermediaries. It’s near instantaneous, it has very little fees. There’s no other companies or institutions involved when you transfer Bitcoin. It’s a system of pure electronic cash. Why is that important? It’s important because we are gradually marching into a world where cash is going to get banned. We’re already seeing this in Europe, we’re seeing it parts of Asia, there’s discussion about it in the United States. They’ll start with you can’t do transactions over three thousand euros then they won’t update that for inflation for forty years or maybe they’ll lower it then it will be a thousand then it will be five hundred euros until eventually the only people who use cash are criminals. Well, the criminals that have not been able to get a banking license because they use wire transfers. But cash is going to gradually disappear from our world and this is a problem, this is a big problem because cash today is the only way that we can pay each other except for Bitcoin, right? So if I wanted to buy you a cup of coffee – how many of you take Visa as an individual? No? You didn’t bring your chip and PIN devices? No? So, how can I pay any of you in this room that doesn’t involve a corporation being part of that transaction?
So the magic about peer-to-peer cash or peer-to-peer Bitcoin is that it’s not peer-to-corporation-to-corporation-corporation-to-peer, it’s person-to-person directly and that means nobody can sit in between and say “I don’t think you should really buy that” with you money. I don’t think you should fund WikiLeaks or an environmental movement or an anti-fascist movement or whatever else you want to decide to spend your money on and, you know, that’s a bit of a problem for me because I didn’t invite these corporations to be part of my life and yet here they are in every transaction, in every interaction I have with another human being today unless I use cash. I am inviting a multinational corporation to be part of my transaction, to express an opinion about whether that transaction is the right transaction, to hold on to the money for 30 days just in case there is fraud, to charge 2% for that privilege and then maybe eventually pay the coffee shop owner or not. In Greece? Not. In Cyprus? Not. In Argentina, Brazil? Sometimes, not. In the Ukraine? Not.
When you invite corporations to be part of the human transaction you take the concept of local community and you destroy it because suddenly you’ve invited an unwelcome guests and that give them enormous power.
So we have a future in which cash will disappear and now we have two choices. The future will be digital money this is inevitable. The form of paper money we see today, if you have children under the age of five they will also see in a museum. As adults they will experience cash only in a museum. This is inevitable. Now the question is what kind of world do we want to live in? Do we want to live in a world where we have a system of money that involves person-to-corporation-to-corporation-to-corporation that’s restricted within the borders of one country where a whole number of intermediaries get to see exactly what you spend at all times during the day and when they get hacked everybody else gets to see that too and your money is under constant surveillance. You go to the wrong protest, you participate in the wrong political party, you expressed the wrong idea, oh, you money disappeared. Just like that. Then you have to prove your innocence to get it back. In the United States we call that civil asset forfeiture. I don’t think that’s very civil. Seems pretty uncivilized to me take my money and don’t tell me why and I have to prove my innocence. This is going to be part of our future and this is an extremely dangerous future.
Money is a form of power, it’s a form of language. When we have a transaction as people we are communicating value to each other. The problem is that if you introduce someone else into that conversation sometimes their primary role is to go “Shh, you can’t express that kind of value to that kind of person” and that’s an enormous amount of control to give someone else. Maybe you trust your government today, how many elections until you don’t trust your government? What could possibly go wrong? I come from United States we’re watching something go very wrong right now, right? And Europe certainly has that history of understanding how someone may be elected and maybe that’s the last election they have and democracy goes down the toilet. We’ve seen this happen again and again.
What happens when you give that government power of all money, all transactions, all interactions between people? Power corrupts, absolute power corrupts absolutely. There is no more absolute power than control of a finance.
Bitcoin is peer-to-peer electronic cash and it has this simultaneously global, borderless, uncensorable and mathematically neutral to source and destination. It’s the best form of cash we’ve ever had. It’s enormously empowering. If you think this is just about money and whether you get paid and rich versus poor people it’s not. It’s about taking control, individual control again of the power to express value to others to engage in a community, to trade with others without inviting into that conversation powerful corporations and governments that get to tell us whether we can or cannot spend our money. Bitcoin is not about money, it’s about liberty and money is just a form in which we express liberty in many of our social interactions.
So let’s do a very quick Lightning Q&A and if you have any questions especially the beginners among you who have never experienced Bitcoin before you’re interested in understanding more about it I’ll take the introductory questions and then we’ll go into a session about security. Who wants to go first? And you have to come stand over here. Anyone, please come on, questions about Bitcoin? Yes, please?
MAN #1: I have a question about like the – about the currency in itself.
ANDREAS ANTONOPOULOS: Yes?
MAN #1: So, if we take a currency like dollar, why we used dollars because we trust the US and then we used their currency to make a transaction.
ANDREAS ANTONOPOULOS: Yes.
MAN #1: So, like what’s the analogous for Bitcoin? So, what gives trust to Bitcoin as a currency?
ANDREAS ANTONOPOULOS: So, that’s a great, great question. So, what gives trust to Bitcoin is two things. One is the algorithm that controls Bitcoin itself and that algorithm you can study, you can read, it’s open for everyone to study and it’s very accessible. All you need is a higher lever computer science degree, maybe a masters or Ph.D. in distributed systems, you know, something like that. Okay, you’re not going to study that. But the point is that thousands of people do study that and they look at this algorithm and they say “Okay, this algorithm is secure, it’s neutral, it works based on certain established mathematical principles” and in order to change it everyone who’s participating needs to agree which makes it very difficult to change in fact and that’s a good thing.
And the second thing you’re trusting is that Bitcoin has two or three important characteristics that make it valuable. One thing is that it is rare, it is scarce and the reason it’s rare is because the algorithm imposes an upper limit of 21 million coins so you cannot just create infinite amounts of Bitcoin. It’s created a very specific rate. And when something is rare and it has demand that creates value, just basic fundamental economics of supply and demand.
Secondly, in order to create it you actually need to expend real world resources and that’s energy that is involved in securing and creating Bitcoin and that provides another basis. So you could say well, Bitcoin is backed by the full faith and credit of the internet and the economy that it contains as Bitcoin is becoming more and more the currency of the internet. And that’s when it comes to a very fundamental choice, what do you trust more in your life – the federal reserve of the United States, the European Central Bank or the internet? I generally see a very clear distinction. Almost everyone I know under 30 says “Fuck the banks I trust the internet.” And a lot of people over 30 are still kind of willing to trust the banks a bit, it’s a generational thing and I think it’s changing pretty fast. Yes?
MAN #2: Andreas once you made a point, I think I heard you say something about the layering of the Bitcoin where you got like Lightning Network on top.
ANDREAS ANTONOPOULOS: Mm-hmm.
MAN #2: And I think you made a point, one point saying that it was kind of a hybrid so that Lightning represented kind of proof of stake aspect. Is that – was that an argument you would make?
ANDREAS ANTONOPOULOS: Yes, Lightning does incorporate some elements of proof of stake because in order to create a Lightning Network – Lightning is this overlaid network that allows you to route transactions over Bitcoin as a second layer very, very fast at very, very small amount. But in order to do that you have to build channels those channels locked up money and if you engage in a Lightning Network effectively you earn fees so lock up money to earn fees that sounds like a proof of stake to me. It does introduce a kind of hybrid mechanism for committing funds to a system that supports the network and earning some reward in return for that by securing transactions. I would still call that a proof of stake system. And I’m actually going to be doing a talk about Lightning at the end of today. Please, yes?
MAN #3: I am an absolute newbie and maybe –
ANDREAS ANTONOPOULOS: Welcome.
MAN #3: I am absolute newbie in this (0:15:02) so may be a newbie question (). The last thing you said was about freedom and that is very important to me. I think that cash well, it’s going (0:15:14) I agree with you is still more anonymous and still more safe than Bitcoin as I understand it. How can you make Bitcoin really anonymous if it is possible at all?
ANDREAS ANTONOPOULOS: Yes. Bitcoin is not yet strongly anonymous, it is weakly pseudonymous as we would say but there’s actually a lot of work. We recently had a conference in Milan called Scaling Bitcoin and I would say half the conference at least was about addressing privacy, anonymity and fungibility of the currency which is extremely promising development. There’s a lot of technologies coming down the pipeline in Bitcoin to make Bitcoin more and more anonymous and to strongly protect your privacy. There’s also a number of other related cryptocurrencies which you can move your money into and out of in order to increase your anonymity and privacy under certain conditions. So, I am a huge believer that we need strong privacy and anonymity in every aspect of our financial life. Thank you. That’s a great question.
MAN #4: What does it mean when the bulk of the mining is done in China and in Iceland and it’s not done anymore by like the regular folks? What effect does that have?
ANDREAS ANTONOPOULOS: Well, this is primarily a result of two very, very strong incentive systems that have existed. The first one is that because of the very, very rapid advancements in silicon fabrication for mining chips in Bitcoin things are moving so fast that the average piece of equipment that you buy to do Bitcoin mining has a shelf life of two to three months which means you can’t take it very far from the silicon fabrication plant which is in China. You need to exploit it locally. You put in a boat, try to ship to America but the time it arrives it worthless. This is a major problem because it’s greater than centers where the companies that produced this chips are much better motivated to spend the first three months mining with them until they’re worthless and then shipping them out to customers and we this happen again and again. That could only happen when the advancements were between a thousand and ten thousand percent a year increase in performance. Now we’ve reached Moore’s law the front end of silicon manufacturing at 16 nanometers so all of that slows down which means that this devices when produced maybe have a two-year usable shelf life. That changes the economics quite dramatically. I expect we’re going to see a re-decentralization of mining.
The other thing that’s happening in China that people don’t realize is they have the need to install, I believe the last statistic I read was one new power plant every 16 hours gets turned on, new power plant, 50-megawatt power plant gets turned on every 16 hours in China, has been for almost a decade and they’re still not keeping up. A lot of those are not connected to a distribution network which means that if you have a province or region that you put a hydroelectric dam, you put it with the plan to support electricity 15 years from now which means that now you’re using it at a 20% capacity the rest of that electricity is being wasted. You can’t ship that electricity anywhere. So by installing a mine there you’re actually a very environmental thing which is consume electricity that is otherwise wasted and subsidizing hydroelectric which we are seeing happening. So Bitcoin has a tendency to go where the electricity is cheapest and that’s because it deals with excess capacity. It can actually act as a way to subsidize alternative energy. I am not particularly worried about the fact that most of the mining is concentrated in China because most of the software developers are concentrated in America and it turns out those two are nicely balanced with each other.
MAN #4: All right. So, political risk is limited in that sense?
ANDREAS ANTONOPOULOS: Political risk exist in every country but it’s no greater in China. In fact I would argue that the political power of the Chinese government to go into a province that’s making 30%, 40% of their taxing come off this mining farm and shut it down is rather limited. They will find that every person they talked to has been bribed by the mining farm so who’s going to execute that order. Thank you. Let’s make this the last question.
MAN #5: Okay.
ANDREAS ANTONOPOULOS: Okay.
MAN #5: Andreas, thanks for coming to Amsterdam.
ANDREAS ANTONOPOULOS: Thank you.
MAN #5: A quick question. Banks they played a huge role in our economy.
Andreas Antonopoulos: So far.
MAN #5: So far. What’s going to happen (0:20:09) how’s it going to be the banks’ role in 2018? They’re going to disappear or what –
ANDREAS ANTONOPOULOS: No, they’re not going to disappear. Like if you go to Central Bank, New York and you go there with maybe your wife or your significant other and you’re visiting Central Park they have this beautiful horse carriages that you can ride around Central Park and apparently horse carriages didn’t disappear with the invention of the automobile. So banks won’t either. They will be the kind of institutions that has significantly less power, is mostly used for legacy applications maybe governments will use them more.
MAN #5: Such as what they’re doing right now with a Blockchain that they’re building centralized Blockchain is what you really –
ANDREAS ANOTONOPOULOS: Well, the centralized Blockchain is a contradiction in terms. The purpose of a Blockchain is to increase decentralization. A centralized Blockchain is like a horse’s carriage with a horse and so if you do a horse’s carriage with a horse that’s a horse carriage and we already have those so you didn’t really change anything. It’s like saying the technology behind the automobile is the pneumatic tire let’s adopt pneumatic tires and put horses in front, it will work. Now, I hope they spend another billion dollars trying to figure out it won’t work training lots and lots of Blockchain engineers will eventually come to Bitcoin and Ethereum and do some interesting projects. But banking as an institution is obsolete. Banking is now a protocol, banking is an app and that world is never going to go back. It just may take 20, 30 years until you see that ripples through the wall but it will and there’s absolutely nothing that can stop it.
MAN #5: Okay, thank you.
ANDREAS ANTONOPOULOS: Thank you. okay, one last quick question and then we’ll wrap it. Thank you.
WOMAN: Thank you. I’m sorry, I’m kind of new with this.
ANDREAS ANTONOPOULOS: Great.
WOMAN: So forgive me if my question is obvious but how can you say that Bitcoin for example eventually will – how do you say that – contribute to make it easy to support terrorist groups, for example.
ANDREAS ANTONOPOULOS: Oh well, I mean first we’d have to displace the most important funding mechanism that terrorist groups have which is the US dollar and oil some of which we gave to them directly through our governments. Who are we fighting this time I think wait, we were against al Qaeda until now we’re helping them in Syria or are we with Daish now I don’t know, I can’t keep up with all of that. Bottom line is that we live in a world where criminals use money and they use telephones, they used shoes, most of them drink water. We don’t ban technologies because criminals use them. What we do is we make those technologies a broadly available as possible because 99.99% of humanity will use those technologies for food, sanitation, healthcare, education and those are promising technologies. On the fake promise that we’re going to stop terrorism by controlling everybody’s money we exclude four and a half billion people from the current financial system. I don’t accept that bargain. So I’m not concerned about whether criminals will use it I’m much more concerned about the fact that we can make everybody else part of a global financial system with full access to all of the tools that we enjoy in this room. Thank you.