The Truth About Bitcoin

November 26, 2013 9:05 am | By More

Stefan Molyneux from Freedomain Radio discusses the rise of Bitcoin, its history, mining, fees, altcoins etc. and more in a YouTube video, which you can reach via this link. If you would like to get more from Stefan Molyneux and Freedomain Radio including books, podcasts and other info, please visit www.freedomainradio.com. Below is the full transcript of the video…

Hi, everybody. My is name Stefan Molyneux, and I’m the host of Freedomain Radio. I think it’s really important to take a few minutes to understand the future of freedom, I would argue, which is Bitcoin and old coins and related to digital currencies. Now, why is this important? Fine question. I would argue that it’s important because fundamentally control over human beings used to be direct control over them like they were slaves or they were serfs. Now what’s happened is the people who are in charge of society, the people who run society have found it much more profitable and a better camouflage to control money, and through the control of money they can control people.

So like an amateur thief will stick a gun in your ribs and demand your wallet, but a really sophisticated thief will control the Central Bank and print money for his use and his friends’ use and then stick you with the results and inflation and have you blame the poor helpless shopkeeper who is forced to raise prices because that’s an overprinting of money.

There doesn’t seem to be any particular end to this problem of fiat currency, central banking, government control of money and interest rates and the resulting control of human beings. Hundreds of fiat currencies have been around throughout history. They’ve all hit the same disaster with, I guess, the exception of the British Pound which has only lasted only about 96% of its value since it was first introduced a few hundred years ago. So I think it’s really important to understand what digital currencies are, how they operate, and why they’re so important. So we’re going to focus a little bit on Bitcoin here. There are some other stories that we’ll talk about as well.

So what is a Bitcoin? How does Bitcoin work?

A Bitcoin is a networked cryptocurrency. Now, crypto sounds cryptic. It just means that it is cryptography. It’s based on the cryptography branch of mathematics or the hiding of particular information in special codes. Bitcoins are transmitted from one Bitcoin address to the next in any amount desired with zero cost overhead. You can apply a small cost overhead if you want in the terms of pennies to have it transact a slight amount faster but it is free.

Bitcoin addresses are identified by a string of 32 random numbers and letters, just like a bank account number. Users can have one or many Bitcoin addresses. You can create a new Bitcoin address for every transaction if you want. If you want to learn how to use Bitcoins, it’s very, very simple. You can just go weusecoins.com or trybtc.com.

Bitcoin is software. Like an email client, you download it and install it on your local computer or device and you can send and receive Bitcoins. The Bitcoin software is designed and written by developers who are publicly known from around the world, and changes are made to the software over time based on fixes and features that are in demand by a consensus of users. No one person or authority can enforce changes. You see how it’s not hierarchical, not centrally controlled; it is a voluntary participation of like-minded and talented people to produce something of great value to the world.

Now, unfortunately, for those of us who like freedom, Bitcoin has a lot of qualities that government regulators don’t like and it doesn’t have qualities that government regulators do like which is why it’s going to be a challenge and an exciting challenge to get it adapted in a more widespread way.

So how does a Bitcoin come to existence?

Well, it’s called mining. What happens is you set up a computer, a series of computers particularly with good graphics cards to solve mathematical equations. A lot of permutations of these equations have to be solved to find the right solution, and this serves as a proof of work performed by this miner. The miner is the machine or the person who’s running it. And so it’s like you expend the energy to dig into the ground to extract gold and that’s called mining, and in the same way you expend computer power and CPU cycles and electricity to create a Bitcoin, to mine a Bitcoin. Both require the consumption of resources.

The processing power of computers that are actively involved in currently mining for Bitcoins is estimated to be 6 to 8 times greater than the top 500 supercomputers combined as of May 2013.

Let’s have a look at the fees. Recently, somebody transferred $6.5 million in Bitcoins for a fee of $0.06. That’s a lot of zeros with a 9% in terms of fees. Let’s compare that to PayPal. PayPal typically charges 2.9% plus a $0.30 fee per transaction, bank wire transfers charge around 3.5%, take three and a half business days to clear. If you look at something like Visa, you’re looking at similar kinds of amounts. So to do this, transfer over PayPal would have cost $188,500. To do a wire transfer would have cost over a quarter million dollars. Bitcoin can do it for $0.06. So how do you feel if you’re a bank looking at this competitor on the horizon and it’s not to the next call you make going to be to your personally rented congressman to write, interfering legislation into this kind of stuff?

There are third-party websites. It’s an open API such as Coinbase and BitPay service, and they aim to make merchant transactions simpler and link Bitcoin accounts to legacy bank accounts. And they charge 0% to 0.99% for transactions. Bitcoin transactions are irreversible, so there’s less risk to senders of fraud or chargebacks and this is important. The reason that they’re not reversible is if you want to send someone back the Bitcoins, since it cost you nothing, if you want that option, since it cost you nothing, you send it back. Somebody sends you a Bitcoin by accident or you run or reverse the transaction, you send them the Bitcoin back because it’s not this overhead of transaction fees. You can just do that very easily.

And you can put escrow services which means that you basically put your Bitcoin into a holding cell until a particular condition is satisfied like some good is delivered or some service is provided and then it’s released.

Transactions anywhere in the world are generally confirmed within ten minutes regardless of the size of the transaction. It’s possible to have confirmed the transaction within moments by introducing trusted intermediaries and off-chain transactions that are validated by third parties rather than by the Bitcoin network. So if you’re doing something incredibly time sensitive, then you can, of course, accelerate it.

Now, highly regulated money services like PayPal have been unable to connect foreign marketplaces, really remote places. Bitcoin permits those with an internet connection of any kind previously in isolated areas to send and receive wealth, creating a truly global marketplace. Look, I use PayPal but they have to conform with a huge amount of government regulations and legislations which is what drives their price up to some degree.

Bitcoin is often described as frictionless because of the lack of need for intermediaries, the low or no fees and the speed. The authenticity of transactions are double checked and assured by the rest of the network. One measurement of the authenticity of transactions is measured by the bricks index which estimates that approximately $500 million would be required in order to trick the network and create fake transactions. They’re not too likely. I’m sure there’s better use for half a billion dollars like funding the US government for a pound eight nanoseconds.

Now, of course, Bitcoin is not the only pony in the show. The blueprints for Bitcoin are open source. People can make their own modified versions of Bitcoin but different properties often referred to as old coins. This opens up the Bitcoin currency to competition which is kind of what you want in order to keep it moving ahead and becoming as efficient and friendly as possible. If any fundamental problems with Bitcoin are discovered in the future, then you can just switch to a new or existing old coin and there are dozens already traded on exchanges. The top five in terms of market cap are Litecoin, FeatherCoin, Terracoin, Namecoin, and Novacoin.

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Category: Technology

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