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hi welcome to another episode of cold
fusion
in 2009 a man by the name of james
howells
proved himself to be a visionary he
started mining bitcoin before anyone
else had ever heard of it
james managed to stockpile 7500 bitcoins
when they were just a fraction of a cent
per coin
eventually his girlfriend made him stop
she thought that the computer doing the
mining
was quote getting too noisy james later
ended up throwing the hard drive in the
trash
and today this mistake cost him over 400
million dollars
to get your money you would need that
hard drive
yeah there’s a specific file on that
hard drive called a wallet file which
the bitcoin is stored in
and without that file there is no way of
getting the money back because there is
no central
central server that records a log of it
in 2010 laszlo hagnex bought two pizzas
for 10 000 bitcoin or about 35
at the time it wasn’t the first
transaction in bitcoin but certainly the
most widely publicized
unfortunately today these delicious
pizzas cost him half a billion dollars
is it true some people celebrate
celebrate the the anniversary of the day
you bought the pizza
yeah may 22nd bitcoin pizza day so i
it’s really it’s called bitcoin pizza
day it is it’s stories like this
that make bitcoin such a fascinating
phenomena its growth and adoption
at least over recent years has been
mind-blowing
but the story of how bitcoin came to be
is just as interesting
despite bitcoin’s young age when
compared to traditional stores of value
the fundamental ideas behind crypto may
be older than you think
so the question has to be asked where
did bitcoin actually come from
who is the mysterious individual who
invented it
sit back relax in this two-part series
we’ll find out you are watching cold
fusion tv
for many bitcoin is still considered a
fad
a ponzi scheme something that would
disappear as quickly as it materialized
the cryptocurrency has has its fair
share of bad reputation
through fake crypto frauds such as
bitconnect and onecoin
not to mention payment for narcotics on
silk road what’s happening is there’s
all these
copycat cryptocurrencies that are going
out there
and there’s no regulation on the on the
actual
level of bitcoin itself you’re talking
about this futures regulation but the
underlying asset
is completely unregulated it’s a dark
market bitcoin
is worthless artificial gold
which if it succeeded would facilitate a
lot of illicit activity
but the word is starting to get through
that bitcoin is much more than that
people are starting to look at our
economic system with increasing
skepticism
currency is continuously being created
food prices and bond yields are rising
hinting at inflation and knowing that
the long-term value of
all fiat currencies over the last few
thousand years has tended towards zero
it’s only natural to think that there
may be some issues ahead
i’ve outlined financial problems
specifically in my how money is created
video which all of you really enjoyed
but it clearly highlights that there’s a
need for new thinking on the topic
friedrich hayek winner of the 1974 nobel
prize in economics
stated the following in 1984 i don’t
believe we shall ever have a good money
again
before we take the thing out of the
hands of government all we can do
is by some sly roundabout way introduce
something that they can’t stop
end quote while it’s undeniable that
bitcoin is not perfect
it broadly achieves this goal and as
you’ll soon see it can’t be stopped
so before we continue it’s probably wise
to have a quick primer on bitcoin
i first talked about bitcoin on this
channel back in 2013
and since then we’ve done a whole bunch
of episodes on bitcoin and blockchain
but for those that are new here’s a
quick summary
when you pay a shop using a bank card
the shop checks with the bank to see if
you have money to make the purchase
the bank checks its records verifies
that you have enough money
and deducts that amount from your card
it then updates its records
and takes a fee for providing their
services
if you wanted to remove the banks from
the system who would you trust
to keep the records straight no altering
or cheating
no one would ever trust a single person
with that much power
but you may give your trust to a
collective group of people many millions
in fact
the main idea is to not have a
centralized record of transactions
many copies of those transactions are
distributed across the world
every owner of each copy records every
transaction
in this new model the shop instead of
checking with the banks
checks with everyone’s records to see if
you have the money
when the purchase is made all the record
keepers update their records
if an individual transaction record is
fraudulent it doesn’t agree with the
rest of the copies of the transaction
records and gets rejected
this large group of people checking
record transactions aren’t people at all
but a network of computers
there is no need for third parties such
as banks because the decentralized
network keeps itself in check
amazingly that means no bans no server
shutdowns
or blocking of payments because payments
occur directly between people
although transactions can be tracked
they cannot be stopped
so-called miners keep the network
running by solving complex equations on
their computers
these people mine bitcoin in chunks
called blocks
that contain all of the recent
transactions
blocks are kind of like a page in a
record keeping book
the miners receive payment in bitcoin
for their effort much like mining gold
also like gold there’s a finite supply
of bitcoin to stop it from being
devalued
much like we’re currently seeing in fiat
currency
there will only ever be 21 million
bitcoins
and the final bitcoin will be mined in
2140
so what gives bitcoin its value in
reality
it’s just worth what someone’s willing
to pay for it
so could the price drop to zero if
confidence is lost
yes it’s possible but regardless it is a
pretty interesting idea
there’s an argument to be made that the
value of bitcoin is actually the trust
and utility of the bitcoin network
itself what the price is for that value
no one is sure yet so
yeah i think a really useful idea a
blockchain is just a type of database
it’s a distributed ledger that that in
some use cases like for a banking back
office
is kind of like a database upgrade so
massive improvements in efficiency
um but but probably not that
transformative or disruptive
when you take a blockchain you make it
public and decentralized and then you
add money to that you add a
cryptocurrency
then you’re looking at something that um
is is that first use case that offshore
banking system that i think is
fundamentally disruptive
and disruptive financially economically
and even potentially politically
so how’s bitcoin maintained bitcoin is
open source
so anyone can edit the code it’s a
misconception that the code has stayed
the same for the past 10 years
there’s maintenance carried out to
ensure smooth functioning
this is done through a bitcoin
improvement proposal or bip
a bip is just a document that proposes
core changes but to stop someone from
inserting some code that says
say give every cold fusion viewer a
thousand bitcoin
there needs to be 95 consensus across
the last 2
000 miners basically it’s a digital
voting system
on january 3rd 2009 the first block of
bitcoin was mined
within this very first block a special
message was written
it read quote the times 3rd of january
2009
chancellor on the brink of second
bailout for banks
this gives us a clue to bitcoin’s
purpose for existing
a response to a broken financial system
just nine days after the first block was
mined the first bitcoin transaction is
completed
it was between bitcoin’s creator satoshi
nakamoto
and another cryptographic enthusiast hal
finney it was a healthy sum
of 10 bitcoin worthless at the time as
there were no exchanges to determine a
price
satoshi nakamoto would announce his
invention of a new economic system on a
cryptography mailing list on july 9
2009 how finney would help satoshi fix
bugs and improve security in those early
days
[Music]
while these steps mark bitcoin’s
creation and the first instance of
application
this is by no means the beginning of
bitcoin’s story
for that we must travel back over two
decades to the year
1983
[Music]
in 1983 american cryptographer david
charm is already experimenting with the
idea of electronic cash
he was part of a movement known as the
cypherpunks
they were activists who defended the
idea of using cryptography
and computers as a powerful tool to
protect the privacy of individuals
if you were to put it into political
terms they were kind of like digital
libertarians
wanted to create a safer and more
anonymous transaction system
his efforts led to the invention of the
blind signature protocol
breaking ground and what would become
known as the foundations for modern
blockchain technology
i created a whole a concept for how
you could use ecash to make your
payments and then
the blind signatures could be used to
basically
prove things about you without revealing
who you are
classics they have kids at a bar and
they want to or somewhere they want to
get in they would
say to prove that they have a they’re
old enough or they’re
they have a driving license or they’re
from a different state or whatever
but they don’t want to give their
address and all this other stuff well
that
that’s what you could do with the
credential mechanism in the years that
followed
david chan began building his idea of a
workable cryptographic electronic money
system
and in 1989 the company digicash was
born
a notable employee at digicash was
cryptographer nick sabo
nick would go on to be influential in
the early crypto space
but more on him later in 1993
digicash launched their ecash system a
product that enabled the safe
and anonymous transfer of money over the
internet
ecash was david’s answer to what he
considered to be the extremely unsafe
practice of using credit cards online
according to insiders at the time ecash
was a technically perfect product that
resolved many of the issues that came
with credit card payments
such as security concerns and fees
despite his good intentions what david
was doing was risky at the time because
the us government
sensed a threat a number of my
colleagues and friends
had secrecy order placed on them by the
united states government
which made it a federal crime to reveal
what they were researching but you know
to apply that to cryptography
seemed uh a bit out of range the
national security agency which is our
main
cryptographic uh authority in the united
states you know for protecting secrets
and breaking codes
they got a new director and he started
writing letters to all the scientific
associations
telling them that they should not have
conferences or even
sessions at conferences that covered
cryptography
i felt it was just too important so i
risked spending the rest of my life
in jail to set cryptography free
digital cryptography was so frowned upon
that some early crypto enthusiasts had
to smuggle code through shirts or
tattoos
much like bitcoin the ecash product
began gaining incredible levels of
attention from buyers
at the height of the hype david charm
was contacted by none other than bill
gates
gates wanted to integrate ecash into
every copy of windows 95
it’s rumored that he offered 100 million
dollars for the project
david charm declined the offer and every
other offer that came after that
according to ex-employees david’s
stubbornness and paranoia made it hard
for him to trust the intentions of those
interested
he also assumed that there’ll be better
offers around the corner
he wanted ecash to be perfect he
believed in the importance of his work
in 1996 he stated quote the difference
between a bad electronic cash system and
a well-developed digital cash
will determine whether we have a
dictatorship or a real
democracy due to infighting
david eventually lost control of
digicash and the company fell into the
hands of external investors
digicash began pitching their products
to banks several of whom were interested
but the vast majority of banks at the
time were conservative and would rather
stick to lucrative credit cards
rather than an experimental product by
1998
digicash was bankrupt signaling the end
of the very first
wave of digital currency
before we continue here’s a quick word
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[Music]
it seemed like the world was just not
quite ready for electronic crypto money
but this did not stop progressive
thinkers from seeing potential in the
idea
after all it wasn’t the idea that was
bad it was just well ahead of its time
and had the added issue
of having no strong leadership in 1999
famous economist milton friedman even
said that quote
an electronic cash was necessary for the
newly found internet and was also
a logical tool for limiting government
overreach i think that the internet is
going to be
one of the major forces for reducing the
role of government
the one thing that’s missing but that
will soon be developed
is a reliable e-cash a method whereby
on the internet you can transfer funds
from a to b
without a knowing b or b knowing a
he would go on to say that the monetary
supply and monetary policy
should be set by a computer where it
could not be corrupted by humans
in the mid 1990s the market exploded
with companies that were based around
cryptographic money they were all riding
the wave of attention
that digicash had generated in 1996
even the nsa got in on the action they
published a paper titled
quote how to make a mint the
cryptography of anonymous electronic
cash
they described their own fairly
impressive version of a cryptocurrency
but it proposed the need for a
centralized bank to keep tabs on
transaction records
going directly against the heart of the
movement
the movement did continue and before
long some intriguing ideas began popping
up on message boards
some of these ideas were very valuable
to what would later become bitcoin
b-money for example was designed by
university of washington graduate wei
dai published in 1998 b-money was
designed as a way to enable online
economies to exist
entirely free from outside regulation
b money was ultimately theoretical and
while popular
it never gained enough traction to
become a reality
other ideas within the online community
were less helpful
jim bell’s assassination politics essay
for example in the essay
he proposed an encrypted currency system
to be used by disgruntled citizens
unhappy with their political
representatives
money could be anonymously donated to a
pool until the amount was high enough
for someone to accept the bounty
and assassinate a politician it was a
concept that eventually led to belle
doing some prison time
in all of this chaos the idea that
stands out most in hindsight
is bit gold proposed by ex-digicast
employee
nick zabo in 1998 nick had the idea
that instead of a digital currency being
a token that represents fiat money
the digital currency itself could be a
valuable commodity
and it would be awarded to miners for
completing cryptographic equations
sound familiar where bit gold differs
from past attempts
was the complete distancing from any
reliance on banks
nick zabo explains quote i was trying to
mimic
as closely as possible in cyberspace the
security
and trust characteristics of gold and
chief among those is that it doesn’t
depend on a trusted
central authority end quote if david
charm’s ecash
was an early ancestor to bitcoin then
bit gold was the missing link
although it was an establishing building
block for the future of cryptocurrencies
it was only theoretical and also flawed
for one
it had far less concern with privacy and
also had some technical shortcomings
when it came to mining
so along with b money bit gold was never
widely adopted
so then despite all of its exciting
progress
the cryptographic money community fell
relatively quiet
for a decade
then in august of 2008 the domain name
bitcoin.org was anonymously registered
in october a paper titled bitcoin a
peer-to-peer electronic cash system was
posted to a cryptography mailing list
signed satoshi nakamoto in this paper
nakamoto presented to the world the
fundamental outline for bitcoin
as it stands this paper started a
cryptographic chain reaction that
changed the course of financial history
today nation states want to start their
own digital currencies
the city of miami wants citizens to be
able to pay bills in bitcoin to be able
to offer our employees to get a
percentage of their
salary in bitcoin allows our residents
to pay for fees
in bitcoin and also would allow allow
for taxes to be paid in bitcoin
it also a request of the state
legislature
to make bitcoin an acceptable currency
for us to potentially invest in the
future
paypal mastercard and apple pay are now
integrating bitcoin
tesla has bought 1.5 billion dollars
worth of bitcoin and general motors is
contemplating putting bitcoin on its
balance sheet
large financial institutions are now
accepting exposure to bitcoin
what separated bitcoin from past
attempts was the overcoming of the
double spending problem
unlike physical stores of value digital
money is simply data and data can be
replicated
and this allows the potential spending
of a single coin multiple times
in the past this issue was solved by
involving a trusted third party to
oversee transactions
in the case of ecash that third party
was banks
but to nakamoto that defeated the point
and much like nick zabo attempted with
bit gold
the intention with bitcoin was to create
quote a system for electronic
transactions
without relying on trust
bitcoin succeeded in overcoming the
double spending problem by implementing
an
updated record of who owns what and at
what time as discussed earlier
this was the birth and implementation of
the blockchain
with the double spending problem solved
the system was brought online and tested
and it worked by 2009
bitcoin was up and running in july of
2010
it began trading at a value of 0.0008 us
dollars
and had risen to 0.08 dollars by month’s
end
but of course nobody really cared here’s
the very first reddit post about bitcoin
in 2010.
it was down voted the first reference of
bitcoin in tv history
was the program good wife in 2012 when
bitcoin was at a price of 3.41
i went online and i bought one bitcoin
last night
really it’s the future i don’t know
it didn’t feel real oh real’s gonna
change
just watch here’s a talk about bitcoin
to an empty room in 2013.
when was it a hundred dollars literally
nobody cared here
neutrality mean neutrality in bitcoin
means being able to adopt bitcoin
in any culture any language any religion
any geography but there were some
believers though
chamath palapatiya shares his views on
bitcoin at 135
dollars owning that currency and
allowing
water to find its level particularly in
the developing markets is huge
and if you don’t think that this thing
is going to rip when brazil goes through
a devaluation when the indian rupee
continues to get crushed when you have
all of this money trying to get in and
out of these countries where there’s
massive you know political instability
or monetary or financial instability
you’re being naive
it doesn’t matter what happens in the
united states it doesn’t matter what
happens in japan doesn’t
matter what happens in the eu it doesn’t
matter it matters what happens in
argentina
in venezuela in kenya in brazil in india
in russia
in china and when you look at where all
the activity is it’s in all of those
markets
yeah this will be born out of
a people’s desire to have unfettered
access
to capital despite finally cracking the
code to a working electronic cash system
satoshi nakamoto has mysteriously chosen
to remain completely anonymous
on april 26 2011 satoshi nakamoto would
send his final verified email
and vanish satoshi still owns a million
coins which have never moved from his
digital wallet
if the price of bitcoin was to reach 197
000
it would make him the richest person in
the world
so satoshi nakamoto being such a
mysterious figure has fueled speculation
and false claims
who is satoshi and why did he vanish
we’ll explore this as well as some
concerns about bitcoin
in the next episode so thanks for
watching i hope you learned a thing or
two in this episode
be sure to check out the discord and
also follow me on twitter and instagram
my name is digogo and you’ve been
watching cold fusion
cheers guys have a good one
[Music]
cold fusion it’s new thinking
[Music]
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