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  • (classical music)

  • - Hi, I'm Jonathan, this is Brain Stuff

  • and I've got some bad news for you.

  • Money is imaginary.

  • Now I don't mean that this printed piece of paper

  • is make believe.

  • I can feel its texture and the ink even smudges off

  • on my fingers, but when you compare it to this other

  • piece of paper, what's really the difference?

  • Well one is a recognized currency

  • and the other isn't.

  • And the reason why?

  • Well people agree that this piece of paper is a dollar

  • and has value.

  • That's where money's worth comes from.

  • We all pretend it's a currency.

  • This is one reason why the digital currency Bitcoin

  • appeals to some people.

  • See it's not tied to any political system

  • or government so it's not vulnerable to any of

  • their failings like the economic collapse in 2008.

  • All it needs is for people to believe in it,

  • but lately well, some people are having a crisis

  • of faith.

  • That's why today on Brain Stuff we're going

  • to quickly establish some facts about Bitcoin

  • to better inform your beliefs about it.

  • Now basically it's virtual money you can use

  • to buy and sell things online and it mimics real world

  • limited resources like gold for instance.

  • It's also a cryptocurrency meaning that it's encrypted

  • in a way that prevents it from being copied.

  • See every Bitcoin transaction is recorded

  • using a blockchain.

  • Now that information acts like a ledger

  • that is encoded onto the Bitcoin itself.

  • This prevents people from spending the same Bitcoin

  • more than once since everyone else on the currency's

  • peer to peer network knows that it just was spent.

  • It's essentially just a number associated

  • with an internet address.

  • You can store it on your phone

  • or a hard drive until it's used again.

  • Now, here's some ways you could acquire Bitcoins.

  • Accept them as payment for goods and services,

  • exchange them for a more traditional form of currency,

  • or you can mine them.

  • That's right, like gold Bitcoins are mined.

  • Not by old timing, grizzled prospectors,

  • but by powerful computers and like gold

  • the more people mine Bitcoins, the less there are

  • to be found, so they become harder to find.

  • So instead of physically mining with a pick ax

  • you can attempt to solve math problems

  • with a computer.

  • Imagine the problem is something like x + y = 15.

  • Now if you can figure out what x and y are, congratulations,

  • you get a bitcoin.

  • With little competition the problems are easier to solve

  • but when more people join the search you've got a race

  • and the problems get way more difficult,

  • but as Bitcoin miners dwindle, the math problems will

  • get easier again to ensure the flow is steady,

  • their value is boosted, and they remain inflation proof.

  • Not all have been mined yet and we expect they won't be

  • until around 2140.

  • So let's say you heard all this and thought

  • you know I want to grow up to be a professional Bitcoin

  • miner and trader.

  • Well there are a few risks you should probably know

  • about first.

  • For instance, because there's no regulatory agency

  • setting Bitcoin's value it tends to fluctuate wildly.

  • Another Bitcoin problem is security.

  • Now actually the format itself is fine,

  • but that doesn't protect it from hackers who target

  • the banks and exchanges that deal in Bitcoins.

  • Again, this isn't the fault of the currency.

  • If a bank were robbed, you wouldn't blame the dollar bill

  • for getting stolen right?

  • So Bitcoin has its slumps and for it to become

  • widely used its volatility needs to settle down

  • quite a bit.

  • It's currently a high risk currency

  • that's totally unpredictable and we didn't even

  • get into the mysterious identity of Bitcoin's founder

  • Satoshi Nakamoto.

  • Now personally I think the biggest drawback to Bitcoin

  • is that you just can't make it rain..

  • If you have experiences with Bitcoin,

  • let us know in the comments below.

  • And let us know if there are any topics you'd like us

  • to cover.

  • I actually have another pile of them right over there.

  • Really, I mean it's just offscreen.

  • So, the best part about this is I don't even have

  • to pick it up.

  • We have interns to do that.

  • See you guys later.

(classical music)

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How Does BitCoin Work?

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    TG posted on 2017/10/19
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