We're not going to go very in-depth on Bitcoin, but what we are going to do is do a quick review of how we got here and then walk through a history of engineered money, why it's needed and what uses it has.
So at the end of today, you will have the full understanding of how we got to the place we are with money from a logical step.
And then you'll see the history of first the need for digital money when it first arose, the first attempts at it, which I presume occurred much earlier than you think.
And I think this will be fascinating for a lot of people here.
And then we'll step into the advancement of the field of engineering money.
So I want to do a quick review of how we got here.
So we started with small societies that had barter.
I traded with you, you traded with me.
Then we ran into a problem.
That problem is called the non-coincidence of wants.
It means that I have something you want, but you don't have something that I want.
And so therefore, we need to create a technology to pass value in between us.
This is where money came from.
This is what allowed society to spawn because then we could specialize.
If I didn't have to trade you the exact work that I did, but I could trade you a proxy of that work that is a representation of the time and energy that I put into it,
then we could then specialize
and we could move into different fields and different realms.
So money was a first, a social contract.
It was just an agreement between you and I.
I would use something and at a future time,
I would give you something of equal value
of that time and energy.
We soon rapidly outran the ability to keep that in our head
and we needed to create a ledger.
A ledger is just an accounting of who owns what.
It just means that I have this much of the energy,
you have this much. When we sum it all together, what we have is an accumulation of the sum total
of expended energy and time of humanity. Money is fascinating because it measures our productivity
as humanity. It is a barometer of technology. As technology advances, money buys more. And so that
ability to buy more, that buying power is represented in our money. And the last thing that we learned
was that money is a technology.
And technologies, whether it's an advancement in shoes,
whether it's an advancement in home safes
or an advancement in air conditioning or carbureted engines,
technology follows two paths.
One is iteration, where you improve upon something that exists.
And the other is innovation, where you create something
that does what already exists in a better way,
a faster way, a safer way, a more convenient way.
And remember that innovation, one way to spot innovation, if you can tick off those things, you can say it's better, it's faster, it's stronger, it's safer, all that.
One of your best guide points for recognizing innovation is that it's always first adopted by people outside the system, by what would be otherwise characterized as a criminal element.
This would be moonshine runners adopting cars so that they could escape police on horses.
This would be people that are adopting Bitcoin so that they can escape the system.
This would be the pornographic industry adopting DVDs so they can get out of the VHS system.
The thing that we need to learn about innovation that we cannot forget is that you adopt innovation or it kills you.
If you do not move forward with what is the innovation, you will not have a chance to have a say in what goes on.
It does not negotiate with us.
So we created money.
We started with commodity money, and we will end with commodity money. Commodity money began with
seashells, beads, salt, cattle, silver, and gold. Each one of these things is progressively harder,
hard in the sense that it's harder to create more of it. It's very easy to create more seashells.
You just go to the ocean. They're pretty limitless. Beads, we found a way to manufacture them. Salt,
the entire ocean. Cattle, just breed them, stop eating them. Silver, very abundant. Gold,
pretty hard to find. Each one got progressively harder. Hard money is the concept from Austrian
economics. That is what gives us the idea that money needs to stay consistent in the sum total
of it because it is the standard. It is the unit of measure, much like the meter is the unit of
measure for distance or the kilogram is the unit of measure for weight. The problem that we found
is that as we got progressively harder money, it actually was harder. It was more dense. It was
heavier. And that made it harder to secure. It made it harder to use. You couldn't just walk around
with gold in your pocket. And so we had this problem where it was difficult to use it on a
daily basis because you can't just cut it into little pieces and put it back together. You have
melt it and reconstitute it. It's dangerous to have on you because if I take it from you,
it's then mine. You don't have a mark on it. And even if you do have a mark on it,
all I do is melt it down and put my mark on it. So it's very difficult to use on it every day.
So we created a solution for that. This is the logical solution. We said governments can hang
on to the money and we will trust. Always remember, trust is where you go wrong because
trust is always broken. There's never an instance in history where trust was given and
not broken. So we trusted our governments to hold our money, and they in turn issued us something
that was more convenient to use every day. First, it was paper. Paper is very easy. It's not hard to
create more. You're only limited by the amount of ink and paper that you have to make dollar bills.
It is much easier to make more paper than it is to make more seashells, beads, cattle, silver,
gold. And so that created a big problem. We started to see inflation, but then it got even worse.
We had computers. And with computers, we could then create digital money, which led us to
infinitely easy, which created this situation, which is unique to the 20th century, really.
We do have some instances of like flooding markets, but it didn't happen nearly as fast
as it happens with digital money. The problem with infinitely easy digital money is hyperinflation.
This, by the way, is the problem with all digital goods. When we first had digital music,
That was the fear of everybody is that we're not going to be able to find a way to secure this.
If somebody just takes a copy of my song and they put it on the Internet, everyone can have that copy for zero cost.
And so we created a problem because we were able to digitally transact, but we weren't able to digitally secure creating this problem of hyperinflation.
And at a certain point, it was realized that we needed to bring in the engineers, that we needed to have engineered money in order to create something that was both hard and convenient to use.
So this is going to step us into the discovery of the need for digital money.
And so a quick question.
When do you think the first need for digital money arose?
When did we first create a world where digital money was needed, able to communicate at distances?
Okay, that's the perfect answer.
What was the thing that allowed us to communicate at distances?
I suppose you could say that a little bit,
but I think I'm looking for something a little bit more engineered.
I think I'm looking for the telegraph.
When you created the telegraph,
you created an instance where the speed of commerce,
the speed at which we do business,
outran the speed at which we could settle business
because we had to physically transport the money there.
I could be in England and I could send a telegraph to France and I could say I want 10,000 of whatever.
But then the payment had to go on a ship and then it had to get on a train and it would take days and months.
So we have had the need for digital money for 165 years.
That's kind of fascinating.
When did we really first start thinking about it?
So Nikola Tesla, he published a few papers that kind of give us a hint into what the future would be.
In 1905, he wrote about a quasi-intelligent machine that would, for all practical purposes, render useless the battleship, the fortress.
They would lose their importance and significance.
And he could say with confidence that skilled electricians will settle the battles of the near future.
1900, five years before that, he talked about how the development in the direction developing
electricity would make war just a contest of machines without men, that we would be
fighting wars in cyberspace with humans out of the loop.
And it doesn't take much to step back and look at what a Bitcoin miner is and realize
that Bitcoin miners are competing against each other, fighting a war with electricity
for the prize, for the ultimate resource, which is Bitcoin.
Without electricity, without this human out of the loop, we would not be able to progress.
But he wasn't really talking about money.
He was more just talking about war and talking about violence.
And remember how we've talked about that violence is ultimately what backs fiat currency.
That if you do not use our money, we will blow you up.
The dollar is backed by the full faith and credit of the United States.
The power of the United States comes from the military.
So violence is what secures fiat money.
And he foresaw a future in which we would no longer have violence because we would do
wars in cyberspace.
But it took the greatest industrialists of the 20th century to really figure this out.
This is from 1921.
In the New York Tribune, Henry Ford had realized that because gold has to be centralized,
due to the problems we talked about earlier.
We have to trust a government.
Governments betray that trust.
They issue more money.
They issue debt and they draw money out of the future
into the present and they use that to fight wars.
And Henry Ford envisioned an electric currency
that would replace gold and stop war.
He bought a dam in Georgia, the state of Georgia,
for $30 million, intending to use it
to use the power from the dam, the hydroelectric power,
to power an energy currency that would be used to replace gold.
That is Bitcoin.
And then we really started to find a need for it.
This is Friedrich Hayek.
He's an Austrian economist and one of the leading thinkers of the 20th century on money.
And he had something very interesting to say about fiat money and what would come next.
He's very well versed in Keynesian economics.
Keynesian economics, remember Thomas Keynes, who said that inflation is the mechanism by which governments can secretly and unobserved steal wealth from their citizens over time without them knowing.
So in the 80s, there was actually progress.
There was actually development.
David Chalm was a researcher and he was at University of California, Berkeley.
He published two papers that are foundational to what is now Bitcoin and really all forms
of digital money.
Untraceable electronic mail, return addresses and digital pseudonyms, and then blind signatures.
Blind meaning that I can sign my side and you can sign your side and we don have to know each other in order to do business with each other So that was kind of the first big step towards engineered money was being able to do this anonymously or pseudonymously
and to be able to do it over the web
without having to go through any sort of analog.
Chom continued, and in 1983, he proposed eCash.
eCash was the first digital money, the first thing.
The first digital money
is 42 years old. It didn't come about with Bitcoin. It didn't come about with Ethereum.
It came about 42 years ago, a theoretical blueprint for digital cash. And you can still see
the website if it comes up. Well, there we go. So Chom invents eCash. And look, he actually,
he actually had a lot of success. He publishes the paper. He creates the team. He makes the world's
first electronic cash payment over a computer, DigiCash. And then they start actually putting
it into the world. CyberBucks trial begins. Companies were accepting eCash. These are all
companies that in the 80s were accepting electronic cash, early 90s. Very small. It was, I can't
remember what it ever got to. I could look it up, but I think it was like around a billion,
but I'm surely wrong in saying that.
In 1995, they started a worldwide trial.
They created chip technology for smart cards
that you could just tap, keep going,
and then keep going in the 90s,
and eventually it runs out.
Eventually, they realize that they have a problem,
and the problem is they can't solve the double spend problem,
which means that you can't make DigiCash secure
because it has a single point of failure.
They were operating this from a centralized server.
So first try, good try.
Did some good.
Did a lot of good.
It got a lot of people thinking.
Got a lot of people thinking.
In 1988, the first time I read this, it gave me chills.
And I know the text is small, but this is the, it's not coming up right.
The Crypto Anarchist Manifesto.
This was written by Timothy C. May back in 1987, I believe.
And he talks about how technology will lead a revolution that will be both social and economic.
It's existed in theory for a decade.
The methods are based upon public key encryption, zero knowledge proof systems and software protocols to interact and authenticate and verify.
And he talks about how just as a seemingly minor invention like barbed wire made possible the fencing off of vast ranches and farms, which took us from a hunter gatherer society to a settled society where we raised agricultural products.
It altered forever the concept of land and property rights.
We didn't have that before until you could put a barrier around it, much like you can put a barrier around your Bitcoin.
So, too, will the seemingly minor discovery out of an arcane branch of mathematics come to be the wire clippers which dismantle the barbed wire around intellectual property.
Arise, you have nothing to lose but your barbed wire fences.
The first time I read this, it gave me chills, probably because I grew up on a ranch and I understood power of what happened.
It reshaped the entire United States when barbed wire came into play.
Barbed wire is wire that has these little sharp projections on it that will keep cattle in and also keep people out.
Prior to that, the way that cattle farming, cattle ranching worked, it didn't work like that.
You rode down to Mexico.
You rounded up a couple thousand cows.
You drove those cattle through Texas, Oklahoma, and Kansas.
You rested them in Kansas for about four months
so that they could gain weight that they lost on the trip.
Then you took them to Kansas City.
You put them on a train.
They went to Chicago to the stockyards.
This is where the book Slaughterhouse-Five comes from.
And they were slaughtered and then they were distributed.
But now we have fences.
And now those cattle live their entire life in one square mile.
And then they're taken to be butchered.
So 1989, again, this is DigiCash that was founded.
I put this in here.
I'm not going to play it because this is Jack Cruz and Jack has a theory on Bitcoin and he has a theory on who Satoshi Nakamoto is.
And he takes an hour to explain it.
I highly recommend that you watch this.
This is from the What is Money show with Robert Breedlove.
This is the third in a series that they did.
But it effectively goes like this.
In the 40s, the United States could not cover all of the borders and all the ports.
And so they made a deal with the mafia.
The mafia was running the ports in New York City, and they said, hey, you guys, if you'll cover the ports, try to keep the Nazis out, we'll let you alone because we know you're doing some shady stuff.
And so they agreed. They had an agreement. They had a deal.
They captured, I believe, 22 Nazi scientists, and a few of those scientists had some very interesting things to say.
One of them had been doing research on how light can domesticate people, fluorescent light, how the wavelength of fluorescent light makes people docile, easy to be suggestible and calm.
And they were using that in order to basically do subtle mind control on people.
So the mafia takes this idea and they go to Las Vegas where nobody wants to be and they build Las Vegas and they build casinos and they fill them with artificial light.
They black out the windows, they take away the clocks and they pump in oxygen.
And they also offer free food so you can stay there the whole time.
And it becomes a cash cow.
They make tons of money, tons of money.
And in the 60s, the government goes back on their deal with the mafia and they start trying to come after them for tax evasion.
because remember all these casinos, they're cash, cash in, cash out. It's great for money laundering.
They come at the mafia and in particular one guy, the guy who made the deal with him in the 40s.
And that guy said, you know, the only reason that they can come after me is because they control the
money. They issue the money. So what would happen if they couldn't control the money? And he digs
into monetary theory and he starts funding research in monetary theory and in ways to get
money out of the hands of government. And he has some ties to David Chom. David Chom was a little
known researcher. He was not breaking the world. He was very poor. He did not have a whole lot going
for him. And when he graduated with his PhD, all of a sudden he had a number of offshore companies
started in his name and a ton of money to do research. He carried on that research, Digicash,
all the way up until the late 90s when he passed away. And there's a guy who comes onto the list of
who could be Satoshi Nakamoto.
His name is Lynn Sassaman.
Supposedly, Lynn Sassaman could be Satoshi Nakamoto.
And Lynn Sassaman is definitely David Chalm's PhD student,
carrying on the legacy.
This is a fascinating interview to watch,
and I highly recommend it and skip it.
The Sovereign Individual in 1997,
these are two economist traders
who had predicted the 1987 stock market crash,
which was just as bad, maybe not quite as bad as the Great Depression. But inflation had gotten so
bad that at that time, the emperor's palace in Japan was valued more than all of the real estate
combined in the state of California, sixth, seventh largest economy in the entire world.
And that kicked off a massive crash. And they had written a book about it prior called Blood in the
streets, foreseeing all of this, making millions. And then they wrote another one called the
sovereign individual. And the sovereign individual is all about where the world is going to go,
how it's going to get there. They talk about the advent of the information age. We have cyber
commerce and it will lead to cyber money. And this new form of money will reduce the capacity of the
world's nation states to determine who can become a sovereign individual. Sovereignty is your ability
to act as you please. Soon you can pay for any transaction over the net at the same time that
you place it using cyber cash. And a crucial part of this will come about because it will liberate
the holders of wealth from expropriation through inflation, from the ability of a government to
secretly confiscate your wealth. This will be a type of currency that's unique, anonymous,
and verifiable. It will be divisible into the tiniest fraction. You can accommodate the largest
transactions and it'll be tradable at a keystroke any time of day. This was in 1997. Bitcoin was
invented in 2008. They have more to say. What they tell us is that at this stage, you're going to
have mega political consequences that have already been outlined. What they're referring to is how
they talked about the fall of nation states, is that nation states, if they can't control the money,
if they can no longer extort people for services that cost more than they're worth, they'll have to
then compete with other governments in order to provide those services at a reasonable cost.
extraterritorial regulatory power. Remember, like the United States, no matter where I'm at,
they can tax me. It doesn't matter that I'm here. They can reach outside of their territory.
That power will collapse. Jurisdictions will devolve. You'll no longer see this jurisdiction
having a 10% tax, this jurisdiction having none. Everything will collapse because you'll have to
compete against each other. Inflation as a revenue option will largely be foreclosed by the emergence
of cyber money.
Remember, we had the last one was all about inflation,
all about a government's ability
to create money out of nothing
that they then use to devalue all of the money that exists
and take a larger portion of it.
Remember, it's not your house that goes up in value.
It's the dollar that you measure it with
that goes down in value.
And when you buy that house for 100,000
and they tax you 2% dollars,
in 50 years, you're gonna rebuy that house.
But when it goes up to $400,000, they tax you 2%,
it's $8,000 in 12 and a half years,
you're gonna rebuy that house.
The boomers are seeing this right now.
There's so many people that bought houses in the 70s
when the average price was like 10 to $12,000.
And those houses are now worth $400,000.
They've repurchased that house
multiple times over their lifetime.
In fact, now they're at the point
where they're repurchasing that house every single year.
So this brings us up,
it's actually in the 90s that this was invented, May 1997.
This brings us up to hashcash.
So all Adam Back was trying to do when he invented hashcash was he was trying to impose a penalty on spam email.
And he realized that if he created a difficult math problem for them to solve, for the sender to solve, they would have to expend electricity in order to do that.
And that would make it not viable.
You wouldn't be able to send billions of emails hoping that seven or eight people fall for your scam.
It would make it economically infeasible to do this.
This is the thing that makes Bitcoin work.
Proof of work.
Now, there's about 10 different things and we'll try to run through them very quickly.
But proof of work is the tie between the digital world and the physical world.
I want to send you something, but in order to send it,
I have to prove to you by solving this mathematical problem that can only be solved by expending energy, which has a cost.
We created the singularity.
We created a tie between the digital world and the physical world.
This was the first proof of work system, but it didn't quite solve the problem.
We're getting closer.
By the way, Adam Back is the guy who about two, a month or two ago, announced that he was starting along with a couple other people.
the Bitcoin Standard Treasury Company which is a micro strategy type company They will have a treasury of Bitcoin They will issue debt against it and they will repeat They will buy Bitcoin with the debt
They will buy Bitcoin with the debt.
They will buy Bitcoin with the debt
until there is no more fiat for them to buy.
Still in play.
Fantastic guy.
Will respond to you on Twitter if you talk to him.
Very cool.
Very fantastic guy.
English fella.
1998, Nick Szabo proposed Bitgold.
So this is really getting closer
because he did the thing that Digicash didn't do.
He made it decentralized.
It wasn't operating on a centralized server.
And he used proof of work.
Okay, so we're getting closer.
We're getting closer.
Creating unforgeable bits.
So creating that puzzle that you cannot forge.
You have to solve the problem.
You have to expend the energy.
This was the precursor to Bitcoin's mining and scarcity,
but he never got to implement it due to,
again, the double spend problem.
The double spend is that I can't verify that this bit, because remember, that's what we're doing is we're trading bits.
I can't verify where this bit is, and I can't verify that only one person has that bit.
I can't yet make it unique.
I can't yet make it non-fungible.
So 1998, we're getting close.
Milton Friedman, one of the most famous economists from the United States, worked in the government, high, high level.
and he predicted Bitcoin in 1999, 10 years before it came.
It will make it easier when people are using it.
Of course, as this negative side, it means that the gangsters,
people who are engaging in illegal bandwins,
will also have an easier way to carry on their business.
But I think that the tendency to make it part of the collect taxes
will be a very important part of the society community.
He does a great job of noting the thing about innovation is that the criminals will use it.
But remember, we talked before that competition will no longer be the source of taking resources from other people.
Because up until this point in history, I could always put a gun to your head and I could tell you to give me your resources, your Bitcoin, your, no, not your Bitcoin, your land, your money, your horses, your cattle.
And I could take them.
Or if you refused, I could kill you and still take it.
But with Bitcoin now, if I kill you, nobody gets the Bitcoin.
So we've lowered the return to violence to the point now where it's useless.
And now we must collaborate in order to work together.
Yeah, $5 wrench attack.
Yep, the $5 wrench attack.
And remember, we talked about that.
The $5 wrench attack works on small scale.
It does not scale.
You can't take everybody and beat them because there are more everybody's than there are people doing the beating.
We talked about this in a previous one last month.
We talked about this, I think it was called in the social games, status games.
Status games have a couple different paths that you can take.
One is that you can be a bully.
The problem with being a bully is that there's always a bigger bully.
What's that?
You can try.
Are they anonymous?
They don't hide it very well, right?
We all know what they're doing.
We all know that they're doing things that are bad.
We're starting to expose that.
The internet is doing a great job of doing that, right?
Think about 100 years ago, even 50 years ago,
all of your news came from three newspapers
that were all controlled by the government.
And now you have an honest message board.
You have people that are not afraid to risk their life
in order to expose something.
Yeah, that doesn't scale very well.
Because you can't do it over and over and over and over
because then you'd have to hire 10 million hitmen.
And then those 10 million hitmen would just kill you, right?
Why would you pay me to beat up Jack and take his money?
Once I take his, it's mine now.
Come get it, right?
So it's just fight after fight after fight after fight after fight.
This is the battle to the death over every ham sandwich that Robert Breedlove talks about.
It does not scale.
Violence does not scale when you have a source of money that cannot be taken.
It can only be given.
You cannot take my Bitcoin.
I have to give it to you.
Yes, I can give it to you under duress, but that does not scale.
because somebody else will come along and they'll offer to be a better bully.
They'll say, well, we'll beat you up for not all your money, just 80%.
And then somebody will say, oh, we'll beat you up for 50%.
And just like we have with digital services,
everything crashes to the marginal cost.
Hacking does.
Yeah, but you can't hack Bitcoin.
I'm not trusting them.
There's no trust involved.
You only have to trust yourself.
Yeah.
This is the era of responsibility.
Like this is the time when we have responsibility.
And there will be a lot of people that won't trust themselves.
And this is why you have exchanges.
And this is why you have Coinbase and why you have Strike and Swan.
But all of those are not your keys, not your coins.
If they hold it, it's not yours.
FTX, right?
Celsius, the big blowups in the system.
Yeah, this is the common thing.
Oh, you know, people can't be trusted.
I don't know.
I had a pair of underwear for 23 years, man.
I'm pretty sure I could hold on to my Bitcoin passwords.
If you value something, then you'll take steps in order to do it.
And also there's multiple ways now that exist that make it much easier.
Multi-sig, where you can break apart your password and put it in different physical places around the world.
Or you can have multiple people that you trust, where in order to get my Bitcoin to move, Jack and me and you, we all have to come together to put that password together.
So you have to round up those people.
First, you have to beat it out of me.
Then you have to go find them.
And at a certain point, the cost of doing that just gets really high.
It does not scale.
Violence does not scale when the money cannot be taken.
It can only be given.
Oh, you can take my cryptocurrency.
You can't take my Bitcoin.
Let's make sure those are separate.
Because cryptocurrency is Ethereum, Solana, centralized servers, trust faults, third party.
You could take that, right?
Yes.
You think all cryptocurrencies are the same?
You should have been to the last two.
There is Bitcoin.
There's copies of Bitcoin.
and then there are shit coins on central servers.
Central servers are a central point of failure.
If I take that server, that's mine.
If I hack that server, it's mine.
Bitcoin was attempted to be hacked by China,
by North Korea when it was an infant, right?
When it didn't have the power that it does now,
when it has exponentially more powerful.
It's a toddler now, starting to cause problems.
Soon it'll be a teenager
and it'll start setting the rules.
But anyways, your question.
You're fine.
Yeah, it was my fault.
It either disappears and everyone in the world who holds Bitcoin is equally enriched, or I set up a transfer plan. There's multiple companies that are doing this now where you can, it's like a dead man switch, but a reverse dead man switch. If I don't access it, if I don't, if I don't put in the password for say 10 years, then it disperses to whoever that I've, whatever wallet addresses I've pre-programmed in there.
Michael Saylor talks about, he says, you know, when he dies, he's taking his Bitcoin with him.
Yeah. Because he can think, he said, you know, I can think of no better way to give a gift to humanity than to equally enrich everyone in the world.
Right. Because if you give it to a charity, what's going to happen?
They're going to hold fancy dinners. They're going to charge a thousand dollars a plate.
Three percent of that money is going to go to starving children in Africa.
Ninety seven percent of it's going to go to pay for somebody's salary.
So yeah, yeah. When you die, you can pass it on. Talk to Peter McCormick about this. He's starting
to already set up. How do I pass this on? But the dead man, the dead man, how can they use my money
if they don't have my password? Yeah. I mean, that's why I'm saying that's, that's what the
dead man switch is. It's the computer program that says, if I don't use my password for five years,
10 years, whatever, if I don't, then that triggers an event that sends the money. If I do keep logging
in, I'm still alive. Yeah, no, no, it's a smart contract. Yeah, yeah, yeah, yeah. Yeah, this is
how smart contracts work, right? Like I bet against you that whatever Manchester United is going to
win some soccer game. When the score is verified, the money which is held in escrow is then
dispersed to whoever, right? You don't have to be involved in it and it goes straight to the winner.
look yeah look in look into like look into legacy bitcoin uh transfer plans they exist
there's there's a number of them and there will only be more and more and more correct
you don't have to i mean you could it could just be it could just be that you keep it on a single
server and that single server when you don't log in for five years or two years or however long
whatever it just sends you're my son and it sends you my password and it doesn't even have to
transfer, right? It just stays in the same wallet, but now somebody else has access to it.
Yeah. Yeah. I used to work in banking and a lot of what we did was trusts and trusts are
interesting because they're incredibly complicated. They're incredibly expensive.
And most of what you see is people that have wealth that realize that their kids are too dumb
to have it. And so they set up a trust that allows it to feed them a little bit, right?
And you could do that. You could set up, like it'd be way easier to do that with Bitcoin than
it is to do that with land and bank accounts and stocks and just feed them a little bit every year
if you want to. Yeah. Yeah. That's a, that's an, that's a solved problem. It's not a, it's not an
existing problem. 2004, our boy Hal Finney, he does something really cool. So he creates reusable
proof of work. So we had the proof of work system, but the problem with the proof of work system is
that the coins were destroyed after every time you proved that they existed. Proved, I, I put in
my energy, I solved the problem and I created a coin that was proof. And then that coin was no
longer usable. He created reusable proof of work. Reusable proof of work allows for the tokens to be
reused without double spending, without the ability to spend it in two places at once, right?
I mean, you can do this with a check, right? If you ever had like checks on a bank account,
you got $10,000 account, you can write $100,000 worth of checks, right? And then it's just whoever
gets to the bank first in order to get that. That's a double spend problem. That's what he
solved was somebody being able to pass on value and prove that it had value. And then you see the
balance transfer immediately. Reasonable proof of work. We think about this, by the way, we currently
think about this as existing. We think about when I Venmo you cash or Cash App or Zelle or whatever,
I send you this money and I'm sitting next to you and I Venmo you five bucks and you look at your balance and it's five higher and mine's five lower.
And we think, well, I just transferred money to you.
But that's not what happens, right?
What happens is that that signal goes to a server at my bank and that bank sends a signal to a central clearing bank.
And that clearing bank probably sends a signal to an international bank.
And that international bank sends a signal to another clearing bank, which sends a signal to your bank finally.
and it finally in typically 60 to 90 days it finally settles When you swipe your credit card that transaction is typically settled between 60 and 90 days later It instantaneous use right But we live in a society that has
insane amounts of credit card debt because you can keep swiping without having the money to pay
for it, right? You're double spending, double spending, double spending. Reusable proof of work.
each token can only be used once but it gives birth to a new one so you can hand over a new one
so one is created or sorry one one disappears one is created one disappears one is created
when i send you bitcoin the bitcoin in my wallet disappears and bitcoin is created in your wallet
sender owner cypherpunk at al-qaeda.net nice
yeah people used to go to some funny places that's interesting i'm gonna look into that
that's fun yes yeah yeah yeah we know yeah we know we know that for a fact right um started in
the 70s when we uh when we built up osama bin laden gave him all kinds of weapons and trained
him educated him yep yep yeah very good training so 2004 we finally get there we're we're almost
there. We've solved the problem of the double spend. It prevents inflation. Remember, inflation
was the problem that happened with seashells. As they became more valuable, it became more useful
to go get more seashells. As cattle became more valuable, you bred more cattle. As gold became
more valuable, you just mine more gold. 200 years ago, you could mine gold and keep up with a little
pan. And today you have multimillion dollar machines with gigantic sluices that cover entire
acres just to keep up. And that takes us to Satoshi Nakamoto in 2008. Remember what Milton Friedman
said. He said that there will be a money that's invented where A can send to B and B can send to
A without A or B knowing each other. That is peer-to-peer electronic cash, payments that you
can send directly from one party to another without going through a financial institution.
The digital signatures invented by David Chalm are in there, but the main benefits are lost if
a trusted third party, if a centralized server is still required to prevent double spending,
which was solved with reusable proof of work. We timestamp it, hashing, this is Adam Back's work,
into an ongoing chain of proof of work, hash-based proof of work. I mentioned this one other time,
but every single 10 minutes, every time that Bitcoin creates a new block, what it is doing,
it is re-verifying every single transaction that has ever occurred on the Bitcoin network.
We can't go five minutes into the past and verify all the payments that are sent in the fiat network.
But we can go 16 years into the past and verify every single Bitcoin that's ever been spent.
The longest chain is the proof, but it's proof that it came from power, the largest pool of CPU power.
You broadcast messages.
This was the, I solved the problem.
I'm the first one.
I broadcast the answer to all of you.
Since it's a proof, it's easy to take the answer and put it into the top and verify that it's correct.
But in order to get the answer, you have to do the proof of work.
It makes it very easy in order to go all the way through and find yourself with value being transferred.
In 2009, we launched the Bitcoin network.
The first block, you can look at it online, has an inscription in it.
and it is the headline from a German newspaper
talking about bailing out more institutions
that went broke, January 3rd of 2009.
What's that?
It was, oh, it might've been a British newspaper,
but it was a German headline,
German chancellor or something or other.
Yeah, where do you get one for the home team?
This is the first functional engineered money.
It's the first one that actually worked.
Remember, we'd been looking for it for 165 years.
We had the need for 165 years.
We'd been theorizing on it for 100 years.
We'd been making efforts for 40 years.
We're pretty good at figuring stuff out.
Humans are good engineers.
It still took 40 years to get it done
after they had the first ones come about.
So I wanna walk through a few things
about what Bitcoin is.
So public-private key cryptography.
So this is the first public-private key.
You deposited $1 with me.
I make a mark on here.
There's one mark on each side.
I am the banker.
I am the Italian man sitting on the banco, the bench in Italy, in Florence, where banks were created.
And I create a key.
And you get your piece and I get my piece.
And I put it on a ring.
They put it on a ring.
They carried them around.
And when you came back to claim your money, remember, you didn't have an ID, right?
You didn't have a password.
You didn't have a passport.
You just said who you were.
But I didn't care who you were.
all I cared about was that I could take this and I could put it back together and I could say,
yep, that's you. I owe you $1. Public private key technology. Pliny the Elder talked about
public private key technology 2000 years ago. Tally sticks. These are called tally sticks.
One of the things that make Bitcoin work. Another one is the digital signatures,
elliptic curve digital signature. Basically, it means that I can send it or I can sign something
and then it goes through a hashing system
that makes that signature untraceable.
And then it goes through another unhashing
that locks it with the public key.
And if both hash values equal,
then the digital signature is verified.
So we had digital signatures.
That came about in 1985.
Proof of work, how proof of work works.
You have the miners, they mine blocks.
By solving the block puzzle,
they provide their proof of work.
They broadcast the answer to the network.
The network verifies it.
They get rewarded their Bitcoin.
and then the process starts over
and the transactions start piling up again.
1996 by Adam Back.
Cryptographic hash functions.
This is an NSA collaboration
where you can take information,
put it into a hash function
and come out with something
that is completely unrecognizable,
much like the digital signatures,
and be able to use that to not only make anonymous,
but also make verified that work has been done.
Merkle trees.
This is the one that I don't know a whole lot
about Merkle trees.
I'm just going to say it like that.
So you have the root, and the root has a big hash,
and then you break it down into smaller and smaller pieces.
You go to different leaves,
and you end up with multiple leaves that constitute the root.
Merkle trees are talked about in the Bitcoin white paper.
Great read. Kind of hard read.
But a great read.
Yep.
Linked timestamping hash chain.
So you take this hash that completes this block
is the beginning of this hash that begins this block
and so on and so on and so on.
You think about Bitcoin, you think about blockchain
as you can physically think about it
as just stacks of blocks that keep going up
and up and up and up and up.
And each new block, when that block of transactions,
when all those transactions are verified,
it also re-verifies all the other transactions
that have ever occurred.
The decentralized network, this is crypto, this is Bitcoin.
Centralized server, decentralized.
No single point of failure.
We could have a nuclear war combined with an apocalyptic monsoon,
combined with a spectral ejection from the sun,
combined with the pole shifting.
And as long as one Bitcoin node survives, then we still have Bitcoin.
Node survives?
Correct. Yep. Yep.
Yep. It would be very, it would be, it would be bad.
It would be Bitcoin in 2009.
and 2012, 14, 15, 16, pretty nascent technology,
pretty prone to attack, right?
And then we started seeing nation states attack it.
North Korea, China, even the US a little bit.
And even at that time,
it was still too strong to be attacked.
So we would have to have the type of system where,
or the type of occurrence where literally everyone but one.
But remember, like if you knock all of these out,
then you're just back at this.
That's just a centralized point of failure.
The difficulty adjustment.
This is one of the things Satoshi came up with that's absolutely brilliant that you can't really, it's very hard to comprehend, but it's like being in the gym and there's a guy who lifts more than everybody.
And what the difficulty adjustment does is it makes it harder for him to lift the same weight.
So if you have an ability to supply way more power to the network than everybody else, we're going to handicap you so that it still takes you 10 minutes to solve the problem.
we're going to make the problem harder. And if the miners go offline, if the price crashes,
or if there is a mass event that knocks out a bunch of miners and it becomes easier,
or sorry, it becomes harder, then we'll make it easier for you to solve. The target is between
eight and 10 minutes. And it adjusts off of that every 2016 blocks. And then you have the having
cycle. Having cycle is just a way to incentivize people to adopt something because it gives you
greater rewards for taking earlier risk. When Bitcoin first started, you got 50 Bitcoin for
mining a block. Every four years, that decreases by half. If you're a long-termer, you can recognize
this because Bology copied the exact same thing for the NS points. At 64, you have the amount of
points that you get. At 128, you have. And we keep going and going and going and going until in 2140,
the year 2140, the Bitcoin network will survive on transaction costs, not on mining. And if you
think Bitcoin is complicated, this is what the dollar looks like. You have the Fed, the government
entities, the regulators, the onshore investors. You have the chosen few that are allowed to take
money from the Fed before it becomes worthless and then extract value from people. Then you have
payment and settlement systems. You've got the Fedwire, which is how many domestic operations
settle funds. You have chips, which is how you settle international payments. You have settlement
banks. This is infinitely more complicated. I've never met anyone who can describe how the dollar
system works. You can reasonably talk about how money is created, but all the way around and all
the way down, it's next to impossible. And they all end up doing this. 4,000 fiat currencies have
existed. 1,840 of them are dead. 160 of them are down at least 99% of their original value.
They will never make it back because they're designed that way. They're designed to be able
to extract wealth. And so we have arrived at the end. This is how Bitcoin takes over the world.
Digital markets, remember, are monopolies. If there's no barrier to having the best thing,
everyone's going to have the best thing. If the iPhone is the best phone, everybody's going to
have the iPhone. If Amazon is the best digital shop, everybody's going to use Amazon. Digital
world creates natural monopolies. And just like the dollar became 87% of the world's transfer of
value, Bitcoin, which is now at 0.2% of the world's transfer of value, is on its way to taking over
everything. We may go in at a later date into some more interesting things about Bitcoin, how it
changes things, how it fixes things, how it can be used in warfare. But that brings us to the end
of our talk on money, inflation, and Bitcoin. And I want to thank you all for showing up,
paying attention, having such great questions. I really appreciate it. Are there any questions
before I end? All right. James, my friend, James of ARC, you're up. Thank you guys.