A YouTube video, “Bitcoin: The End of Money As We Know It,” explains the history, workings and potential of bitcoin. At just more than an hour in length, the video includes a film by Torsten Hoffmann that is not highly technical, yet it gives an overview of bitcoin that can be enjoyed by bitcoin veterans and understood by most people who are not yet familiar with cryptocurrency.
The film includes interviews with many well-known bitcoin and financial personalities like Andreas Antonopoulos, author of “Mastering Bitcoin,” and Alan Greenspan, former chairman of the Federal Reserve.
Roger Ver, a bitcoin entrepreneur, notes there is nothing politicians or big banks can do to stop bitcoin. “What the Internet did for information, bitcoin is doing for money,” says Eric Benz, director of UK Digital Currency early in the video.
Asked if bitcoin could be the new gold in a TV interview, Greenspan says one has to stretch their imagination to infer what the intrinsic value of bitcoin is.
Jeffrey Tucker, an economist, says bitcoin will change the economic culture.
“Is bitcoin the currency of the future? A godsend for criminals? Or a recipe for financial disaster?” the moderator asks early in the video.
The video then switches to the film by Hoffmann. The film begins recapping what seems to be the 2008 financial crisis. “The largest financial institutions of the modern world were frozen. Assets were seized. Banks foreclosed. A credit crunch threatened the entire world economy.” This resulted in the largest government bank bailout ever.
The moderator then advises the viewer that they are incorrect if they think they can remember when these events really occurred. Where many viewers will assume these events occurred in 2008, they actually occurred 2,000 years ago in Rome, the first recorded liquidity crisis and government bailout in history. The world’s largest empire “was brought to its knees by a banking disaster.”
“History may not repeat itself, but it certainly rhymes.”
The film then reviews the history of currency, beginning when people living in tribes kept track of transactions in their minds. Then commodity currencies emerged.
“But commodities that aren’t durable are a lousy store of value… A more stable system was needed.” Metal coins emerged in China, which were more durable than commodity money. Metal coins allowed people to trade over vast regions.
Coins required an authority to control the currency supply. Eventually, cheaper metals substituted for silver and gold. Paper money then emerged, based on someone’s promise to pay the note. “Everyone agreed that the paper had value.”
To finance wars, rulers developed government bonds. “Sovereign debt and deficit spending had been born.”
In 1913, in the U.S., the government decided it was in the country’s best interest to have a permanent central bank and created the Federal Reserve. One task was to control the supply of a single national currency. Then in 1929, The Great Depression delivered a change to monetary policy worldwide.
In 1933, President Roosevelt issued an executive order forcing all U.S. citizens to sell their gold to the Federal Reserve at a fixed price. The gold infusion delivered dollars to the global economy.
Following World War II, the U.S. dollar became the world’s most stable and trusted currency. The dollar could still be redeemed for gold.
But there were problems with the Federal Reserve system that continue to the present day.
Inflation erodes the value of cash. The change in value is a direct result of government control of currency.
Banks use depositors’ funds to lend money to people. “This is new money created as debt.” A deposit of $100 expands to more than $3,000 in the financial system. The process is called fractional reserve banking. Banks earn billions by creating and lending virtual money.
“The entire system is based on trust. Trust in the bank’s solvency.”
Antonopoulos, the author of “Mastering Bitcoin,” says, “When you give control of massive amounts of money to a few individuals, they will take advantage of that.” He says the existing banking system is cozy and extracts enormous value from society without delivering anything in return, “and it is parasitic in nature.”
In 2014, a U.S. lawmaker submitted a provision written by Citi Group into a funding bill to allow large banks to make risky derivatives bets with bank deposits. Lost deposits must be repaid by U.S. taxpayers. Financial innovators package assets in increasingly complex ways…”always using someone else’s money.”
In introducing the concept of the cryptocurrency, the film notes history teaches that the most disruptive innovation almost always comes from the fringe. “True innovators see the world differently.”
New ideas are often met with skepticism. Such was the case of the automobile and the printing press.
“What if a technological innovation allowed anyone in the world to be their own bank? To create a currency free from taxes and banking fees?”
The creation of a new currency faced some hurdles. The Constitution forbids citizens from minting their own currency.
In 1998, Bernard von NotHaus created the Liberty Dollar to test the government’s resolve in preventing alternative currencies. The government arrested him for counterfeiting and fraud and conspiracy. He says he is awaiting sentencing to 22 years in federal prison.
But in the course of creating a new currency, von NotHaus met a hacker named Satoshi Nakamoto at a conference who said he was inspired by the Liberty Dollar to create a new currency. The narrator notes that von NotHaus’s arrest might have inspired Nakamoto to keep a lower profile. To date, no one knows who Nakamoto is.
Regardless of who created bitcoin, Antonopoulos says the cryptocurrency is a system of mathematical truths.
“Bitcoin is digital currency and computer software. It creates a global payment network using computers connected to the Internet. Bitcoin is an open source software protocol like much of the code supporting the Internet and email.” Open source means anyone can use the protocol. “No one person or company can control it.”
Max Wright, the author of “The Bitcoin Revolution,” says in the traditional mindset, it is important to know who is behind a currency.
People trust that the ledgers of debits and credits balance.
The financial system that eliminates the middlemen can be faster, cheaper and more secure. “How can a digital currency retail value if anyone can create copies?”
A bitcoin is an entry into the publicly distributed blockchain. “Bitcoin’s ledger is the blockchain, a record of every bitcoin in existence and every bitcoin transaction ever made. It always balances because no bitcoin ever leaves it.”
“Because the blockchain is public, it cannot be controlled by any one person or computer.” “The bitcoin network replaces banks and bankers.”
Because every transaction is recorded by the network, a bitcoin cannot be forged. “Digital currency cannot be debased with cheap metals or printed by the billion at will.” Ver said if the world starts using bitcoin as its currency, the world’s currency can’t be controlled by central bankers or politicians.
In the meantime, no one knows how much “magic money” banks are creating to boost profits with questionable loans.
The cryptocurrency automatically cuts the number of new bitcoins created as time progresses, and the system limits the total number to 21 million bitcoins. No one can change the mathematical rules governing the creation of bitcoins.
Bitcoin is a competitor to government. But is it stable, or will it diminish with time? Ben Dyson, the founder of Positive Money, says bitcoin has been created more slowly than other currencies.
Bitcoin brings numerous benefits to the financial system. Credit card databases are regularly hacked. Merchants incur risks accepting credit cards. There is often a chargeback or fraud.
Bitcoin purchases are done more cheaply than other types of payments, but there are no protections. If you forget your password or send the bitcoin to the wrong person, you can never get your money back.
The film also goes into the benefits bitcoin brings to the world’s 2 billion people without bank accounts. All they need is a mobile phone with Internet connection to have a bank using bitcoin.
Cryptocurrency could be the next step of the digital revolution, the film notes. It is necessary to engage in the cryptocurrency with working minds, not magical thinking, says Nicholas Gruen, CEO of Lateral Economics.
Nicolas Cary, CEO of Blockchain.info, says there will probably be a lot of volatility with bitcoin. Although criminals have been drawn to bitcoin, the U.S. dollar is the most popular currency for crime.