Bitcoin: The end of money as we know it

- [Voiceover] Look closely

What do we all have in common? No matter what corner of the world you live in, You need food, water, shelter and money

Half of every transaction involves money, in exchange for goods or services

Stocks, a loaf of bread, illegal drugs, You gotta pay for it

We spend much of our live chasing money to make a living, and accomplish our dreams

But it's also an instrument of destruction

Some might say evil

Driving criminals to lie, steal and even murder

- The existing banking system, extracts enormous value from society and it is parasitic in nature

- [Voiceover] Money is a catalyst for the worst and the best of human endeavor

Before civilization, we created currency

Fuel for wars

The path to power

Champion and enemy of innovation

Money is so integral to our society, and our global economy, that its true nature remains a mystery to most

This is the story of money

Perhaps the end of money as we know it

No matter how fat your bank account, or how thin your wallet

To us it's all cold, hard cash

There are some who want to kill it

Get rid of it

Burn your dollars, your euros, your yen, and transform every penny you have, into ones and zeros

Digital currency entrusted to the web and computers spread across the planet

Magic internet money

It's called cryptocurrency, Bitcoin

Invented in secret, it was a gift to the world

- It's not just a currency, but it's actually programmable money

- [Voiceover] A potential curse on bankers

- I mean, there's nothing that the big banks or politicians can do to stop it

- [Voiceover] Breaking every governments grip on money supply

- What the internet did for information, Bitcoin is doing for money

- Could it be the new gold? - No, you have to really stretch your imagination, to infer what the intrinsic value of Bitcoin is

- Regulators, the Federal Reserve, the banking system, at least understand this is a thing that they have to take seriously

- This going to change the economic culture

- Bitcoin could be a micro-economic miracle worker and it could be a macro-economic wrecking ball

- [Voiceover] Is Bitcoin the currency of the future, a Godsend for criminals, or a recipe for financial disaster? If you trust your money just as it is, we have a little story to share

(dramatic instrumental music) Once upon a time there was a big party, with everyone standing around the punch bowl, drunk

Politicians credited the strong economy to their wise decisions

Businesses jumped into new profitable markets, ignoring risk

If fact the experts said there was no risk

Then, troubling market data from minor countries, spooked the markets

Rumors spread

More bad news rattled housing prices, at the heart of the financial world

A major bank went insolvent

Investors and businesses made a run on the other banks, demanding their cash deposits

The largest financial institutions in the center of the modern world were frozen

Assets were seized, banks foreclosed

A credit crunch threatened the entire world economy, and then finally, the government stepped in

The largest bank bailout ever

Swift action by the head of state had saved the day

Remember that? No you don't

It happened 2,000 years ago

Rome, 33 A

D

Ground zero for the first recorded liquidity crisis and government bailout in history

The largest empire the world had ever seen, was brought to its knees by a banking disaster

Emperor Tiberius used money from the National Treasury, to bail out the country's troubled banks and companies

History may not repeat itself, but it certainly rhymes, badly

People in power and their money, have always been at the very center of it

(violin instrumental music) The story of money is as old as civilization itself

When we lived in small tribes, keeping track of debt was easy

You owed somebody a load of firewood

A neighbor owed you a piece of meat

Credits and debits were kept in your head

A mental ledger

- Currency's a language that allows us to express transactional value between people

It's technology that's older than the wheel

It's as old as fire

- [Voiceover] When humans wanted to trade outside their tribe or village, they needed something, everyone could agree had value

Something scalable

Enter commodity monies

There were many kinds, but each had to embody the same five characteristics

A commodity money is relatively scarce, easily recognizable, can be cut into smaller pieces

You can substitute one piece for another of equal value

And you can carry it around without too much trouble

In ancient Rome, it was salt

The Aztecs used Cacao beans

It was whale teeth on Fiji

Yak dung in Tibet

Shells in Africa and China

Grains, metal, ivory, rare stones, leather, fish

If it had the five characteristics of commodity money, someone probably used it as currency

- And then you ask, what value did these currencies have? If you go into a primary school, you'll see children exchanging rubber bands and Tamagotchi and Poke-man cards and baseball cards and sweets and candy and any other form of currency

People invent currency, when they have no other currency

And now they're going to invent digital currencies

- [Voiceover] But commodities that aren't durable, are a lousy store of value

A bad Cacao crop, or a huge new salt discovery, can throw your currency and economy into turmoil

A more stable system was needed

About 2,500 years ago, the first metal coins were minted in China, and in what is now Turkey

These coins shared the same five characteristics with commodity money, but were also very durable

In some cases, coins are the only thing left of entire civilizations

- Money does not originate with governments

Money arises naturally, as markets begin to develop

And as people with a division of labor realize, that if I have eggs, and you have a cow, we may need some medium of exchange, in order for you to buy my eggs, or for me to buy your cow

- [Voiceover] Coins were an objective and universal unit of account and they allowed people to buy and sell goods over vast regions

The market economy was born

Coins worked, but only if people trusted that the king or emperor, who issued them, wasn't cheating on the metal content

Using coins also meant, that an authority now controlled the supply of your currency

Money and political power, were inextricably linked, centralized

Minting coins in a steady and predictable manner, allowed economic growth and stability

The Wu Zhu coin in China, retained its value for 500 years

In Constantinople, the solidus lasted for 700 years

- But in those times, the coins didn't have the milled, this sort of milled edge

They were flat, and what used to happen, was as coins were passing from people to people, people would cut little bits off

And in fact, some of the taxation that the kings would do, would actually be take one eighth of the coin off

- [Voiceover] Taxes built castles, and financed military campaigns, expensive hobbies

Soon, royal mints were substituting cheaper metals, for silver and gold

This is called debasement

And Europe's kings made a habit of it

The currency of France was debased every 20 months, for 200 years

If no one can trust the gold or silver content of your coins, how can you trade with other countries? International merchants found a solution

They recognized that one persons debt, has value

It can be traded or transferred

When those IOU's came from reputable sources, they could be used as a form of money

Paper money

This money was not based on hard commodities, or metal, but instead, on someone's promise to pay

Merchant families like the Medici, in 15th century Florence, acted as clearing houses for these IOU's

It worked like this

An English trader ordered a shipment of Italian cloth, from the Medici for 100 gold coins

His promise to pay the Medici was put on paper

Meanwhile, the Medici owed 100 gold coins, to another trading partner, for delivery of wine from France

The parties didn't go to the expense of transporting and exchanging gold coins

Instead, the paper was transferred

Everyone agreed that the paper had value, 100 gold coins

But only because the everyone trusted the Medici, as solvent middlemen

They had created a paper money machine

Within a few generations, they rose from low crime to high finance

Their great wealth, helped fuel the Italian renaissance and elevated the family to levels of enormous political power

The power to marry into royal families and get elected as popes

The ties binding money to power, politics and influence now ran through church and state

Merchants had proven that creating paper currency could be wildly profitable

Goldsmiths wanted in on the action

- Imagine it like this, if the goldsmith had seen over a period of time that some of the coins he is storing for people were gathering dust

The people who own them, don't need them right now

So what if I go and lend them out into the community and I charge them interest on this loan

So he starts out lending some of these gold coins and then later he realizes, actually people don't even want the gold coins they just want the piece of paper that says that the gold coins are in the bank and with the goldsmith

So I can now make a loan with these pieces of paper

And whatever I write on the piece of paper, as long as the people trust me, they'll trust the paper

And effectively the goldsmiths, the early day bankers, they had literally acquired the power to print money

- [Voiceover] More and more such private paper money from merchants and banks circulated and began to rival the crown's coins

The power inherent in controlling and issuing money began slipping away from the rulers

They couldn't tax or de-base this new kind of money

But they had bigger ambitions than ever with trading posts, colonies, and empires that now stretched across the globe

For centuries, European countries would take turns building massive fleets and waging war on each other to rule the world

(yelling) - Government wanted to take the people's money in order to finance its wars

That's essentially the history of money

Money and warfare go together

- [Voiceover] War is expensive

One year's income taxes simply aren't enough

Kings and queens had to borrow money against future taxes

They needed a ground breaking financial innovation, government bonds

The loans came from rich merchant families and goldsmiths, who by now had become powerful financiers and bankers

Sovereign debt and deficit spending had been born

(upbeat instrumental music) In 1694, the bank of England was established to fund a war against France

England's central bank was privately owned and granted the monopoly to issue banknotes, paper that could be redeemed for an equal amount of gold from the government's coffers

The central bank soon also managed the entire debt of the crown

- Money has been a tool of sovereignty for centuries

Being able to issue currency gave you the power but it also gave the value to that monetary supply by backing it with the force of state with essentially the debt of state

- [Voiceover] When the U

S

won independence from Britain, the first article of the new constitution gave congress the exclusive right to "coin money"

This currency's value was tied to gold in government vaults

From 1781 until the panic of 1907, the financial system of the U

S

was an economic Petri dish

Brief central banks, state banks, private banks, private currency, government currency, depressions, strong growth, recessions, regular boom and bust cycles

- The long term, as far as capital is concerned, people want predictability, people want stability

From the back of that they can plan and it is very hard to plan in the long term with it such a level of volatility

- [Voiceover] In 1913, bankers and politicians decided that it was in the country's best interest, and theirs, to have a permanent central bank

They created the Federal Reserve

Among its jobs, expand or contract the supply of a single national currency, the Federal Reserve note

The dollar was tied to gold and strategic control of it would avoid booms that lead to busts

At least that was the plan

Then came 1929

(yelling) The great depression would have a profound effect on monetary policy worldwide

- [Roosevelt] I shall ask the Congress for the one remaining instrument to me the president, broad executive power

- [Voiceover] Soon, the Fed had printed nearly all the money it legally could to pump life back into the economy

It needed gold to fire up the mint

So in 1933, President Roosevelt issued a controversial executive order, forcing all U

S

citizens to sell their gold to the Federal Reserve at a fixed price, or go to prison

The Fed offered far more cash to foreign governments for their gold

Many jumped at the offer

Gold flowed in, and dollars spread across the globe

World War II devastated nearly every major economy, except the United States

The military and industrial juggernaut emerged as the global financial super power

The dollar had become the world's most stable and trusted currency

Other countries pegged their currency to the dollar, which could still be redeemed for gold

In fact, the U

S

owned more than half of the world's gold reserves

In the next few decades, more dollars flowed to foreign countries

Governments began debasing their coins with cheaper metals and printing more of their own currency than they had in gold

The bond between precious metals and paper currency was cracking

- This is a 1966 50 cent piece

It was the last coin in regular circulation in Australia to contain silver

It contains 80% silver, so in 1966, this was 50 cents

Nowadays it's 8 dollars, roughly, in silver alone

- [Voiceover] By 1966, foreign nations had had enough of the U

S

collecting gold and printing cash

And they had more value in dollars than the U

S

had bullion in its vaults

They demanded gold in return for their paper dollars

Arguments about the value of the dollar versus their currency ensued

In 1971, President Nixon settled the matter

He severed United States' currency from the gold standard

- I directed Secretary Conelly to suspend temporarily the convertibility of the dollar into gold or other reserve assets except in amounts and conditions determined to be in the interest of monetary stability and the best interest of the United States

- [Voiceover] Never again could anyone legally demand U

S

Government gold in exchange for paper dollars

For better or worse, the dollar was now backed solely by the full faith and credit of the United States Government

The wealthiest nation the world had ever known would bet its future on a single word, trust

- People have this mythology of money that is based on very little fact

And one of the nice things about Bitcoin is that it forces people to start to ask questions about the fundamentals of money

- A Bitcoin is an attempt to adopt the advanced computerized system that we have, the internet, to resurrecting to what money used to be all about

(upbeat instrumental music) - I think our dollar policies our monetary policies our fiscal policies have absolutely created a nation of debtors

Not just personal debt, not just corporate debt but government debt, you have to look at those all together as one big thing

What is the wealth of the nation? Well, the wealth of the nation is a gigantic hole of money that we owe to the rest of the world, that is never going to be paid back

- [Voiceover] Today the United States pays more than 400 billion dollars in interest to its creditors, every year

When a government spends more money than it collects in taxes, it simply borrows more or it creates more

At one time, every piece of paper money was backed by gold

Remember, for every 20 dollar bill, there was $20 worth of gold in a government vault

Not anymore

Today, governments create currency by first creating bonds or treasury-bills

These bonds are sold in the market, generating funds for the government that issued them

Large banks buy U

S

bonds to flip them, selling them to the Federal Reserve at a profit

This is the magic money machine

You see, the Fed is America's central bank

But it doesn't have any money, no cash on its balance sheets

When a bank buys a bond and takes it to the Federal Reserve, the Fed simply says "thank you Mr

Banker, "here's the principal and some profit

" (ching, ching) New money isn't exchanged, it simply appears on the bank's accounts

Magic

For 100 years and counting, the precise mechanisms of these bond purchases have remained a secret

Here's where it gets really interesting

The Federal Reserve is not a Government agency

It's a private entity and its shareholders are banks which earn a dividend

As much as 80 billion dollars per year, total, are paid out to some of the very same banks that sell the Government debt to the Fed

Which banks? Don't even bother asking

That's also a secret

In other words, the magic money machine answers to no one

The Fed also sets the bar for how much interest you pay for a car, home, or business loan

- The Federal Reserve has been given the impossible task of trying to run the credit and monetary system as though we are the Soviet Union

It's the central planner for the key aspect of capitalism which is how money and credit is allocated

The Federal Reserve, on balance, does not help the economy

On balance, it hurts the economy

And it's bound to make mistakes even with the best of intentions

- [Voiceover] The Fed is also supposed to boost employment with low interest rates

Encouraging people and businesses to buy more goods and services

- Governments getting involved in money is a good thing, and it's also a bad thing

It's a good thing because money is the arteries of the economy, the blood supply of the economy

Markets are subject to bouts of euphoria and despair

And it makes sense for governments to back currency and to manipulate it

Moving the money supply up and down is the most powerful way to sedate that boom and bust cycle

- [Voiceover] Manipulating the supply of money has short term and long term consequences

(instrumental music) Central banks aim to create new money carefully, strategically and very, very slowly

Releasing more money into the economy cause prices to rise, ideally by 2% every year

That's supposed to foster economic growth

But, 2% inflation means the buying power of one cash dollar in your pocket today, will be 98 cents next year

And less nearly every year to come

- Since 1913, when the Federal Reserve took over the United States dollar, we've seen that the United States dollar has decreased in value 98%

Inflation is a far higher tax because on your income you pay it just once

If inflation is 2%, you're paying a 2% tax on your net worth every single year

Your net worth that you held in currency

- [Voiceover] So, what does that mean? If you earned a dollar in 1913, you could buy 16 loaves of bread

Today, a dollar barely buys you one

That's not a quaint notion of how cheap things used to be

It's proof that the value of your cash is slowly withering away

That one dollar invested at 2% in 1913 would now be worth 7 dollars and 24 cents

More than a 600% return versus a near-total loss

- The U

S

dollar has gone from being worth one dollar to now being worth about 4 cents, so that's 96% of its original value

That's a direct result of government control

- [Voiceover] Governments don't create money from thin air all alone

You play a key role in the magic money machine

- It's not really the central banks that are the problem

They are part of the problem

But the real problem is that we've given the power to create money to the same banks that caused the financial crisis

- [Voiceover] We put our paychecks and savings into a bank account and draw from it as we need it

The banks are the custodians of our money, right? Wrong! It is now the property of the bank, on their balance sheets

They can do just about anything they want with it, for example create new money

Here's how, your bank account shows 100 dollars, but the bank only holds three and loans 97 to Bob to buy something

In the bank's computers, you still have 100 dollars in your account

But Bob now has 97 dollars of new virtual money in his account

Just digits on a computer screen

There's no cash, no gold, or anything else backing up the new numbers in Bob's account

Just his promise to pay it back

This is new money created as debt

When those 97 dollars are spent, say in a shop, the shop owner deposits it into another bank and it is lent out again and again and again

And each of these people have numbers in their accounts showing that they own this money

So your original 100 dollars has multiplied, now there are over 3,300 dollars in the system

This process of loaning out far more money than a bank actually has, as cash on hand, is called fractional reserve banking

- In the U

K

, 97% of the money that exists, is just numbers in the computer system

And those numbers have been created by the banks

- [Voiceover] Banks earn untold billions in interest every year by creating and lending virtual money

What's more, banks don't even need your deposit to create new money

If they consider someone credit-worthy for a loan, they can put new magic money into his or her account, and start charging interest

- So, reporters talk about Bitcoin as though it's the first digital currency

But actually we use digital currency every time you make a transaction through internet banking, or your bank card

Actually it's not only digital currency it's digital currency that is created by the banks, essentially, out of nothing

- [Voiceover] In other words, all new money is debt

This is the part of money creation that isn't taught in economics class

Money in paychecks, bank accounts, 401ks, that loan to Bob, credit card debt, your homeloan, all began life as virtual money created by the banks

The entire system is based on trust

Trust in the bank's solvency

Trust in the debtor's ability to repay their debt

If all bank customers demanded just 3% of their deposits right now, in cash, this "run on the banks" would reveal the truth

Almost none that paper currency you think is in your bank account exists

It never did

(birds chirping) Remember the drunken party? (rock instrumental music) Our financial crisis had everything to do with virtual dollars

Too many people, with very little income, borrowed a lot of money they could never repay

But the banks didn't care

They didn't have to

They quickly made and sold shaky loans to someone else, for a profit

- And I got them all approved

- Hey! (laughter) - Apply now

- [Voiceover] Selling bad loans was a good business, until the whole thing blew up in a global financial crisis

The magic money machine destroyed 30 million real jobs

The United States alone lost 16 trillion dollars in household wealth

And the banks foreclosed on more than 1 million homes

(angelic instrumental music) Selling subprime loans and betting they will fail, may not be sacred, but it is lucrative

As much as a quarter of our best and brightest are being lured by the siren call of the money machine

Instead of science, engineering, or medicine, they chose a career playing with, betting with, other people's money to get rich quick

Very rich

And sometimes, they take shortcuts

? Get by on a nickle and a dime, ? Money has a funny way of bringing us down ? They say it makes the world go round and around? - My ancestors in Greece talked about the corrupting influence of power

And nothing has changed in these 3,000 years

When you give control of a massive amounts of money to a few individuals, they will take advantage of that control

? Oh, oh, oh - Banks today are factoring in fines and money laundering and all the rules that they break into their cost of doing business

JP Morgan is today coming out and saying that Bitcoin is not a legitimate way of doing business

Banks today are tied into a system that is completely rigged to basically harvest money from the entire global economy and pump it into the hands of the very few

? Don't get consumed by your greed ? La la la la la la - The existing banking system is cozy

Its captured the regulators, it extracts enormous value from society without delivering anything in return and it is parasitic in nature

- The banks play a very pivotal role in an economy

You look at any successful economy it has successful banks

There is a very close correlation with banking profits and the economy as a whole

- [Voiceover] In Medieval Europe, a banker who couldn't repay depositors was hanged

Today, that same banker would get bailed out, paid bonuses and enjoy some tax benefits, too

To date, no senior U

S

banking executive has been charged for selling the bad loans that fueled the great recession

In December 2014, just 6 years after the last banking crisis brought the world to its knees, a Congressman snuck a last minute provision, written by Citigroup into a crucial funding bill

The provision allows the largest U

S

banks to once again make risky derivatives bets with bank deposits

But no need to worry, if the banks implode again, lost deposits must be paid back by U

S

taxpayers

(bell rings) Today's financial innovators package assets in ever more complex ways, slicing, dicing, securitizing, always using someone else's money

They sell debt, transfer risks, leverage bets

That's what they call innovation

- When you're talking about financial innovation, Bitcoin certainly is a very good example of innovation, but there's also been other innovations that people, a bit closer to the world of finance would cite as good examples

An example of that would be the original swaps market, from there moving on to the credit default swap

It is an excellent example of financial innovation

But also if it's used incorrectly, it can create a lot of problems as we've just seen

- [Voiceover] History teaches that the most revolutionary and disruptive innovation nearly always comes from the fringe, not from corporate cubicles

True innovators see the world differently

They see the big picture

Creating new products and entire systems that lead to new industries

Steve Jobs called them the "square cogs in round holes"

- It's unsurprising that new innovations always come from a niche group of early adopters because it is inherently very hard for many people to realize the benefits of new technologies

In 2011, most Bitcoin community people were either people from the technology space, the geeks and hackers, or people from the traditional financial industry

There are even some bankers and hedge fund traders using Bitcoinica at that time as well, which was really surprising to me

- [Voiceover] A radical new idea is often met with skepticism, ridicule, even hostility from those who stand to lose most from its success

Case in point, the automobile

In the late 19th century, Karl Benz and others built the first cars, contraptions that could threaten the stagecoach and railroad industries

These "self-propelled vehicles'" or road trains, would certainly scare horses, injure people and damage roads

Cars, the railroad barons said, were just too dangerous

And to protect us, they used their power to pass a law in 1865

It required every automobile in England to observe a four mile per hour speed limit and to be operated by a crew of three, a driver, an engineer and a flag man

This heroic flagman walked in front of the car to warn fellow citizens of the coming danger

The railroad tycoons, the lawmakers, the self-appointed gatekeepers used regulation to stifle innovation

But they didn't invent the flagman

He's been around for a long time

For centuries, very few could read

Books were copied by hand

The people in control, political and religious leaders, wanted to keep it that way

And they greeted Johann Gutenberg's printing press with licensing laws, publishing bans, taxes

In some parts of the world, printing was a crime, punishable by death

After all, they were just protecting us from dangerous ideas

Before the printing press, there were an estimated 30,000 books in all of Europe

50 years later, there were 10 million

As Gutenberg's invention flourished, the Dark Ages withered

Progress couldn't be stopped

But the flagman never stops trying

His masters set him loose on each of these innovations because they threatened someone's profits, someone's control

But remember, this is a story about money

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 U

S

Constitution forbids citizens from printing or minting their own currency, competing with or undercutting reliance on the U

S

dollar

In 1998, Bernard von Nothaus decided to test the resolve of the federal government

- The Liberty Dollar was available in gold, silver, platinum, and copper

It was available in three forms, both in specie, in other words, gold and silver, in paper, as warehouse receipts and in digital form

Obviously, the government didn't like it

They arrested me and convicted me of counterfeiting, fraud, and conspiracy

And i'm currently awaiting 22 years sentence in federal prison

- [Voiceover] Lesson learned

- At a hacker's convention in Netherland, there was a young hacker there who used the alias of Satoshi Nakamoto, and he talked to a friend of mine and he identified the Liberty Dollar and me as inspiring him to create a new currency

- [Voiceover] Bernard von Nothaus's arrest for creating "private money", may also have inspired Bitcoin's inventor to keep a lower profile, publishing the invention under an alias and vanishing

- Part of me is interested to know who Satoshi is

Maybe that's part of the mystique of the story, it's completely irrelevant to the functioning of Bitcoin because we have the code to read

But it would be kind of fun to know

- Who is Archimedes? Who is Euclid? We don't know

We don't know if Euclid was one person or multiple people? And you know what? It doesn't matter

Euclidian geometry works whether i know who Euclid was or not

Whether Euclid was a moral and good person

Or whether he was a corrupt plutocrat and a bastard

Science and mathematics have essential truths that stands alone irrespective of its inventors and irrespective of their motives

Well, Bitcoin is a system based on mathematical truths

And these mathematical truths stand alone

We can read the source code in Bitcoin and understand it and it will be true whether Satoshi Nakamoto is a man, a woman, a collection of individuals, a government agency or aliens from the future

- [Voiceover] Bitcoin is digital currency and computer software

Capital b Bitcoin is the shared code that creates a global payment network, using computers connected to the internet

Bitcoins are virtual currency

Digital money created, stored and exchanged on that network

But unlike virtual dollars created by a banker, this new currency was created with math by an anonymous inventor

Bitcoin is an open-source software protocol, like much of the code supporting the internet and email

Open-source means anyone, everyone can use the protocol

No one person or company can control it

Every change to the software is public, open and transparent

The code was first developed by Satoshi

Then there were dozens, now hundreds of programmers constantly collaborating to improve Bitcoin's features and security

So what makes Bitcoin a breakthrough? It tackles an ancient human dilemma and solves a computer science problem

Any shared information, or data can be flawed, corrupted

Anything can be faked

How do we know that what we're receiving can be trusted? - In our traditional mindset, it's very important to know who is behind this currency because their reputation is significant in knowing that our funds in the true wealth is actually safe

- [Voiceover] In finance, we rely on trusted third parties like banks, credit card companies, remittance services

They keep track of money as it moves from one account to another

And they charge us handsomely for it

We trust that their digital ledgers of credits and debits balance

A financial system that cuts out these middlemen could be faster, cheaper and more secure

But Bitcoin is digital

Music and movies are easily pirated, copied, stolen

How can a digital currency retain value if anyone can make a million copies? The answer is at the core of Satoshi's invention

A Bitcoin is not a file on a computer

It's an entry in the publicly- distributed database called the blockchain

Just as the Medici kept a ledger of credits and debits

Today's banks record each transaction as a plus and minus in their ledgers

Now we call them databases

Bank accounts are replaced by a digital wallet that you alone control

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

When a bitcoin is "sent" from one digital wallet to another, what they are really sending is control over that part of the database

Code that is a unique key for the new owner

As the network processes transactions, it constantly synchronizes the one ledger across the global network

Each computer, or Bitcoin miner, has a complete and identical copy

And because the blockchain is public, it cannot be controlled by any one person or computer

Owners of the Bitcoin mining computers are rewarded with new Bitcoins for processing transactions and keeping the network secure

In other words, the Bitcoin network replaces banks and bankers

Today, the combined computing power of this global network is greater than the 500 biggest supercomputers combined, times 10,000! And because every transaction is verified and recorded by the network, a bitcoin cannot be forged

Digital currency cannot be debased with cheap metals, or printed by the billion at will

Too much currency can unleash a monster, skyrocketing prices, trillion dollar bills that can't buy a loaf of bread

- There is a big movement in the U

S

demanding that the Fed be audited so that we can find out what they are doing

Nobody really knows how many dollars are in existence for example

Ben Bernanke created several trillions of dollars over the last several years

But nobody really knows where they landed

- At any time for any reason, the central banks can print as much money as they want

They call it fancy things like quantitative easing

And when they do that it makes the dollar or euros or yen that you and I have worth less

So if the world starts using bitcoin as their currency it can't be controlled by central bankers or politicians

- [Voiceover] Remember, central banks create money to boost the economy and try to pull it back out before inflation heats up

But no one knows how much magic money global banks are creating to boost their profits with questionable loans

- Bitcoin is completely the opposite

It's totally transparent

You know exactly how many exist

- [Voiceover] The computer code behind Bitcoin has a built in brake pedal, cutting the creation of bitcoins in half every four years

This ensures a transparent controlled scarcity and ultimately limits the total number of bitcoins to 21 million

No lobbyist, no politician, no banker can create more, or change the mathematical rules dictating their creation

- Advancing accountability

And that's something that's the most exciting about Bitcoin and technology behind it

Is not so much that it will supplant the dollar or that it will supplant government itself

But all of a sudden there is a competitor to government

And that government itself now needs to look over its shoulder more than it did

- [Voiceover] This new digital currency can be purchased online with a credit card or in person with cash

And it has the five key characteristics of money

But is it a store of value? Is it stable or will it diminish over time, like a commodity rendered useless, or a crop that fails? The ultimate power of a cryptocurrency is unleashed by mainstream adoption and an ever-growing volume of transactions

- With bitcoin, the currency is being created much more slowly than other currencies

And the effect of that has been to turn it into what is essentially a speculative asset

If you ask a lot of Bitcoin enthusiasts whether they are spending the currency, they're not

They're sitting on it and waiting for the price to go up

It isn't a currency if you don't use it to pay people

The point is that the average person is quite happy to walk into a bar and hand over a five dollar note in order to get a drink

So you've got to realize that most people are happy with the money system they have

- [Voiceover] If most people are happy with cash, they're in love with plastic

In the U

S

two-thirds of in-person sales are done with debit or credit cards

That plastic is a 60 year old technology, created by a middleman

Never designed for the internet

Each transaction requires personal data like your name and address

Credit card databases are regularly hacked with fraudulent purchases charged to your account

Criminals buy and sell stolen credit cards by the thousands in dark corners of the internet

In some parts of London, one-third of all online credit card transactions are fraudulent

Card issuers don't hold you responsible for fraud but protection comes with a price, 2 to 4% in fees

That's 50 billion dollars a year

- The issue with credit cards from the merchant's perspective is there's a lot of risk

If they a take a credit card, there might be a chargeback, there might be fraudulent purchases

In fact there are hundreds of billions of dollars every year in fraudulent purchases

- [Voiceover] A bitcoin purchase is done for pennies but there are no protections

If you lose your passwords, or are fooled into paying the wrong person, you can never get your money back

It is like digital cash

For a seller, this means no chargeback risks

For an e-commerce companies like Expedia or Overstock, cutting credit card fees can double their profit margin

- You could not miss the point more effectively than by thinking of bitcoin as a currency and payment network that will make shopping easier for the first world

Bitcoin is about everything else, everywhere else

- [Voiceover] There are 2

5 billion people without a bank account

With Bitcoin, a mobile phone with an internet connection is now a bank, with access to the global market place

- What happens when Bitcoin services and infrastructure and Bitcoin wallets and payment processors start going into these countries

These people will be able to gain benefits from trade where they could not previously

These people will be able to send money home, international remittance, which is one of the major pain points of the current financial system

- Here, if i send 100 dollars

With banks it's going to cost me 20%

Western Union's going to cost 10%

Other options that are competing with Western Union are still going to be about 5%

And if you are sending to really remote areas it's going to be anywhere between 15 and 30%

- So in terms of money remittances it is going to be a game changer using Bitcoin

You do not need a bank account

You just need an internet connection and a wallet to get set up

It's a tool to give people an access into the global ecosystem and give them a promise for an economic future and specifically provide a way for them to not be dependent on a government that could shut down their bank accounts or even could go into their bank accounts and take out finances

- Goldman Sachs came out with a report and they basically looked at if you were to replace all transactions globally, so FX, bank to bank transactions with the Bitcoin protocol and still charging 1%, mind you, it would save the global economy 200 billion, not million, 200 billion dollars a year in saved transaction costs which ultimately goes back into the hands of the consumer

- [Voiceover] An international wire transfer can take up to four days

Yet the internet allows us to instantly and globally share text, pictures, videos, anything digital

Why not money? Money, which, we now know only exists as digits in a bank's database? - Wouldn't it be great, if you could send Bitcoin transactions just simply via a tweet? For example, you would say @theendofmoney one dollar worth of bitcoin and so we built just that

All you have to do is to hashtag it with tippercoin

Press send

And our twitterbot will process the transactions, notify you and give you a link and this will allow you to either withdraw your bitcoins or send it to someone else

- With Bitcoin, you can send one dollar or 1,000,000 dollars worth of value anywhere in the world

You can do it for free or you can pay the Bitcoin network fee, which is still just around a penny

And there is nothing that the big banks or the politicians can do to stop it

- [Voiceover] A cryptocurrency that can only be created and transferred with computer networks may be the next step of the digital revolution

The rise of machines

Self-driving cars, drones, robots that rely less and less on humans

- What I often think is that the future of Bitcoin or digital currency from a broader perspective is really about machine to machine payments

So by the time you have an un-manned taxi driving you around New York, and then going to power up at an unmanned power station, or going to get repairs at an un-manned auto shop

You'll see the machine to machine payments done with some sort of digital currency

- We actually built this world that we live in over the last two or 300 years

We made some mistakes

We've learnt to make things better

The idea that there is this magic key that if you just sort of stop doing a few things, that they'll be perfect order that will settle, is a very childish, ideological delusion in my opinion

But that's not to say that Bitcoin isn't an exciting thing

It's an terrifically exciting thing

But we have to try and engage with it with working minds not with magical thinking

- People are suggesting that it's going to be another world currency rivaling the dollar, or the euro, or the yen

I think that's not going to happen

I prefer to trust the banks or the central government compared to the Bitcoin is because someone is accountable

Whereas with the Bitcoin it is completely deregulated

There is no central control

There is no one held accountable

It is a free float, purely demand and supply driven

- So, clearly, this is not a currency

Currencies don't behave like this

But what this is is a high-risk, speculative commodity

- So, for the entrepreneurs, the bankers, the governments and anyone else studying and watching Bitcoin, all i have to say is that there will probably be a lot of volatility in an upward trajectory and to buckle up

- [Voiceover] Criminals, scam artists, bad actors, are drawn to any kind of money like a moth to a flame

- Silk Road was a marketplace that was online

it existed in the underground web

Now this marketplace allowed people to sell things that were illegal to governments

- [Voiceover] Fake ID's, pirated music, bibles in North Korea

Are cryptocurrencies inherently bad or just the newest tool to acquire the forbidden? - Porn is illegal in Iran

Well, there was a few percentages of sales on Silk Road was to sell porn to Iranians

Now, a much broader one, that gets a lot of press for the guys at Silk Road is drugs

- I've been doing research over the past couple of years into the online drug marketplaces in the Dark net using TOR and Bitcoin as technologies to enable illicit drug transactions

We did a global survey of drug users and we had over 20,000 people respond to that and the majority of those people were buying traditionally illicit drugs

Ecstasy, cannabis

The F

B

I

brought down Silk Road

It certainly hasn't stopped the trading of illicit drugs online

- A lot of people want to criticize Bitcoin for the use for illegal things or illicit things

But if you look at it, the most popular currency in the entire world for doing bad things is the U

S

dollar

- If you think of Bitcoin as a platform instead of a currency then you really begin to see the potential it has

- The ledger which cannot be forged, it cannot be changed and is universally accepted is Genius

There will be Bitcoin technology forever and it will have applications for years to come

- [Voiceover] Creating a secure, global payment system may just be the beginning

Patents, contracts, land titles, proof of ownership can be baked into Bitcoin

Securely held in the public ledger

- I read up more about Bitcoin

I played with the source code

I built some things that I realized, this is a actually a very, very powerful protocol

It's not just a currency but it's actually programmable money

- [Voiceover] The digital age has fundamentally changed the world

We have embraced digitized music, film, medical records, communications, the internet

The free exchange of information and currency can fuel revolutions, help in a disaster

But our money is shackled to the 20th century, manipulated by governments and banks

The champions of Bitcoin ask us to imagine payments without a middle man

Investments without a broker

Loans without a bank

Insurance without an underwriter

Charity without a trustee

Escrow without an agent

Betting without a bookie

Record keeping without an accountant

Global, secure, nearly instant and free

Is it fantasy or the future of money and commerce? (intense instrumental music) - I love bitcoins

I'm really into bitcoins

? Well Satoshi Nakamoto ? That's a name I love to say ?And we don't know much about him ?But he came to save the day If you don't know what a Bitcoin is, right, usually the way people describe it is a digital cash

It's money for the internet

? Bitcoin as your going into the old blockchain ? Oh Bitcoin, I know you're going to reign, gonna reign

They were like, "oh, I love my bank

" I'm like, "really?" You ask a banker, "you know what's two plus two?" He's like, "well, I can tell ya but there's a fee

" (laughter) ? Down the road it will be told ? About the Death of Old Mount Gox ?About traitors trading alter coins ? And miners mining blocks Now Bitcoins is a new technology

I like to say it's banking (mumbling) All of the convenience, none of the evil

(laughter) ?Oh Bitcoin, as your going into the old blockchain ?Oh Bitcoin, I know you're going to reign, gonna reign ?Till everybody knows, everybody knows? You know when I go in line and I buy like, I don't know, a pair of socks

If I pay with a credit card I'm just buying socks

Right, if I buy those socks with bitcoin, it's a revolution

(laughter) I am sticking it to the man

?Oh Lord, pass me some more There's always people who are not ready to get into the new technology

You know, like when the internet came out, there was people going, "nah, I don't think this is going to be popular

" (laughter) And then e-mail came out and people were like, "nah, this isn't gonna catch on

" And now Bitcoin comes out, people are like, "I don't think," I'm like, "aren't you sick of being wrong? "Get on this train

"