– So today we’re going to be talking about Bitcoin for beginners. So now, before I get into this video because Bitcoin is such a broad topic, I wanted to point you guys in the direction of where this video is heading just to make sure this is the video you’re looking for.
Because there are so many possible things you could be looking for about Bitcoin and you may be somebody who is further along in the learning process and this may be very basic information for you. So I intend this to be a video for a complete beginner who does not understand Bitcoin and you’re looking to learn the basics and you’re also someone who might be interested in investing in this currency. So because I have an investing channel on YouTube that is who I’m gearing this video towards so I just kind of wanna point you guys in the direction of where I’m heading with this video. First of all we’re going to define what Bitcoin is as well as what cryptocurrencies are.
Then we’re going to talk about Bitcoin versus traditional Fiat currencies. Then we’re going to talk about why someone would use a digital currency or what the benefits are of the digital currency. Then we’re talking about what is a Fiat currency or our traditional government backed currency, we’re going to go into that.
How Bitcoin is used. The basics of Bitcoin mining. By no means am I an expert on Bitcoin or Bitcoin mining so we are not going to be going in depth about that but we’re gonna cover the basics that you should know if you’re someone who wants to invest in this currency. What determines the Bitcoin value? The concerns that people have or the main concerns people have about Bitcoin and then how to actually go about investing in Bitcoin. So guys, that’s where we’re headed with this video. I just wanted to make sure you are on the right video.
If you’re looking to learn those basics. But anyways, guys, let’s get right into it. So basically Bitcoin is a decentralized cryptocurrency payment network.
Bitcoin is the payment network, so when it has a capital B in front it’s referring to the actual network itself and when you see bitcoin with a lowercase B this is the actual unit of currency. So Bitcoin with a capital letter, that is the overall decentralized cryptocurrency payment network itself while the lowercase version is just one unit of this payment network or one unit of that currency.
Now a cryptocurrency is a digital currency where encryption techniques regulate degeneration of units of currency as well as verify the transactions. And we’re gonna get more into that transaction verification when we talk about the actual bitcoin mining process and how those transactions are verified, basically. The decentralized Bitcoin network operates independently from a central network or bank. So traditional currencies, they have a centralized network or bank that basically facilitates all of those transactions and the generation of currency as well.
So it is a centralized network and there are many advantages to having a decentralized network. First of all, with a decentralized network there’s a lower risk of having that network being compromised because it’s not centralized to one specific location. One common thing, and many of you may disagree with me on this but, the general population does not understand Bitcoin.
Most people just don’t understand it because it is confusing and at first I did not understand it. If you guys have been watching my channel for a while I’m sure you saw a video I did a couple weeks ago talking about Bitcoin and it was a very under researched video and I apologize about that because I really had no business making that video. And you guys did not hesitate to call me out on that so I apologize about that but this video is much better researched and I hope this is a much better quality video for you.
But the currency is used to purchase thousands of illegal items each day but unfortunately due to the use of this currency in the purchase of illegal goods and services, there’s kind of a stigma surrounding this currency, okay. So Bitcoins are the preferred currency of the deep web. The deep web is basically web pages that are not indexed by Google so if you went on there and you searched in Google how to buy marijuana.
You’re not gonna be linked to a webpage because they’re not going to index the pages of these illegal services being offered so in order to access the deep web you have to have a method of getting to it and most people used an anonymous web browser and you have to have the actual link to be able to get to these pages. Most people used to use the Silk Road Marketplace. I’m not sure if that is still around. Obviously I’ve never been on the deep web. I have no interest in going there. It’s kind of cool, though, if you guys wanna look up that on the internet or on some YouTube videos, it’s kind of cool to find out more about that deep web.
Well, people would use that Silk Road Marketplace as a way to buy illegal goods and services. But in order to access this you need to go onto the deep web and basically have links to get there. So if you go online on Google and search for illegal services and illegal things, obviously Google is not going to index these pages or direct you towards them because these are things that are illegal. So because Bitcoin is the preferred currency of the deep web due to its anonymity, it’s used to purchase illegal things like drugs, illegal firearms, forged documents and even hitman services.
I’m not kidding you guys, you can go on the deep web and basically buy a service to have someone killed. It’s very scary stuff that nobody should be involved with but this is one reason that people are concerned about Bitcoin. And the truth is, guys, just as many people purchase illegal services with regular Fiat currency. So this is no reason to be concerned with Bitcoin. Just because it’s used to purchase illegal services and goods, there’s plenty of people doing that with regular US dollars and regular currencies every single day.
So that’s not any reason to avoid Bitcoin. So a little more information about that Silk Road Marketplace. This was basically the online black market. Part of the deep web, like we said, you have to have specific links to access it, you would browse securely and anonymously without traffic monitoring.
Most people would use the Tor web browser for to basically mask their IP address and then you would purchase illegal goods and services with a bitcoin for full anonymity. So at that point, you are browsing anonymously and then purchasing with bitcoin to purchase anonymously that way that transaction or that purchase can never be linked back to you.
So that is the basics of Bitcoin, basically how people have used Bitcoin and the main reason people have concerns with it which is the fact that it has been used in the past and still is used today in the purchase of illegal goods and services but like we said, plenty of people are doing that with regular currency so I personally don’t see that as a concern. Now I want to explain the major reason that people like Bitcoin and that is the fact that Bitcoin is a finite resource.
And what I mean by this is there’s only so much of it out there and we’re gonna go into that with this video and explain why that is. But the thing is with traditional Fiat currencies like US dollars, we can just print more money when we decide that we wanna print more money, they can just go ahead and say okay, we’re going to increase the supply of US dollars. US dollars are backed by a government. They’re not backed by anything physical.
Now Bitcoin is backed by the physical Bitcoins themselves. It’s not a physical thing, but it is a digital currency so it is backed by something and there is a finite number of bitcoins that exist. And a certain number are mined each day. And that number is decreasing as we go forward. We’re gonna explain that more as we go along here. But unlike Fiat currencies, Bitcoin is a finite resource. It’s most similar to commodities like silver or gold. We cannot make more gold, silver or bitcoin. There is a set number that exists, you can’t just go out there and decide okay, we’re gonna make more gold, we’re gonna make more silver.
With traditional Fiat currencies you can say, absolutely, I’m gonna make more US dollars. But you can’t go out there and make more bitcoins, that is why many people like the principle of this currency. Now 21 million is the maximum number of Bitcoins that will ever exist. This is basically set up in the algorithm of Bitcoin. And the final bitcoin will be mined in the year 2140. So the last bitcoin will be mined that year and for those of you who are wondering because right now roughly 16.5 million of those 21 million bitcoins have been mined.
So at that rate it seems like we would hit that, the last final bitcoin being mined, a lot sooner. But the thing is there is a block reward having frequency. Every four years, the actual reward diminishes by 50% so over time you’re going to see less and less bitcoins being given out as far as a token for facilitating that mining and you know, taking care of those transactions. So that is why that decay ratio leads it to the point where we’re not gonna see that final bitcoin, the 21 millionth bitcoin being mined, until the year 2140.
Like I said, roughly 16.5 million bitcoins have been mined so far at an average rate, right now, due to that halving frequency of 1800 bitcoins being added each day. That’s basically what the miners are given for mining those bitcoins. It’s their reward for facilitating this whole network and these transactions. Now what’s interesting is that most of the currency is inactive, sitting in Bitcoin wallets. So while most currency is being used in the purchase of goods, most people use US dollars to buy things, most people that have Bitcoin are not using it.
They’re just sitting on it because they are hoping it appreciates in value which it has significantly. So most people who have Bitcoin are not using it to buy goods, they’re not using it to go out there and buy things like coffee or go travel and to pay for things, they’re using Bitcoin mostly just to sit on it and hope it appreciates in value. Okay, so why would someone use a digital currency like Bitcoin?
There’s a couple of reasons here that support the use of digital currency. Number one is the fact that there is no central authority because there’s no government backing this currency. That is why many call Bitcoin the currency of the people because it is the people involved in a network who ultimately control the currency. Number two is basically the same reason. It’s kind of similar, pretty much, freedom from a government and the rules are set by the people. So those very much tie in together.
The central authority also has to do with the fact that this is a decentralized network. There is no central bank or authority that facilitates all these transactions. It is a network controlled and operated by the people. Number three, there are no political issues sending money. So if you’re sending money to people from other countries, you don’t have to worry about political issues like any kind of control or confiscation of money.
You can send money to someone else in another country and the government has no right to step in or get involved because they have nothing to do with this currency. It is the currency of the people. Number four, no bank account is needed. This is a plus for some and a minus for others because people who are concerned about the security of the Bitcoin network as far as not having any bank account needed, there’s no real verification as far as opening a Bitcoin wallet. So that does make it an anonymous currency which is a concern for some people. But for other people that is the reason they like Bitcoin is for the anonymity so that’s one that people will go either way on.
Number five, it is cheaper to send money, it’s faster and it’s safer because of this decentralized network that validates all these transactions. Number six is the fact that the physical Bitcoin currency, there is a limited supply out there. We already talked about how Bitcoin is very similar, if not pretty much the same as a commodity money. Actually we’re gonna talk about that. I got ahead of myself here.
We’re gonna talk about commodity money here in a second. Number seven is a good one, too. There’s no risk of counterfeit money. There’s no such thing as a counterfeit bitcoin and it can never exist. First of all, because it is non-physical. Physical bitcoins are not real.
There’s no such thing as a physical bitcoin. It’s a non-physical digital currency. And as a result, every single bitcoin out there has a detailed history so it would be absolutely impossible to counterfeit this money. So now let’s talk about a Fiat currency which is the currency we are familiar with today. Basically this is legal tender who’s value is backed by the issuing government. So nothing backs this currency, nothing holds the value of this currency other than the strength of the government backing that currency.
Now US dollars, the Euro and many other world currencies are what you call Fiat money. Money backed by a government. Fiat currencies can be inflated or deflated based on the supply. So that is the big difference between Bitcoin and Fiat money is the fact that if the United States wants they can print more money and increase the supply to adjust the actual value of that currency.
Now you cannot make more Bitcoin as we already talked about, the network is set up in a way that there’s only ever going to be 21 million bitcoins with a controlled supply entering the market. You cannot simply make more bitcoins, it doesn’t work that way. So that is the big difference is the fact that Fiat currencies, nothing is preventing the government from just printing more money. They can just make more of it and basically deflate the value through more supply on the market. Fiat money is not backed by a commodity.
Like I said, it’s just backed by the issuing government. Now commodity money is what we used many, many years ago, this is basically money where the value comes from what it is physically made of. So think of silver or gold coins that you may still have. I actually have a collection of a bunch of silver coins or junk silver just ’cause I was collecting coins at one point but those coins that were physically made of silver, that is commodity money because the value is in what the actual money is made of. Or what the money is backed by.
So when we were on the gold standard, that was commodity money because our dollars were backed by gold. So in theory, you could have cashed in your dollars and gotten the equivalent amount back in gold. That is what you call a commodity money or a backed currency.
Now Fiat money is not backed by anything. It is backed by a government alone. Now that is why you can’t make more commodity money, either, because there’s a finite amount of it that exists. So if our dollars were backed by gold we would have to have the equivalent amount of gold in reserve in order to issue more currency.
Or if our money was physically made of gold or silver you obviously have to have that gold or silver in order to make more of that currency. So US dollar and other Fiat money is called free floating because it’s not being backed by anything. It’s just out there floating in the air. The only reason it has value is because we give it value and the government basically gives it a value and we all agree, okay, yes, this has value.
This holds value. It’s backed by the strength of our government while Bitcoin is backed by commodity money. It’s backed by the physical bitcoins themselves and the fact that there is a finite number of these bitcoins out there that exist. So how is Bitcoin traded or basically how do you use bitcoin if you have it?
Well, if you’re looking to send money to someone, you would basically send bitcoin from one digital wallet to another in a peer to peer network. Now if you are looking to invest in bitcoin and that’s the last thing we’re gonna talk about in this video is two ways to invest. It’s very easy to invest in Bitcoin, not much to it. But bitcoin exchanges allow the coins to be bought and sold on the open market, similar to a stock exchange.
It’s the same exact kind of deal where you’re exchanging bitcoins with other buyers and sellers. And the actual Bitcoin exchange charges a fee for facilitating that transaction. Now you can also, if you find a bitcoin ATM which these do exist out there, I’ve never seen one. But you can go to a Bitcoin ATM and trade Fiat currency for the equivalent Bitcoin at whatever the Bitcoin to that currency value is at that time, whatever that exchange rate is. Now bitcoins can be used to purchase things as the currency is infinitely divisible.
So you can have .00001 bitcoins and whatever that would be worth in US dollars you can divide that as many times as you want because it’s a digital currency, it’s a non-physical good. That’s one of the downsides of a physical commodity money is it’s really hard to cut a gold coin in half or to cut a little chunk of silver off there. You cannot divide it. So that’s one of the advantages of having a divisible currency is you can divide it up into as many chunks as you want but obviously if everything, let’s say everything went to shit and we’re back using gold and silver to pay for things and you had a gold bar and you’re trying to buy a loaf of bread, what are you gonna do?
Flake off a little piece of gold to buy that bread? That’s the advantage of bitcoin is the fact that it’s infinitely divisible. Now what’s also interesting is that every transaction, any of the things listed above here, this is recorded on the block chain. Now think of the block chain as the public record.
And every single person involved in this network has to be in consensus on that public record so they all have to verify the transactions against that public record and decide, okay, yes, this is legitimate. Or okay, no, this is not legitimate. That’s gonna make a little more sense right now. Let’s talk about the basics of bitcoin mining. And guys, this is where I’m going to be honest. This is not my area of expertise. This is the very basics of it. If you wanna learn more about it I’m sure you can find so much more information about bitcoin mining but I just wanted to explain the bare bones essentials as far as what you would need to know.
So basically bitcoin miners which are the people out there who actually buy the equipment, buy the computers and mine these bitcoins, what they’re doing is solving complex math problems and puzzles and in exchange for them doing that, what they’re basically doing is validating and facilitating all these transactions in this network and basically in exchange for doing that, they are issued bitcoins. Now they’re not issued whole bitcoins, they’re issued fractions of bitcoins because it’s divisible. Now mining is intentionally difficult and resource intensive because they want this to be something that people have a difficult time doing so that way not one person can control the whole network and get all those bitcoins. It’s intentionally difficult and resource intensive.
That’s why you need very sophisticated and advanced computer equipment in order to be a bitcoin miner. You can’t just take your laptop out or your regular desktop computer from your house and start mining bitcoins. You have to actually build or purchase machines built for bitcoin mining that are built to handle those resource intensive math problems and sophisticated loads. Now this creates an incentive for the actual bitcoin mining which remember, is how these transactions are facilitated and you also need miners all over the world in order for this to be a decentralized network.
If one group of people did all the bitcoin mining that would be a centralized network because it’s all happening at one location. So they want this to be a distributed network all over the world and they want many miners involved in the operation. So this is a perfect way to do this is by giving them a small amount of money or a small amount of bitcoin for facilitating those transactions on a distributed network and this is also a smart way of circulating the new currency because everybody’s handed a small amount of the money, it’s a good way to put those new bitcoins that are being mined into circulation. Now the bitcoin miners validate transactions keeping the Bitcoin network secure.
That’s essentially what their job is as a bitcoin miner. And any transactions are added to that block chain or think of that, again, as just a public record for consensus. Now the block chain basically allows miners to separate legitimate transactions from things like re-spend attempts. So let’s say you already spent all the bitcoin in your wallet and you tried to re-spend that money.
That transaction will not be validated because the miners will look at that block chain and go wait a second, no, you spent that money. Here’s the record of this transaction. And it would be looked at as an illegitimate transaction. That is essentially what the bitcoin miners do. That is how they spread the new currency out and that is what makes this a decentralized network. So now here’s a big question many, many people have.
What actually determines the value of Bitcoin? So if you go onto a bitcoin price chart and you see what US dollars would get you in terms of bitcoin and you see how that price changes all the time, you may be asking yourself how is that value determined? And the truth is there are five main factors that contribute to the value of Bitcoin at any given time. Number one is the fact that there is a finite supply on the market. So right now there are roughly 16.5 million, I think we’re just shy of 16.5 million bitcoins on the market.
Secondly is the fact that there is a fixed number of bitcoins being added to the market each day. That would be 1800 per day. Number three is the fact that there is a finite number of this resource that exists which is 21 million bitcoins. There will never be anymore than 21 million based on the algorithm. Number four is a big one, too. This is the slowing supply going to the market and like I said, guys, this has to do with the block reward having frequency.
So like I said before, every four years the amount that you get as far as a bitcoin miner, your reward for mining decays by 50%. That is why the majority of the bitcoins have already been mined but we’re only going to see that final bitcoin, that 21 millionth bitcoin, mined in the year 2140.
That’s a long time from now and I know if you’re sitting here saying to yourself, wait a second, 1800 bitcoins a day, we only have 21 million total, we’ll hit that a lot sooner than 2140. But you have to remember that every four years, your reward for being a bitcoin miner decays by 50%. So I drew a very basic example here of what this would look like, what a decay ratio would look like for this. This isn’t the actual point that we’re at now.
But if you start up here at the full amount here then you went down 50% after four years and then another four years, another 50%, you can see how that exponential curve gets lower and lower to the point where you’re almost touching that bottom line. To the point where bitcoin miners are getting very little reward for actually facilitating those transactions. And that is why there is a slowing supply of bitcoins going to the market, it’s because that block reward having frequency. And number five, the main factor is just supply and demand.
The market supply versus the market demand. So are more people looking to buy bitcoin than sell it or are more people looking to sell it than buy it? It’s just like a stock. If you guys are familiar with investing in stocks I’m sure you’ll understand the basic principle of supply and demand. While the underlying value of something doesn’t change, the price changes frequently. When there’s a demand for that stock or whatever it is, when there’s a demand for bitcoin and people wanna buy it and there’s not as many people selling it, it’s going to drive the price higher.
When there is a low demand or there is a large supply going to the market, it’s going to drive the price lower because more people are looking to sell then they are looking to buy. So most of you guys, it comes down to the principles of supply and demand. And the fact that this is a finite currency.
There’s a fixed number of bitcoins that exist. That is really what determines the value of bitcoin and that is why so many people are utterly fascinated by Bitcoin and why a lot of people are buying and holding Bitcoin as an investment. Now I’m not saying I recommend you guys do this, personally, I’m not invested in Bitcoin. But I just wanted to share you guys, share this information with you guys in case you were looking to invest in Bitcoin.
Do your own research and make your own investing decisions but there are a few major concerns with Bitcoin and I’m not saying that this is how I feel. I’m saying that if you look at both sides of the table, these are the concerns people have with Bitcoin. Number one is the lack of regulation and the anonymity.
The argument is that because Bitcoin is largely used on the deep web and as a black market currency, there’s concern that if there are enough people using it for things like buying illegal firearms, and I know I said before, people use Fiat currency to do this all the time. But it seems like Bitcoin they have a target on their back just because of the media. They get ahold of it and they start talking about how Bitcoin is being used for illegal activities. If enough of this is going on, what if our government steps in and forces regulation on this.
At that point, what if there is not the same amount of anonymity? That could defeat the whole purpose of Bitcoin and the underlying value of these bitcoins could plummet as a result. This is just an argument people have had. Not my personal opinion.
Number two, does this abrupt appreciation in Bitcoin value indicate a speculative bubble? So for those of you who are familiar with the dotcom bubble, when everyone was buying internet stocks left and right and they were just flying sky high in value and then we reached a tipping point where the value was being propped up on stilts and speculation, and there was nothing backing that value, prices plummeted at that point.
There’s a lot of people who are worried that the value of Bitcoin has appreciated so rapidly that we’ve reached the speculative bubble status to the point where this is a bubble that at some point is going to burst and people are going to lose a lot of money. This is just another argument people have or are concerned with Bitcoin is it really did appreciate in value at a staggering rate. Number three is the fact that Bitcoin really is not a functional currency. And what I mean by this, before you jump down my throat here, is the fact that Bitcoin, the value is so volatile, there’s no way to ever say okay, if you go to Starbucks, a Starbucks cup of coffee is going to cost you .0001 bitcoin and I don’t know the value so I have no idea if that price makes sense.
But because bitcoin is so volatile you’ll see multiple percentage price swings per day, there’s no way to set a value of something, a physical good, in Bitcoin, because it fluctuates so frequently. So you would have to consider what that good costs in a Fiat currency and then what the Bitcoin is valued at based on that Fiat currency, and then basically use that method to be able to buy something.
But a clothing store or a coffee shop could never say oh, a coffee is exactly this amount of money because the Bitcoin value fluctuates so frequently and it’s very volatile compared to looking at the value of other Fiat currencies. It has drastic price swings. So unless it ever balances out, it can never really be used as a functional currency as we use Fiat currency today. So the last thing I’m gonna cover is how to invest in Bitcoin. It’s very simple.
All you have to do is physically buy the coins. I know a lot of people have seen like Bitcoin exchanges. I know there is a exchange traded fund on the stock exchange where you can actually invest in a fund that owns Bitcoins, I would not recommend that and I talked about this in the last video I did which I deleted because it was not a good video. But basically the issue with that is the fact that there’s such a demand for this exchange traded fund that people are paying almost twice, if not two times the value of the underlying bitcoins to get exposure to them through that exchange traded fund so if a bitcoin was $2,000, you would have to spend or pay $4,000 worth of shares of this ETF in order to get exposure to $2,000 worth of bitcoin.
So that’s just insane especially because it’s so easy to actually buy physical bitcoins. So if you are someone who wants to invest in Bitcoin, you’ve done your research, you’ve decided this is for me, two ways to do it. Number one is a Bitcoin buy/sell marketplace. And the one people use is Coinbase.
This is, the only problem with this is the fact that they don’t actually hold the coins themselves. They basically source the coins when you go to buy them so if you wanna buy bitcoins you have to go on Coinbase and basically order those coins and they’re going to source them from a seller. So the issue with that is during drastic price moves, there’s low liquidity. So let’s say the bitcoin was way up in value and you said oh my gosh, I want to, I know most people would say buy, so if you were looking to sell when it was way up in value you probably wouldn’t have an issue.
If you were looking to buy when it’s way up in value, which is a bad strategy, if you were looking to do that, you might have issues with Coinbase because they have to source those coins and if there are thousands of people trying to buy them at once, they may not be able to source those coins. Or, if Bitcoins fall drastically in value and people are still doing the wrong thing, selling while they’re down in value, there may be so many people trying to sell them at once that there is a bottleneck and there is poor liquidity.
If you’re somebody that’s trying to buy bitcoins, I would recommend using Coinbase because you’re just buying them and holding them. But if you’re looking to trade in and out of Bitcoins and trade the price swings, you wanna use a Bitcoin exchange where basically you’re buying and selling to other bitcoin buyers and sellers and the exchange, essentially, just facilitates those transactions for a fee. So that way you’ll have much higher liquidity, and you can pretty much buy and sell as you need to without worrying about having issues with order fulfillment.
Anyways, guys, that’s pretty much it. That’s Bitcoin for Beginners. If you guys enjoyed this video please take a second to drop a like below and if you have any friends or family members or people you know who are looking to more about Bitcoin, please do not hesitate to share this video with them. If you are new to my channel please consider subscribing to be notified of any future uploads and as always, I thank you for taking the time to watch this video.