(classical music)
- Hi, I'm Jonathan, this is Brain Stuff
and I've got some bad news for you.
Money is imaginary.
Now I don't mean that this printed piece of paper
is make believe.
I can feel its texture and the ink even smudges off
on my fingers, but when you compare it to this other
piece of paper, what's really the difference?
Well one is a recognized currency
and the other isn't.
And the reason why?
Well people agree that this piece of paper is a dollar
and has value.
That's where money's worth comes from.
We all pretend it's a currency.
This is one reason why the digital currency Bitcoin
appeals to some people.
See it's not tied to any political system
or government so it's not vulnerable to any of
their failings like the economic collapse in 2008.
All it needs is for people to believe in it,
but lately well, some people are having a crisis
of faith.
That's why today on Brain Stuff we're going
to quickly establish some facts about Bitcoin
to better inform your beliefs about it.
Now basically it's virtual money you can use
to buy and sell things online and it mimics real world
limited resources like gold for instance.
It's also a cryptocurrency meaning that it's encrypted
in a way that prevents it from being copied.
See every Bitcoin transaction is recorded
using a block chain.
Now that information acts like a ledger
that is encoded onto the Bitcoin itself.
This prevents people from spending the same Bitcoin
more than once since everyone else on the currency's
peer to peer network knows that it just was spent.
It's essentially just a number associated
with an internet address.
You can store it on your phone
or a hard drive until it's used again.
Now, here's some ways you could acquire Bitcoins.
Accept them as payment for goods and services,
exchange them for a more traditional form of currency,
or you can mine them.
That's right, like gold Bitcoins are mined.
Not by old timing, grizzled prospectors,
but by powerful computers and like gold
the more people mine Bitcoins, the less there are
to be found, so they become harder to find.
So instead of physically mining with a pick ax
you can attempt to solve math problems
with a computer.
Imagine the problem is something like x + y = 15.
Now if you can figure out what x and y are, congratulations,
you get a bitcoin.
With little competition the problems are easier to solve
but when more people join the search you've got a race
and the problems get way more difficult,
but as Bitcoin miners dwindle, the math problems will
get easier again to ensure the flow is steady,
their value is boosted, and they remain inflation proof.
Not all have been mined yet and we expect they won't be
until around 2140.
So let's say you heard all this and thought
you know I want to grow up to be a professional Bitcoin
miner and trader.
Well there are a few risks you should probably know
about first.
For instance, because there's no regulatory agency
setting Bitcoin's value it tends to fluctuate wildly.
Another Bitcoin problem is security.
Now actually the format itself is fine,
but that doesn't protect it from hackers who target
the banks and exchanges that deal in Bitcoins.
Again, this isn't the fault of the currency.
If a bank were robbed, you wouldn't blame the dollar bill
for getting stolen right?
So Bitcoin has its slumps and for it to become
widely used its volatility needs to settle down
quite a bit.
It's currently a high risk currency
that's totally unpredictable and we didn't even
get into the mysterious identity of Bitcoin's founder
Satoshi Nakamoto.
Now personally I think the biggest drawback to Bitcoin
is that you just can't make it rain..
If you have experiences with Bitcoin,
let us know in the comments below.
And let us know if there are any topics you'd like us
to cover.
I actually have another pile of them right over there.
Really, I mean it's just offscreen.
So, the best part about this is I don't even have
to pick it up.
We have interns to do that.
See you guys later.