Satoshi Nakamoto. They proposed a system of electronic cash, but with unique properties that had never been seen before. A system that is decentralized, meaning no one is in control. A system certain mathematical properties which enable a phenomenon called digital scarcity, meaning you can have something that is simultaneously digital and yet rare. It cannot be copied, which seems like an antithesis.
The quintessential characteristic of digital information is that it can be freely copied you can create infinite copies of it at almost zero cost. But you cant create infinite copies of bitcoin at zero cost. This idea of having a digital thing that is rare and cannot be copied, was a unique and revolutionary invention, not happened before . A decentralized peertopeer network that participants in the currency to validate . If I make a transaction, everyone who is running a Bitcoin will validate it, checking every aspect of my transaction. an open system for securing and sequencing transactions that ensures. no one can spend the same twice, solving a fundamental problem in distributed systems known. as the Byzantine Generals Problem.
The basic idea is: how do you know if I spent digital money ? If I give it to one merchant, what stops me from taking the same digital, walking across the street, and giving it to another merchant? Until the invention of Bitcoin, there was only one suitable answer: a central authority records all the transactions. When that central authority sees the first transaction, it will not allow a second transaction . That works, it is very efficient.
Visa does it. If you buy something for 10 in one shop with a Visa, then go across the street. and buy something else for 10, they will make sure you have at least 20 in your account to pay for it. They wont let you spend the same money twice, they wont let you spend more than you have, or more than your credit allows. Thats great. Those systems work.
They are efficient and can do hundreds of thousands of transactions per second. But there is one problem: you are trusting that organization or company . You are not just putting trust in that company to do it right, because they do a pretty good job. With that trust comes enormous power: the power to refuse to take your transaction the power to refuse to give you an account the power to refuse your participation in. this economic activity the power to demand that you identify yourself, show papers, prove creditworthiness. That is something which is different from all systems of money weve had before.
I can use cash without showing papers, without proving creditworthiness. I dont have an intermediary, pay a transaction fee, or need special equipment. I can just transact directly, persontoperson.
When you introduce this thirdparty company, you have a problem. Lets say I have a Visa card in my back pocket. I want to give one of you 10. Who in this crowd can process my Visa card today?
Can anyone take a Visa card from me? Not in your business, but in your personal capacity. Who accepts Visa here? No one, not a single person. Because about people paying people, its people paying companies. to pay companies to maybe pay people.
Bitcoin is peertopeer. Our financial systems have become peerto corporationtocorporationtocorporationtopeer. Everybody takes a little cut, everybody their own power in the system.
They take great advantage of that. What is the end result? Billions of people who have no access to the banking system billions of people who will never have a bank account. Many of them dont have, and even if they did, still lack the necessary education, literacy and numeracy, to walk into a bank.
Or they look wrong, because they are from the wrong race, caste, or religion. The untouchables cant walk into a bank they will be kicked out by security before they reach the teller. This happens all across the world, a direct result of the fact that we have centralized our money.
Bitcoin is different. It allows us to use digital money like cash. By the end of today, everyone in this room will be able to accept bitcoin, directly under their own control, with software running on their smartphone. At that point, I can pay you or you can pay me. We can commerce on a local level, as a community, without involving any thirdparty intermediary or corporation that has power over us.
Without the requirement to present, without the requirement that you are creditworthy. You fulfill humanworthiness. In fact, Bitcoin doesnt even require that.
You dont need to be human autonomous software can use bitcoin on its own, without humans involved. The invention in 2009 launched a completely new era. It is not just a weird form of PayPal.
This isnt just a new system of payment. Bitcoin takes an obscure branch of mathematics called cryptography, the art of secret writing using math, is then applied to the domain of establishing trust between participants in a system, without giving any one control over the system. This unique property is what makes Bitcoin special.
You can send money to someone else without knowing them, without to trust them or anybody. You can trust that the mathematical rules in the system guarantee that money you receive is real, unforgeable, and spendable as soon as it clears in about ten minutes by you in another payment. You dont need to know the person who gave it to you.
In modern finance, that seems weird. And yet we do it every day with cash. If I tip my taxi driver with a 2, 000 rupee note, do they need my ? Do they need to process a transaction? Do they need to pay a transaction fee? No.
Cash is a representation of value. verify that it is, the person who receives it hold it up to the light, look for a watermark. They can do that on their own, they dont to call someone and serial number 1323532 is a real one. You dont need to check with a thirdparty or central authority.
You can verify with your own eyes that it is real money. Bitcoin translates that into the digital domain. If you receive a bitcoin transaction, the software you run can independently verify that it is real, without asking anyone else., the identity of the person who sent it to you is irrelevant.
The value is there. You dont need to trust them. That is revolutionary in a way weve seen once before at least in my generation: the introduction of the internet. Many people who up with the internet still fundamentally misunderstand why it is special. They look at the internet and see it as a publishing, a system of content.
But we had publishing before the internet, we had digital publishing before the internet. We had ways to disseminate content before the internet. What was different about the internet?
For the first time ever, it enabled a global free flow of information, almost everywhere on Earth, to anyone who had the technical capability to connect. As long as you have the technical capability, the internet doesnt care who you are, how old you are, whether you are a human or a software agent. what race, religion, or gender you are. the power of the free flow of information without restriction. That is the magic of the internet, the transformative power of that technology: the free flow of information. To many people, this idea is terrifying, that anyone can say anything, read anything, speak about anything. Without control, without a license, qualification, diploma, certificate, or even an identity.
Without censorship. terrifying. For my generation and generations that follow, it is not only liberating, it normal. It is the way things have always been and it is the way things should be. Bitcoin creates the exact same circumstances, for the first time, in the category of money. It enables the free flow of money, the free flow of trust, across the world to anyone, simply through their choice to participate by downloading an application.
The free flow of money, the free flow of value, the free association of trust that is what its about. It is not an investment scheme. It is not just a payment network or a weird version of PayPal.
It adds the free flow of money to the other freedoms the internet already gives us. I guarantee you this is a terrifying idea to many, that anyone can send money to anyone. without asking for permission, without control, censorship, or identity, is terrifying. My generation finds it liberating. The generation after mine sees it as normal.
They will never know a world in which you cannot send money anywhere to anyone a world in which money only works from Monday to Friday, nine to five a world in which the privilege of having a bank account costs you a monthly fee, for other people to store your money a world in which some destinations are prohibited a world in which, in order to open a bank account, you be sixteen years old. seem like bizarre ideas. Get ready for a world in which sixyearolds have bitcoin wallets. Ive met them.
They love the fact that they can now buy things on the internet. Parents will find that terrifying, but they will see it as normal. Ten years, they will walk into a bank because Grandma wants to give them a savings account. They will have a conversation with a banker, which will seem as bizarre as talking to an 18th century privateer.
In order to open an account, they need to present all kinds of documentation and paperwork, a process that will take an hour. Afterwards, they have limited access for a high fee, only during working hours Monday to Friday, nine to five. account can only use one currency and only send to certain destinations, most of which are corporations. An account they cant use to send money to their friends or to buy things over the internet.
They will look at that and say, My grandparents are crazy. Why would they use this? It is broken! It is almost as bizarre as when they asked me to send a fax. I dont understand it.
This is the world we created. This . The people who are afraid of this idea dont really realize that . We live in a new world. There are two ways we can adjust: pretend it is not happening, or accept it and adapt to the new world. We now live in a world where you can send value anywhere, to anyone, at any time, without restriction.
We can embrace that or pretend its not happening. In my previous talk, I used an analogy that I think worked quite well. If you turn on the and the weatherman there will be a rainstorm this afternoon, but that doesnt suit your plans because birthday party, you can turn off the . If youre powerful, maybe you can complain to the news station and the weatherperson., it will still rain . Governments are looking at Bitcoin and the first questions which come to their minds are: How do we control it?
How do we change it? How do we stop it? How do we enforce our authority, our legal purview?
They look at it, but dont understand the basic concepts. They ask questions like, Who is in charge? Who controls this?
The answer is not satisfactory. No one controls this. No one is in charge.
Or you can go for the more sophisticated approach: Well, its based on an openaccess model, with marketbased competition through risk and reward, based on game theoretical outcomes that ensure collaborative participation by multiple participants without anybody having the ability to cheat, due to a system of emergent consensus. based on mathematical rules and strong cryptography. To which they respond, Yes, yes. but who is in charge? Who is in control? Ive had people come up to me after meetings and say, Okay, I wont tell anyone.
This is just us. Who is in charge? They think Im joking or trying to massage the information. It bizarre to say, Here is a system of trust without authority, without a center.
A system without hierarchy, without control. Why? Because weve never had any of those things . Every system of trust weve ever had in our society is based on the exact same model: a 19thcentury hierarchical organisation that is the outcome of the industrial era, a bureaucracy based on internal processes, rules, and oversight in layers. ultimate authority vested in someone elected through democracy or perhaps who is not.
Maybe its hereditary, maybe its dictatorial, but you can always point . You just let your eyes follow to the top, usually there is at the top. In some cases, that person is an actor, with a whole shadowy group playing the puppet strings, but nevertheless authority is vested in that person. Then you look at Bitcoin, and it is a flat system. There are a few people who seem to have special roles.
You, Maybe those people are in control. Is it the miners or the developers? One of the nodes? Then you noticed that these people alone cant actually do anything . The funny thing is, when people look at Bitcoin, they see its greatest strengths as flaws. which is new technology.
They look at Bitcoin and say, The miners and developers cant even agree on how to scale the system! Why doesnt one of the groups just say, This is how we will do it? Because that is not Bitcoin. that ability. It is a system of adversarial competition with market forces.
We are in deadlock because consensus overrides personal ambition, popularity, and everything else. They look at Bitcoin and say, You keep squabbling, you cant make a decision. Yes, by design. That is a feature, not a bug. They look at Bitcoin and say, But you cant reverse a transaction!
That is a problem! That is a bug! How can you do that? What if something goes wrong? Who do I call to reverse it?
Feature, not bug. Bitcoin guarantees the execution of scripts you put into it. If you put the script that says, Here is one bitcoin. Now I hope you send me that television I ordered.
That is the script be irreversible and guaranteed by the network. It is not a very good script, because they may not send the television. There is no one who can make that bitcoin come back to you, other than the, once youve sent it. That is one form of irreversible promise.
Of course, that is not the only promise the network can guarantee. I can say, Here is one bitcoin. It is currently locked in a multisignature address for the next thirty days. After thirty days, if there is no dispute, it will automatically transfer to you upon verification. by a trustworthy thirdparty who I have chosen. I can introduce third parties if I want to, I dont need to . I can introduce reversibility if I want to, but that script are still irreversible.
I can choose who my escrow agent is I can choose who does dispute resolution. I can the feature of irreversibility, but I can soften that promise to apply consumer protection through programmable money. It is a feature, not a bug.
Bitcoin is this strange being, it really is. It violates everything we think we know about money. It forces us to consider whether we actually understood money in the first place. Do you remember when you were in school and did that class about basic economics and money? No?
You neither? We didnt do it either. You would think that one of the worlds most ancient technologies, one of the resounding artefacts of human civilization currency, the basis of trade that dominates our lives would be an important topic at school. Not one day.
Maybe, in some places, you did a brief course in home economics or history, that gave you this vague idea about money that you really didnt understand. Most of us cannot hold a fifteenminute conversation with a sixyearold about money. The sixyearold has good questions and we have no answers.
How does money work, Mommy? Well, the correct answer is: I dont have a freaking clue, kid. I think it has something to do with the allocation of special drawing rights. through the International Monetary Fund and World Bank, in a freefloating system. compete through trade balances across an international spectrum. of inflationadjusted exchange rates.
These can be used to create local debt issued by the Treasury, in return for currency. printed by the central bank, then distributed to banks that use a system of. partial reserve leverage at approximately 10to1, and dispersed into the economy. This creates either inflationary or deflationary effects, allowing us to experience the velocity of money. through the exchange of an abstract token that represents the promise of future value, but is depreciated by the rate of inflation and adjusted for the return on investment. So why cant we have more of it, Mommy?
Why cant we just give everybody more of it? That conversation doesnt go that way. Usually, it ends with: Eat your breakfast or Go to bed! Clean your room.
One day, youll understand. And that is the first lie, because you still dont understand. If you ask the average person on the street, what gives value to money, they have no idea!
They have a theory, a fairytale, a story which is about as naïve as believing that children come from storks, delivered in bundles dropped through the chimney. is about as solid as Santa Claus. What gives money value? It says right there, on the piece of paper, : By the full faith and credit of the Royal Bank of India. By the full faith and credit of the Federal Reserve. It says, one note applies to all debt, public and private.
This is what gives it value: a promise. But most people have no idea how that works. I guarantee that if you ask the average person the street, they will tell you the reason money has value. is because there is a cave, vault, or box somewhere the governments gold, in direct proportion to the money that circulates. This has not been true since the 1930s, anywhere in the world.
Yet that is the Santa Claus fantasy many people believe. Or they believe the government guarantees the value of money somehow, which then. other interesting questions: why does inflation happen? Why is the currency collapsing in Zimbabwe?
Did the government not try hard enough to guarantee it? That is the inconvenient truth at the core of the worlds most ancient technology, money. We dont understand it.
We simply dont. The truth is: you give money value. Why? You are participating in a shared hallucination, with 1.5 billion other people, in which you firmly believe that this money will still have value tomorrow that if you go to the store and present one of these colored pieces of paper, someone will give eggs, chicken, spices, water, sugar, salt, housing, healthcare, etc. Something for this colored piece of paper.
It takes an incredible hallucination for us to believe this, because the paper itself is worthless. It pretty, but it is not pretty at that level. Nobody gives you products or services because of how pretty it is.
That shared hallucination took hundreds of years to be established, starting in the late 15th century. with the introduction of paper money, gold certificates, IOUs, certificates of exchange, bearer notes, etc. pieces of paper that could be exchanged for something else, . In the most amazing magical trick, they switched the cups around, you lift the cup, and ball isnt there. What? This was supposed to be redeemable for an ounce of gold, a pound of silver, something! Nope, not anymore. It is just a piece of paper.
What gives it value is your belief that, if you go to the store tomorrow, you can buy something. The moment that belief suffers a crack, it shatters, and you have very big problems. Imagine some crazy scenario where the promise of the full faith and credit turns into an announcement.
As of four hours from now, these two pieces of colored paper have zero value. I mean, that couldnt possibly happen. Here is the interesting : if the value was based on the promise, that promise is broken, and the people who gave that promise now tell you this has zero value in four hours, what is the value of that piece of paper? Zero, right? But that is not what happened at all.
For months after that announcement, the paper was valued less 10, 15, 20 less, but it still had value. Even though told you it was, you could still exchange it at 80 face value. in one of the many locations where corruption no longer exists, you cant exchange money here. You know that story, unless of course you are connected and wealthy enough to afford the 20 depreciation. It still only depreciated by 20. I bet you could still find some in circulation today.
I bet they still dont have a value of zero. In fact, we rarely find currency in history that goes to zero. I can go to Rome in Italy and silver coins the face of Julius Caesar on them have not been in circulation for almost one thousand years, and yet their value is not zero. In fact, their value exceeds their worth in silver.
They are still a tradeable abstraction of value. Your money did not go to zero because its value was not the promise its value was that illusion. That illusion was shaken, but not destroyed. You panicked at first, thinking, This has zero value! Then someone says to you, Dont worry, I know this guy who knows a guy, who it at 80 . Now it has just depreciated . You give it value through your use you give it value by believing in that promise.
In order for that promise to hold, it some other characteristics. It be unforgeable if it can be forged, then you an emerging phenomenon. known in economics as Greshams Law, where bad money chases out good money. If you get your hands on the good money, you do not spend it. You stuff it under the mattress.
Sound familiar? It happened here. If you have an old note and a new note, there is no way you will spend the new note. until you are rid of all the old notes.
The new notes disappear from circulation, their velocity goes as people trade old notes. If they trade the old note, then it is in circulation. The longer it remains in circulation, the longer people hold on to it and hoard the new ones.
Greshams Law in action. I did not believe that I would see that in my lifetime. Thank you, India, for validating my economics professor by demonstrating the Law with 1.5 billion people. sucked painful, but nevertheless had very interesting economics. Money be unforgeable and portable.
Why did you not pay with gold at the door? Im sure accept gold I certainly would. The reason you dont pay with gold is because gold sucks as money.
It sucks as money is because, for the value that it contains, its weight is unrealistically heavy. You cant make it lighter, its density is fixed. Gold sucks as currency because it is not portable. At the moment, other currencies have a similar situation.
Zimbabwes currency sucks because it is not portable. To buy a cup of coffee, you need a wheelbarrow of cash. I watched a BBC interview where they asked a farmer, Arent you worried someone will steal your money?
They said, No, Im worried someone will steal my wheelbarrow. It is worth more than the money in it. Bad money chases good money out. be unforgeable, portable, and universally recognizable.
You be able to validate, independently verify for yourself, that this is real money. It as a unit of account you need to be able to count things in it. One of the reasons barter is not working, is not a suitable form of economic . at any scale more than the extremely local, is because of the burden that pricing . Yes, I can give you a chicken for a goat.
I can give the hairdresser a chicken for a haircut. I can give the watercarrier a chicken for litres of water. Barter, on a theoretical level, is effective. But now I to track the exchange rates for goats, haircuts, and water in units of chicken. Meanwhile, the hairdresser has to track the price of a haircut in chicken, goats, rice, sugar, salt, water, accounting services, etc.
We would need to track every price exchange rate for every unit of value we are exchanging as commodities. The whole point of money is that you only to track everything one thing, has no value you cant eat it, drink it, or use it to cut your hair. It is not the value, it is the token of value, the representation of value. It be unforgeable, portable, and useful as a unit of account. Then come the difficult . It be rare.
If you live on a beach, you cant use seashells. Yet people in the mountains used seashells as currency. From archaeological dig sites, we find that ancient people used seashells as currency never on a beach, always in the mountains, because were rare there. On the beach, they used crystals, quartz, and minerals, because come from the mountain.
As long as doesnt exist where you are, it is a great form of money. one of the big problems we have with our money systems today. I have bad news for you: the rupee is not rare. It has no limit.
It can be created in infinite quantity, just like the dollar, the euro, the yen, and all other . Worse, the power to decide how much to create is vested in people who have direct conflict of interest. If you are a debtor, then you want the money to be worth less, so you repay less. If you are a saver, you want the money to be worth more, so that you can more . If you give the government the biggest debtor of all the how much money, they will print money in order to make sure that is worth nothing.
In this process, they transfer wealth from savers to debtors. In a culture of savers, that a terrifying thought You explain it in a calm way, and little nifty tricks. We tell people, The a rate of inflation will not exceed 2.2 per year. It sounds innocuous.
What is 2? I dont even know is. I didnt pay attention in school. It division. I was never good at division. 2.2 do?
If you tell people the rate of inflation is 2.2, they, Eh, two percent, five percent, ten percent. I dont really understand that. Lets rephrase it: in ten years, your money will be gone.
Holy shit! I understand that! I save like crazy, I work two jobs, and I barely get paid. Now of it will be gone?
Where does it go? Who took it from me? Catch those people, they are thieves!
Oh my god, my money in ten years?! Inflation took your money. More accurately, the government, corporations, and banks in debt took your money through inflation. For them, the money they owe is also worth in ten years.
What a brilliant construct. That is where we see a fundamental difference between bitcoin and traditional money. Bitcoin is money.
Bitcoin is a store of value, a medium of exchange, and can be a unit of account eventually. It gradually acquires these characteristics as it grows more stable, wellestablished, and well adopted. As more people participate in the exchange of value through Bitcoin, they create an economy that economy creates value, that value liquidity, stability, reduced volatility, and the reduced volatility makes it more suitable as a medium of exchange for smaller purchases.
It makes it better as a store of value., its velocity increases, unit gets transferred many times by people doing trades. Eventually, the value stabilises to a point where it can become a unit of account. Where you can say, A talk is worth half a bitcoin. I dont price in rupees anymore, . I cant do that today because it is still too volatile, but one day I will be able to do that.
One day, I will price my bitcoin in . People ask me, How much is a bitcoin worth? The correct answer is: one thousand millibits. There will come a day when the question is not how many rupees is a bitcoin worth, but how much bitcoin is a rupee worth, and I will say, is worth a microbit. That is when you know things have changed. It will happen very slowly, and then all at once.
There is something special about a global currency. Here is the magic: twentyone million is the limit. It is mathematically imposed.
There are not any currencies which can do that. There is only one thing in the world which shares the characteristic of a fixed, geometrically diminishing. supply that the more you try: gold. Except you cant email gold.
You can email bitcoin. Suddenly, you notice may have a bigger impact than any of us could even imagine. People will point at it and say, It is fake money, it is not real!
But the market will give it a, and in the end that value is the truth. You can use currency controls, propaganda, lies, restrictions, and laws, . They point at Bitcoin and say, That is fake money, it is not real! But anybody who is involved in Bitcoin points right back at and says, Oh no, yours is the fake money.
This shit is real, because I can buy food with it from Amazon. Delivered to Colombia and smuggled across the border, but I can still buy food with it. Fake money can be resolved by the market. We are at the very beginning . This is not an investment opportunity or a getrichquick scheme. This is a technology which has radical, disruptive implications for the world at large.
For the first time in human history, it creates the possibility of a free flow of money. anywhere, at any time, without restriction, controls, or, for all of humanity. That technology be difficult to use. It weird. attacks, hacks, failures.
The internet used to go down all the time in various parts. Some of the companies in this space will not exist ten years from now that also happened with the internet. In 2000, 90 of the companies were wiped out in a single stock market washout. But the internet didnt go anywhere, it just found new companies to build the next generation.
That will happen in too. We may change the name, we may change the companies that are participating. We will certainly change the technology, but in the end, will happen. It will be a fundamental part of the future of humanity.
Absolutely nothing can stop that from happening, because it already did. Thank you.p