In this series of videos I’m going to talk about how to understand bitcoin for the non-technical people.
My Bitcoin Background
Just to give you guys a little background about myself so that you guys understand where I’m coming from and how these videos are going to be structured – I’m not exactly sure how many videos it will be but I’m going to keep making it until I have all my friends and family members understand bitcoin.
Many of you guys know that I’m a college dropout; I don’t have a very big background in computer science or mathematics.
I learned about bitcoin at the beginning of 2013.
I watched as it went into the crash, that first 265 dollars crash, it went up to two hundred and sixty-five dollars and then it crashed back down. I started getting some money together to start investing into bitcoins.
In this video series, I’m going to help you guys understand what I went through and what I learned about bitcoin.
Bitcoin’s public ledger is a key inventions that’s never been done before until Satoshi Nakamoto came along. Satoshi is the anonymous inventor of bitcoin.
Since I’m not a very computer-savvy or a very mathematically-savvy person, I’m not one of those Asians that was gifted in math and science so I’m going to make this as dummy-proof as I can so that non-technical people like myself can understand it.
Before you can understand what bitcoin is and why it is so revolutionary, in my opinion I think it’s going to be even a bigger invention and bigger revolution than the worldwide web.
You might disagree on me on this, you might find it shocking, or surprising for me to say this but I can honestly say that there’s not too many things that I’ve seen in the technology world or anywhere that has revolutionized the vast majority of the people on this planet as much as the invention of the bitcoin protocol or the bitcoin network or the bitcoin system, however you want to call it.
A Quick Disclaimer About
My Technical Background
I just want to give you guys a disclaimer real quick.
I will try as best as I can to avoid any kind of technical stuff here in this explanation about bitcoin.
If you want a really detailed and very accurate explanation and technical perspective about bitcoin I highly recommend that you get on YouTube and search for Khan Academy’s bitcoin video lectures.
That’s spelled K-H-A-N Academy and add the word “bitcoin” behind it.
I think that the Khan Academy has one of the best guides that explain what the technical and the mathematical science behind bitcoin is.
In this video I’m not going to talk any math or science that Khan Academy uses to describe bitcoin.
The most math that I’m going to talk about in this video series is just basic arithmetic because that’s all I know.
Before we get started with bitcoin here, guys, it’s very important that you understand how our current banking system works and how many is being transferred between one person to another and you will realize how revolutionary bitcoin is as a currency, as a system of payment and as a protocol itself.
In this specific video, in this initial video that I’m making here, it’s only going to talk about bitcoin as a currency or a payment system, a transfer system.
In the future videos I’m going to talk about how bitcoin is used for other things other than just currency.
Bitcoin vs. The Antiquated
Before we talk about money here, I have a few boxes up here; one box over here represents Bank Of America. If you’re not in the financial world, it’s commonly known as BOFA which stands for Bank of America.
Over here is HSBC bank, whatever it stands for is not important, it’s just a couple of international banks that I use here so that you guys can have an idea.
I didn’t want to just use American banks only that are currently in the state of Texas because some of you people that are watching this are from the international countries and other countries outside the U.S. and you may not recognize them.
I’m pretty sure that almost everybody has heard of the legacy banks such as Bank of America and HSBC bank.
Before you understand bitcoin, like I said, it’s important that you understand how money is being transferred or how it goes from one person to another.
I’m going to use Bank of America as an example and I want you to participate in this illustration or this example with me so that it can help you understand.
I want you to imagine that you have your money over here in Bank of America and this is me over here.
I’m just going to put my name here so that you can see it.
Let’s just say that you wanted to send me one dollar, whether it’s one dollar, one yen, one Euro, it doesn’t matter what currency you’re using.
If you were to send me this, the way that it works is that inside Bank of America, they would have a ledger. I’m going to talk about a ledger in this video because it’s one of the key components of bitcoin. It’s one of the key inventions that’s never been invented before.
In the past, what happened was most banks would use a ledger. In this ledger there would be accounts.
A ledger is nothing but a notebook that records how much money each person has inside that bank. You would have a ledger and the ledger would show that you have a hundred dollars, a thousand dollars, a million dollars, a billion dollars or whatever it is that you have in there.
Every time you want to send me a dollar, you would tell your bank and your bank would send it to me at my bank at HSBC. What happens is that in my bank there’s also a ledger. This ledger – I’m just going to draw it out here – here’s a ledger with everybody’s names on there and how much money they have.
What happens is the ledger over here that they keep track of that has everybody’s name including yours and how much money everybody has, they would take money off that ledger and they will forward it to HSBC and HSBC will take that dollar that you just sent me and record it on the ledger and say that Tai just received a dollar from you over here at BOFA or Bank of America.
That’s how it’s normally done. Every time I spend that dollar, it gets deducted out of the ledger.
This works all fine and dandy but there are some problems with this.
Legacy Banking Systems
Always Require A Middle Man
The problem is that – let me put it over here – the problem is that it requires a third party. I’m going to get to these three in a minute, it doesn’t have to be in a particular order, I’ll just jump around.
The first problem that we run into is that you can never send the money directly to me.
We always have to ask your bank to send it to your bank and then my bank will let me know. This third party, any time you involve a third party like Bank of America or HSBC bank, the problem is they’re going to charge you bank fees and transaction fees.
These banks do not charge cheap fees, either. In the US, if you were to send me anything over a thousand dollars. It would be at a $20 fee just to send me that thousand dollars.
That may not seem like a lot, but in some countries, that $25 dollars could be somebody’s month salary.
That’s a very expensive way to send money and as long as we involve a third party, you can never send money directly.
The only way that you could send it to me directly is if you took cash, carry it to me and hand it to me physically, the currency that you use, whether it’s the Yen or the Euro. That’s just one problem.
The next problem with this whole entire system, with the way the banks are set up is that the banks get to print money at will.
They print money at will without ever having to work for it or provide value for it. Let me explain to you how this process works.
How Do Legacy Banks
Get Their Money?
There are several ways to do it but one of the main ways to do it is from what we call a “central bank”.
In America, at the time that I’m writing this, they call it the Federal Reserve.
The person that is in charge of the central bank in America right now is a guy named Ben Bernanke; some people like to joke around and call him, “The Ben Bernanke“.
Right now, he is in the process of leaving the central bank, the Federal Reserve.
Somebody else is going to replace him, some lady named Janet Yellen.
What happens is, at any time they can borrow money from the central banks at extremely low, low interest rates.
We’re talking like less than one per cent or one per cent; it’s extremely low. It’s lower than even you and I can ever get. They can loan it to these guys and they guys will loan the money to you or they’ll loan it to me so that we can go buy our homes or cars and do those things.
At first, when you think about it, it’s actually a good system because if you don’t have any money to go buy a house and you pay for the whole amount of house, it’s nice to have the banks there so you can go and borrow it. Sorry about the allergies, guys, my nose is very itchy right now.
What happens is you can borrow money from the bank to pay for the house or the car which is nice.
However, the problem is that remember, you go to work from 9am to 5pm, you work your eight hours a day and you deposit money into that bank.
BOFA and HSBC can also take that money that you deposited in there… let’s say for example you deposited a hundred dollars into this bank.
They only have to keep 10% in the reserve and they can take the other 90% and lend them to anybody they want so they can lend it to other customers. If someone wants to buy a car, buy a motorcycle or they want to buy a house or anything like that. They can take your money that you put in that bank and they can lend to someone else.
That’s where it becomes, in my opinion, unfair or unjust because you cannot do that with your money.
If you try to loan your own money, there are all kinds of loan shark laws in American and most of the developed countries where they make it illegal for you to randomly go out there and loan people money.
You can’t do that; you can get away with that in a third world country or something like that, but you’re not going to be able to get away with something like that in America for very long.
The other thing too, is that because they only have to keep $10 in reserves, that other $90, let’s say that they loaned it to me to go buy a car or they loaned it to another customer in the bank…
When that customer takes that $90 and deposits it back into the bank, they keep 10% of it which is nine dollars.
They take that $90 from the second customer to go buy a car or home or whatever. They’ll keep $9 of it and loan out the other $81.
I originally learned about fractional reserve banking from Bill Still in the documentary “Money Masters“.
The cycle of fractional banking just continues until they have as much money as they need to do business and to loan out to people and they collect interest on it.
This whole time… keep in mind they never have to work on anything. It’s all computers, it’s not like somebody has to sit there and count a stack of cash or anything like that; no physical and manual labor done.
That’s one way that they make money.
Fiat Money Is
Not Real Money
The other way is where they get more from the central banks, they borrow from it at an extremely low interest rate and they’ll loan it back to you and this is just a vicious cycle.
I don’t want to get into details about this, but if you go to my website, I have a link that explains this whole process of how they print money and everything.
That should help you open your eyes to how the fiat currency system works. This is what it’s called, by the way. Fiat just means “fake” (in my opinion) because there’s literally loaning you the money that’s not there.
Basically, they’re loaning you a hundred dollars but there’s not really a $100 in the bank to back it up. There’s just $10 in there.
To me it’s kind of like a Ponzi scheme. It’s like “robbing Peter to pay Paul” is what they typically say.
They really don’t actually print a piece of paper or currency up, it’s just a bunch of numbers on a computer. They don’t even have to spend money to print that.
Like I said, the problem with this fiat currency system that we currently use around the world is that the guys that’s up in the banks, the 1% of the people that’s on Wall Street, we’ll call these folks the “one percenters”.
They get to print money at will, however, you and I cannot.
It doesn’t matter what background you come from, you aren’t going to be printing money like they do and you can’t loan out money like they do unless you’re one of the family members or one of their buddies or friends or things like that.
That’s why I call them the “one percenters” on Wall Street and that’s what a lot of people that don’t like the fiat currency system call them too.
They don’t have to work for money.
Another thing too is that they have a monopoly on the whole business of printing money.
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Click here to watch part 2 of this series.