Video - Innovators, Disruptors, Misfits and Bitcoin

A historical perspective on innovation and the "whitewashing" of the challenges, ridicule and resistance innovators face, from the perspective of Bitcoin. Presented at Detroit Maker Faire 2014 by Andreas M. Antonopoulos

TRANSCRIPT

Good morning. That was a fun video. Wasn’t it? My last car I sold for Bitcoin about a month ago. That was an interesting experience. It is a whole new world. So, how many of you here have Bitcoin at the moment? Okay. And those who don’t, how many of you have heard of Bitcoin? Okay. Anybody who has never heard of Bitcoin? Okay, great. This is going to be a lot easier than I thought. 

So, Bitcoin is an internet money but it is a lot more than that and I think for this audience in particular for people who are here to make this fair if you don’t want to talk about Bitcoin from the perspective of the business, the weirdoes, the freaks, the people who refuse to think the way everybody else thinks, the people who see, a half working elegant technology and don’t look at the half of working they look at the element side and they recognize innovation. And they recognize innovation not just a few months or a few years before others but sometimes a decade before other recognize innovation and that is going to be the people who are going to make through and I think that is going to be a great place to start talking about Bitcoin. 

Bitcoin is unexpected. Bitcoin is not money as we know it. Bitcoin should not have had happened. Bitcoin has really no possibility of success. It can’t possibly work. It is one of the one of those things that does not work in theory but it works practice like Wikipedia, like Linux, like the internet, weird ideas made by people with ponytails and neck beard weirdoes who nobody really trusts and Bitcoin succeeds because it works, because it is a technology, it is elegant. So, I want to talk about that spirit of the misfit walking into an industry and saying “you know what we are about to change everything and being laughed out of the room and then keeping on and going on until in fact they change everything. And this happens in technology all the time. We just forget about it, we ignore it, we rewrite the history, it all looks glowing. 

This video we just watched about the early automobile. Do you know what the media said about the early automobile? They ridiculed cars. They mocked cars. Cars were slower than horses. Cars broke down all the time. Cars needed expensive gasoline that you could not find anywhere and they require enormous amounts of infrastructure to work. And so the media focus on the part of the story that sold the most papers, car accidents, pedestrians mangled by cars, and for more than two decades from the first cars, the story was that of infernal disgusting dirty noisy machines that were far inferior to horses, that couldn’t go anywhere that only weirdoes would use and that most of the time killed the occupants and everyone who came anywhere near. This hysteria got so bad that in 1896 in the UK they passed a law called the Red Flag Act. And the Red Flag Act was a law that requires that any operator of a vehicle has three crew members of staff, the driver, engineer and the flag command. The drive would operate the vehicle; the engineer would supervise that operation, think railroads right and the flag man would carry a red flag and run a hundred yards ahead of the car to warn pedestrians of the imminent arrival of an infernal dance machine that was going to mow them down.

Guess what happens to the UK? They lost the Automobile industry race because they saw the technology instead of seeing potential they allowed fear to define the reaction and so they created an environment where a car could not do the things that a car can do because if you make a car go as slow as the pedestrian who is running ahead of it with a red flag you lose all of the advantage of a car. If a car requires a three-person crew to operate you lose the advantages of a car, so they tried to take the car, understand it from the perspective of railroads and horses and they failed, and they lost the race and what you didn’t see on this video was that actually until that time they will win it, first really practical cars were built in England because they already won the race in the Industrial Revolution with a steam engine at that time England was a powerhouse of industrial innovation and they were winning until they decided that this dirty machine should be confined to a very limited space and a set of rules and they killed the goose, no more golden eggs for them. So that is instructive because this happens again and again in technology. 

When electricity was first domesticated and people started electrifying their homes, do you think the media went out and said this is brilliant, this is genius, this is going to change the world, no. What they said was that this was dangerous technology that would burn down people’s homes and they ran story after story after story about people getting electrocuted, about homes burning down, and of course you couldn’t really use electricity because it required * (6:47) your house, you had to put wires in your house, you know wires that burn it down and you would have to buy special wires to connect to these wires just before your house burned down and only the rich could afford it, so clearly this was a technology that was really just an affectation of the rich, it was just a plain thing with no practical value. 

The Mayor of Paris during the power’s fair in 1896 I believe said after the fair is over this fad of electricity will be forgotten as quickly as the lights turn off. Famous last words are very common in technology words that in retrospect look ridiculous, like the Head of IBM who once said I foresee a need for no more than five computers worldwide, like the people who said that the telephone will never succeed, well guess what people are saying about Bitcoin, they are telling you that it is a technology that is weird and complicated, a technology that caters to misfits, drug dealers, de-generous, pornographers, terrorists, thieves, swindlers, I don’t see any of those people in this room, but we better be careful just in case they show up. Of course, they are wrong. 

Bitcoin is none of those things. Bitcoin is simply a technology and as a technology it is often the first use it finds is often in the hands of criminals, the first cars were used as getaway vehicles, the first telephones were used to plot conspiracy, the first telegrams were used to run long distance mail fraud schemes and Ponzi schemes, and the first forms of electricity were used to run medical hoaxes and scam people. These things always happened with any technology and so they have with Bitcoin too. Why do you think criminals use technology like that? Or we could be more realistic about it, we can look at the actual reasons. Criminals use the most cutting-edge technology because they operate in an environment of very high profit margins and very high risk, and in that environment, competition is fierce and using the latest technology, if you are already taking enormous risks is it that big a deal but if you win it gives you enormous advantage. 

And so throughout the history the most amazing technology is adopted by criminals first. By purpose first now I don’t think that necessarily what we want to put on the Bitcoin marketing plan but it is interesting to look at what criminals do and how that ends up being mainstream technology a decade later. There is a certain dynamic there. Bitcoin is already way past its early stage and is no longer * (10:28) criminals. In fact, arguably it really wasn’t in the first place even despite what the media said. Now Bitcoin is hitting the mainstream and things are changing very rapidly. so I am going to talk about Bitcoin as a technology because something very exciting is happening, something is going to shake up financial and banking system as much as cars shook up the horse industry as much as oil shook up the whaling industry as much as electricity shook up the woodstove industry. Banking is about to be disrupted. Arguably it is already been disrupted. In fact, by the time they figure out how serious this disruption is, the game is already over. That is usually the case. When you look at established * (11:24) industries, they see a new disruptive technology and at first they ignore it because it can’t possibly pose a threat because from the benefit of incumbency from the high perch of an established monopolistic business these threads look like children playing around. 

To JPMorgan Chase, Bitcoin is like lemonade stand trying to take * (11:54) hallmark but if they continue to do that then they go into the next stage where they start mocking the technology where they suddenly see it everywhere and they start making jokes about it, so just like with the automobile, the first people who bought cars were mocked. They were mocked because they were shown always on their knees with a spanner trying to fix their machine that had broken down again. That was the image of an automobile owner first years. So while they mocked it, Bitcoin continues to grow and continues to improve and after a while you see a change. At first some of the incumbents in the industry saying “hey maybe we need to experiment with this. Maybe we need to start looking at this and then this is * (12:52) because suddenly they realize this is going to change our industry forever by that time it too late. By that time your Kodak going from No. 1 in the world to within three years losing a $12 billion industry right through under their feet to a company they have never heard of before, a company that did not even make cameras. 

You know who destroyed Kodak? A little Finnish company they never heard of called Nokia. A company that didn’t make cameras until they did it and within three years they made half a billion cameras and destroyed Kodak. Tower Records dominated the Music industry and then within four years they disappeared why because mp3 gave people choice. IBM used to be the most unshakable company in computers. They guaranteed quality. In fact, buying anything about IBM was a sure sign that you are a loser and then when Linux happened. And Linux shook IBM to its core because it subverted the very basic idea that in order to deliver quality of engineering and in order to deliver the best computer as possible. For the serious of work of banking and engineering and government operations, you needed an IBM, you needed closed controls, the closed controls carefully organized system built by serious PhD Engineers. 

Now if you look back in 1992 * (14:49) I am going to build an operating system in my dorm room because I can’t afford an operating system. That idea seemed completely preposterous. Operating systems were enormous edifice of complexity. It took thousands of engineers to build. * (15:13) Oracle started simple and started building an operating system. Six years later Linux had started dominating the computing industry and Sun Microsystems was beginning to feel pain. Eight years later Sun Microsystems was heading to bankruptcy. HP was getting bought. Their computer division was shutting down and IBM stepped out of the personal computing business and now 0% of the cell phones on the planet run Android which by the way is Linux and the servers they connect to run Linux and the banks we use run Linux and the entertainment systems we use run Linux and the cars we drive run Linux. You can always tell to stop running Linux. So, blue screen greets you and says “what sorry crash, wrong choice of operating system. You get into a plane, the entertainment system puts out is running Linux. 

If you said to an IBM engineer 15 years ago, you are about to be destroyed by an operating system built by a Finnish students in their dorm they would have laughed at you. And so here we are today and Bitcoin is taking on the entire banking system, the most powerful industry in the world and guess what Bitcoin is going to win it and it is going to win from for a simple reason. It is not just a * (16:53) better. It is not just that a winning because the banking system is run by gangsters and crooks and some of the most immoral empty suits in the world. It is not just going to win because the banking system has spent the last 50 years delivering two consumer innovations ATMs and credit cards and then spent the rest of the time trying to figure out how to fleece you. It is going to win because it is open and in world tinkerers and in a world of experimenters and in a world of * (17:13) open wits and the reason it means is because it allows innovations to flourish at the edges. 

Let me explain what I mean like. Every single financial system in the world has the security and trust model that requires excluding bad actors. I cannot connect to the Visa network and program it because doing so would endanger the security of the Visa network. I cannot connect to the SWIFT Network, the worldwide interbank fund transfer, the wire transfer network because doing so would endanger the security of that network. All of these networks are designed to be closed because their primary security relies on access control on very carefully * (18:19) every single person who has access and touches the code and on very carefully venting all of the applications that run on that system because if they allow one bad actor into the heart of the system that security is gone, one bad actor can take over and do whatever they want. 

Of course, in 2008, we discovered that the bad actors owned the banks and they did take over and they destroyed millions of homeowners and millions of retirees and millions of savers all around the world with their greed. But Bitcoin is different and the reason it is different is not because we suddenly found the most honest people in the world or because there are no crooks in Bitcoin or because the network does not get attacked. Bitcoin is different because there are plenty of crooks in Bitcoin and the network gets attacked all the time but it doesn’t depend on access control to remain secure. It depends on a simple mathematical formula of incentives and rewards. 

In order to participate to the Bitcoin network and secure the network as a minor which is a special function in Bitcoin you have to use a lot of computing power and spend a lot of electricity. If you win that competition you get Bitcoin as a reward and that simple equation creates a system of incentives where it is far better to play with the a rules than against the rules. It’s a game theory. It is like a giant game. Now if you look at that as a computer scientist or even more as a banker you say “well that can’t possibly work”. What do you mean it is a try game of Judo where everybody is competing against each other? That is not the basis of the security system. That would bring chaos. It is kind of like saying what do you mean that is an encyclopedia that anyone can edit, that would bring chaos. * (20:37) Britannica. If you under 40, you will never heard of it. 

Bitcoin is a completely open network. Anyone can connect to it. You can write an application right now and connect to the Bitcoin network and teach you to do something you knew. You can write a new financial service. You write a new financial instrument but when you do so you don’t have to identify yourself to the network. You don’t have to get permission from anyone, you don’t have to be directed, you don’t have to be secured and the network doesn’t fear you because its security doesn’t depend on keeping bad actors out. In fact, * (21:20) works fine there is plenty of bad actors right to the core the system. There is no core of the system. There is no center. It is a completely decentralized system. And so what happens when you create a network or open access to financial services is possible for the first time in history where anyone can connect and write an application. Bitcoin isn’t a currency and that’s a really important thing to realize. Currency is an app that runs of the Bitcoin network. Bitcoin is the intranets on money and currency is just the first app and today there are thousand companies writing * (22:04) and those companies are hiring tens of thousands of people in one of the most vibrant industries we have seen in the last two decades. 

In 2014, Bitcoin is receiving more than $250 million of investments and the startup companies within it and what’s remarkable about that is that is faster than the range of investments on the Internet in 1995. We are ahead of the curve. Bitcoin is growing faster than Twitter did in the first three years. Bitcoin is growing faster than Facebook group in the first few years and that reason for that is because every misfit we are no freak programmer from anywhere in the world can now connect to Bitcoin without asking anyone’s permission and take their weirdo misfit idea and build a new financial service, a new banking application, a new shopping application and you ask for application and that’s exactly what Bitcoin is doing. They are building things that are innovative and new and brilliant, things you’ve we have never seen in banking for things that wouldn’t get past the first planning meeting in your average bank because * (23:23). 

And so when you have these two environments running side-by-side the Banking environments where everything requires permission and permission is most certainly not granted at a system which is completely open where innovation can happen at the edge without permission guess who wins, guess where all of the exciting things happen, guess where all of the innovation happen. So, this is innovation that serves consumers. * (23:46) on Bitcoin and trying to find a way how to front run a high frequency trading algorithm so they can squeeze three micro secs about four microseconds faster than the other giant Bank’s playing with all those. 

No one’s trying to find a way to screw you out of your overdraft facility, an innovation that was pioneered by one of the big banks and I think it was 2007 when they realized that if you are close to your overdraft limit, if instead of running the big transaction first they flipped the order of the transactions and * (24:36) small ones you pay at $25 fee for every one of them and they can maximize their fees that’s the kind of innovation they were focused on. So, they innovated, they innovated more ways to screw their customers. And at Bitcoin nobody is doing that kind of innovation and the reason they are not doing that kind of innovation is because at Bitcoin you can’t force someone to take your app. If you bank with a big bank it’s their network, it’s their policy, you are using their debit card and playing by their rules and if you don’t like it you can go elsewhere to discover that they are all the same. On Bitcoin, it is an opt-in system. 

You choose to use it. You choose what apps * (25:22). You choose who you are going to interact with and choose the rules of the game at which point to interact and if you don’t like you don’t download it. And if you love an app, you downloaded and you told your friends about it and that is why Bitcoin is going to win because it delivers innovation that consumers want and what consumers eat. And there is another reason because there is a massive imbalance that most people here don’t notice. Every person in this room has access to a bank account without currency controls, a bank account from which they can buy and sell any currency of the world, a bank account from which they can wire money anywhere in the world, a bank account from which they can access international markets like the Tokyo Stock Exchange or the German Stock Exchange, a market from which they can access credit and liquidity, auto loans and mortgages, a bank account which is powerful and that power is available to about a billion people on this planet, a billion people who have access to full-fledged international high liquidity banking facilities. There is two billion people who have no bank accounts at all and there is another four billion people who have very, very limited access to banking, banking without international currencies, banking without international markets, banking without liquidity. 

So, Bitcoin isn’t a wallet for 1 billion. Bitcoin is all about other 6.5, the people who currently are cut off from international bank. What do you think happens when you suddenly are able to turn a simple * (27:20) in the middle of a rural area Nigeria connected to a solar panel into a bank terminal, into Western Union Remittances Terminal, into an international loan origination system, into a stock market, into an IPO engine * (27:46). We have seen what happens with the development of cellphone technology which was deployed in Africa faster than any other technology ever in the history of humanity, you see small villages where they have no running water, when they have wood fires to cook with, there is no electricity * (28:09) solar panel on the top of one hut and that solar panel is not there for a light, it is there to charge Nokia 1000 feature phone because that phone gives weather reports and it gives them grain prices in the local market and it connects them to the world. 

Now what happened when that phone becomes a bank because with Bitcoin it can be a bank? What happens when you connect six and a half billion people to a global economy without any barriers of access? Bitcoin is not * (28:46). Bitcoin is the intranet of money and as a technology it can bring economic inclusion and empowerment to billions of people in the world. I will give you one example of a specific application that is going to fundamentally change the lives of more than a billion people over the next five to 10 years. Every day, an immigrant somewhere cashes their paycheck and stands in line to wire 50% of that paycheck back to their home country to feed an extended family, right? Here, the US, 60 million people have no bank accounts and yet they cash their paychecks and send them abroad. 

Over all in the world 515 billion dollars are transmitted every year in the form of remittances, for remittances from first * (29:47) countries to five major destinations: Mexico, India, Philippines, Indonesia and China. And these five destinations in some of these places remittances form 20%, 30% or 40% of the global economy and sitting on top of 400 or 500 billion-dollar companies Western Union and they take a 15% fifteen cut of every single one of these transactions out of the pockets of the poorest people in the world. Now imagine what happens when one day one of these immigrants figures out that they can do the same thing with Bitcoin not for 15%, not for 10%, not for 5%, but for 5 cents, not a percentage of flatfeet. What happens when they can do that because they can right now. We have seen a company start out that is handling remittances between the U.S. and the Philippines. They are doing a few million dollars right now but they are going to start growing and there is $500 billion sitting behind that dam. And when you are an immigrant that you can change your financial future by not paying 15% to send money home, imagine what happens if every month instead of sending 80 bucks home you send 100 bucks home. That makes a difference. 

There is a billion people right now who have access to the Internet and feature phones who could Bitcoin as an international wire transfer service. So, to sum up, Bitcoin is the most exciting technology I have seen. I was around in 1989 on the Internet as a young kid and I saw that and I knew it was going to change the world long before most people figured it out and I told everyone around me we are * (32:04) shopping of this, we are going to do banking on this thing and people’s reaction was quite predictable. Yeah Andres, go do your homework, clean up your room. And when I first saw Linux I thought “man this is going to change operating systems forever, IBM is going down” and everybody laughed at me. When I saw the first web browser and the first website then I thought every single company in America is going to have websites within a decade and everybody laughed at me. Well, let me tell you something. I don’t know what is going to happen with Bitcoin, but I do know that the underlying invention a system of digital currencies that has no banks no governments, no central control and is available for anyone to use without asking permission, it will change the world. So, I think we have 10-15 minutes. I would be happy to take questions from the audience. So, anybody has a question just shout it out. Go ahead.

Question 1: * (33:34)

How I * (33:35) Bitcoin?

Question 1: Yes. How Bitcoin generally started?

How Bitcoin got started. It goes back to the 70s really and in the 70s a bunch of researchers invented a new form of cryptography called asymmetric cryptography that allows you to have cryptography without sharing a secret Diffie-Hellman, Rivest, Shamir, and Adleman, they invented in the late 70s a series of technologies that allowed you to do encryption and digital signatures. Digital signatures were very interesting things and they allowed for the first time the concept of creating digital money because if you have digital signatures then you can take a token, any kind of token, a number and you can digitally sign and say this is special, this is being issued by essential authority or something like that. It means money. 

So, the idea of if we have digital signatures and we have digital tokens and we can build digital monies it would be pretty powerful. Technology existed since the early 80s and several attempts were made to create that. The big problem with having digital money is that as you know making a copy of something digital is not only possible and easy, the copies are perfect copy of the original. There is no distinguishing one copy for another. So, the problem with having digital money is that if you are given a digital dollar bill and you can make two of them that represent a slight wrinkle in the overall scheme. So, the way that was solved * (35:20) the way that was solved was to have a central clearinghouse, a system by which people could check if that dollar had been spent before and not allow it to be spent again. And the problem with that is that you have to put all of your trust in a central clearinghouse and that central clearinghouse goes down you, have no network, and so digital money has been a topic of research for the last 35 years. 

In 2008, no one had figured out how to break this challenge, how to solve the problem of creating a trusted clearinghouse without giving someone that trust. Essentially it boils down to how do you know trust a network of people who don’t know each other without giving that control to someone in the central position, and the reason you don’t want to do that is because if you give power to someone it corrupts them and powerful money corrupts faster than any power there is and if you give people power for money they steal it again and again and again. This is a story as old as history itself; the Greeks figured this out 3,000 years ago. Lehman Brothers’ figured it out 2008. So, in 2008, researcher published a paper called a peer-to-peer digital – system Bitcoin and that paper said here is a new way of doing it which involves competition and the competition ensures that no one is a clearinghouse but at the same time everyone is a clearinghouse, and if you structure that competition in a specific way just through simple mathematics, the system can scale and become robust and no one can cheat because as the system gets bigger and bigger the amounts of computing required to cheat is enormous, the electricity that costs is enormous and if you can instead use that to get reward by the system instead of cheating which loses all your money then you rather play * (37:31) and that sounds crazy. 

Today * 8-billion-dollar economy * has been constantly attacked for the last five years and I guess it works, so not so crazy after all. So, that started without paper in 2008 and the system itself is a peer-to-peer technology which is an open source software application based on the set of simple protocol rules and simple mathematical equations and algorithms. No one controls it, everyone can see exactly how it works and yeah it is here.

Question 2: Thank you for INAUDIBLE (38:26).

I don’t know what it means to temper expectations when it comes to the option. I think people are going to be surprised and will continue to be surprised by how fast Bitcoin runs. First of all, I have been surprised through every technology I have seen mature rapidly. Every time, I have seen a kind of earthshattering world changing technology that started with my first computer, my first PC, my first modem, my first Internet connection, first website and then Linux and then Bitcoin. To me those were series of six epiphanies and every time I had this, this is going to be amazing moment and then I thought this is going to take decades and the biggest mistake I made every time was underestimating how fast a useful technology spread. I didn’t expect computer to spread this fast, I didn’t expect the Internet to spread this fast, I didn’t expect Linux to spread this fast or every time I was surprised not by how broad it was but by how fast the technology accelerated, wants to reach the level of awareness and consciousness. 

We have already crossed the tipping point for Bitcoin. Bitcoin is working at a scale no one imagined possible, it is now a global transnational currency and it is very basic. It is the most useful form of money for the Internet invented, it is safe, it is fast and it is cheap. It is transnational, it doesn’t give a shit about borders, it just moves and that creates enormous financial velocity and flexibility. I think while in the developing world it is going to have the most earth-shattering impact and implications because it simultaneously takes money out of the hands of some of the most corrupt governments of the world and puts it in the head of the people and at the same time it connects everybody at one global currency that that they can use for trade with the rest of the world. It is going to have the biggest impact there but that is not where it is going to go fastest. 

I think you were going to be surprised at how fast it is going to accelerate even in the developing world because the development world is also much bigger than we realized here. The U.S. is 5% of the world population and the U.S. has the world reserve currency and that it is a position one currency has. There is a 193 other currencies. Of those probably a 100 are worth nothing. You know they are dirt and they are incredibly corrupt and very difficult to trade in etc., etc., but there is another 100 in between; these countries that are semi developed or developed enough in terms of infrastructure, literacy, numeracy, technology capability but at the same time have really difficult currency situations and very bad governments. I will give you just a few examples. Buenos Aires, Argentina I visited there in November 2013. This is a country that in the last 15 years has had two major currency crises and it is on the precipice of a major * (41:58) that will completely trash their currency for the third time, and in that country they have lost everything for an entire generation now almost three times. Every single time that happened the government is able to shut the shutters if you like, cordoned off the country from the currency perspective and take the entire population of Argentina hostage and force them to continue to use the currency even as it turns to dust in their hands. 

What happens when they no longer have the ability to do that? So, Argentina is one currency crisis away from the mass Bitcoin adoption event and it is not going to be adopted by 100% of the population, it is going to be adopted by maybe 1% of the population, but 1% of the population of Argentina is going to break maybe $2 billion into the economy and is going to create a high enough density of users of Bitcoin in places like Buenos Aires that is going to change that economy dramatically and then people look at that and they copy that example. Next time Cyprus happens, where the government goes in and confiscates money from people bank accounts. They are going to opt out from that system and this is going to continue happening in small places all around the world. So, I think we are all going to be surprised by how fast Bitcoin takes off. 

In the developed world, it is going to take off primarily for shopping and eCommerce and you know getting around difficult forms of finance and capital flows, but there is also this fast between where we are and where is Zimbabwe, for example and there is a hundred currencies in their * (43:52) for Bitcoin. I think we are going to be surprised again. The Internet of 15 years is to blow into its full mainstream adoption and it is still accelerating by the way, but those 15 years also involved putting down infrastructure, copper wires, fiber optics, data centers, cell phone infrastructure and * PCs (44:18)that were barely ahead of that game and spreading at the same time. With Bitcoin, all you need to do is download an App that is the infrastructure. We don’t need to lay any cables. We already got them. So not only is it going to spread much faster than the internet, it is actually going to accelerate the spread of Internet itself because now an Internet device has an added layer of utility being a bank and that layer of utility is self-financing which means it will pay for the internet connection and that changes quite a few things on the internet too when you have * infrastructure *.

Question 3: Bitcoin * (45:02) are you saying we need to go beyond….

So, Bitcoin, exchanges are kind of the most centralized aspect of Bitcoin. Think of them as the on ramps and off ramps into an * (45:20) Bitcoin economy and where you are operating in an environment where you are frequently interacting with the rest of the economy these changes are rather important. Since October last year, I get paid in Bitcoin almost entirely and I do most of my spending in Bitcoin almost entirely. So, I have less and less of less interaction with exchanges and so also I don’t really pay attention to the price of Bitcoin as much as I used to because I buy things in Bitcoin. So exchange is of less importance the more you operates within a Bitcoin economy. 

One of the things that people don’t realize is that Bitcoin is not simply absorbing the U.S. economy and converting things, so you could buy the dollars now you could buy with Bitcoin. That is very, very small, what much, much bigger is the possibility of creating a completely new economy and the economic activity that happens within. Let me give you a parallel. If I told you in 1997 if I asked you the question how many fax and telephone lines will the internet replace. Now you look back that question today and you think that is a ridiculous question - that makes no sense whatsoever because the whole point of the internet is not replacing fax. We are not enjoying internet because now we can fax better, but if you look to the conversation that was happening then people were writing 30-page reports on whether AT&T’s long-distance business and the fax machine business * (46:56) primarily by the internet and counting how many offices and businesses were converting to email and whether that would be a threat to the post office. Looking at Bitcoin as when it replaces eCommerce stores is missing the point. We are building a completely new economic activity here. 

So what happens with these exchanges, they are centralized, they are the edges of the network in there where Bitcoin touches traditional money, slowest parts of traditional money, the most regulated parts of traditional money. For regulators, exchanges are the nail for which they have a really good hammer so they hammered all of them because that is what they know. They can’t touch Bitcoin itself, they can touch the exchanges. For crooks the opportunity to find a centralized part of Bitcoin where people concentrate their money which isn’t under the control of the distributed algorithm but is in the hands of one individual organization is a tremendous opportunity. So the exchange failures we have seen are situations where people took their money off the Bitcoin network, gave them to an exchange, gave them control over that money. What happens when you gave someone control over your money? They steal it. That is the oldest story in the book. It is like here. I have got a suitcase full of hundred thousand dollars, which you mind holding this for a few minutes, I am just going to go get a cup of coffee. You will be extremely surprised if you come back and hat suitcase is still there that would be the exception. Most of the time it won’t be there when you come back and so exchanges are like that. You give someone your Bitcoin keys, you say here is my Bitcoin, would you hold on to it for a second, don’t be surprised if you come back to and still there.

Question 4: What is decentralized exchanges * (48:44)?

Excellent question.

Question 4: * (48:51).

Decentralized exchanges are gradually growing. They are not an easy problem to solve because you still need to pull some liquidity and you still need ways to concentrate the non Bitcoin currency. So even if you have a distributed Bitcoin exchange you still need ways to exchange for non-Bitcoin and that stuff tends to be hard to transfer, it tends to be hard to cross borders with it, it tends to be very controlled, it doesn’t move very fast that it has a lot of fees, all of the things that Bitcoin * (49:23) when you touch them with an exchange you end up reintroducing all of those problems. So it is not easy to make decentralized exchanges. If you want to get Bitcoin there are a couple of really good ways to get Bitcoin. Here is the number one way of getting a Bitcoin. If you are interested in this new currency, in this new economy figure out a skill that you have and start charging Bitcoin for it, find a product that you already made or sound and start charging Bitcoin for it, find the service that you already sell and start charging Bitcoin for it. So the trick is not to buy Bitcoin, earn Bitcoin through your work, through your labor, through your sweat and tears and pain and passion and enthusiasm and creativity and innovation, and that is what is pouring into Bitcoin. It is not venture capital money, it is not as investors. It is the passion of people deciding that they are going to put their labor into this * (50:38) not let anyone take a cut of that.

Question 5: What you believe will have * (50:38)? Do you believe that * (50:40)?

What will happen first will a country adopt Bitcoin or Bitcoin buy a country. That very question assumes the supremacy of the nation state. I have news for you. Bitcoin is the first post national currency. It is going to change far more than banking. Bitcoin enables for the first time the sovereignty of nations to be expressed by individuals that is an extremely powerful force. Bitcoin enables people to interact regardless of nation and despite borders and that is an extremely powerful force. So the question needs to be rephrased. Which is the first nation to adopt Bitcoin? Well, I have news for you, Bitcoin is being adopted by the most popular nation sovereign of the planet. Bitcoin is already being adopted by the most wealthy economy on the planet – that is not China, and that is not the United States. That is the internet. 

The internet is a sovereign entity, an entity that crosses borders, an entity that I belong to and so does an Egyptian blogger in the streets of Cairo and so does a young kid in Indonesia and the internet brings us together to collaborate based on common interest and common culture, a culture that transcends borders and transcends nations and now we have our own currency and that currency will actually make Internet sovereignty more powerful, that currency means that the Internet has its own economy and that economy is already adopting Bitcoin faster than any nation states in the world and is going to build an economy that is more powerful than any nation states in the world and they cannot shutdown Bitcoin for exactly the same reason that they can’t shut down internet. So asking which country will take internet first is like asking how many fax machines the internet will replace. It doesn’t matter by the time this plays out the nation, the concept of a national currency will be obsolete, the concept of sovereignty through currency will be obsolete, the concept of a traditional corporation registered in a specific locality is probably already obsolete, the concept of the bank will be obsolete, the concept of a checking account will be obsolete, the concept of a wire transfer will be obsolete, and we will be in a completely new environment or none of these concepts matters. It is not that we will replace it, it * (53:48) already obsolete all right.

Question 5: Sorry, I already asked my question.

You already asked. Okay. Miss?

Question 6: I just want to know the stability of Bitcoin as a currency?

The stability of Bitcoin as a currency?

Yes.

Stability is not the main characteristic of Bitcoin. Think of the US dollar as the Titanic and then next to it is this little inflatable zodiac that has Bitcoin and we are on it and it balancing in the waves, right and it is going up and down and shaking all over the place, but it can travel really fast, and it can travel really fast and it didn’t just hit an iceberg. So while the Titanic is beautifully stable and majestic, it is also sinking whereas the little Bitcoin zodiac is bouncing all over the place but it can outmaneuver everything out there. Bitcoin is not about stability especially when compared to traditional currencies. Bitcoin’s volatility is heading primarly in one direction and that is increased value and it is going to remain volatile probably for a decade, very, very volatile and that is because the liquidity pool of $8 billion in $140 trillion world economy is like a kitty swimming pool next to the Pacific Ocean. If you get the biggest person you know how to jump into the Pacific Ocean, they are not going to make a splash. If they jump into the kitty pool everyone gets wet. 

So Bitcoin right now anytime something happens big splash, big waves, lots of volatility, everything sloshes around for a while but it is growing and as it grows it is going to get more stable and less volatile, but stability is not the sign of health. Stability and lack of volatility is not a sign of a healthy economy. In fact, if anything right now today for example if you look at the financial measures VIX, which is the volatility index of the S&P 500 stock market, it is at the lowest point it has been in 14 years. Now that means one of two things. We have the healthiest economy of the last two decades or we are all about to go to hell in a handbasket. I vote for the second, right? Something is very, very wrong when the stock market is soaring and stable as a rock and the economy is collapsing all around it and we all know that is the case. 

Volatility is not the same as instability. Economic systems that do not express movements that are appeared to be rock solid but are artificially kept that way are in fact extremely fragile. Bitcoin is incredibly dynamic, incredibly volatile but it is also anti-fragile. It dynamically adjusts to shocks and that is why despite all of the claims to contrary and all of the obituaries written forbiddingly every three months someone * (57:07) with great glee, lots of clothing lots of * (57:13) Bitcoin is about to die. I am making a collection of those articles, I am going to keep them around so I could make maybe a special website that came from now, put it alongside the quotes of the Mayor of Paris who said that electricity was a passing fad. Bitcoin isn’t going anywhere. Volatility is nothing to be feared. 

What you need to do is manage volatility. So if you receive Bitcoin from someone and you intend to use that Bitcoin to spend on something in dollars then you exchange it as soon as you receive it, a lot of merchants do that. The price of dollars get paid in Bitcoin, converted the same day and their services will do that for you and then volatility disappears. You don’t need to worry about it. And to close on that particular question, I asked someone in Argentina about that. I said are you worried about Bitcoin volatility and he said Andreas we have peso volatility and peso volatility goes like this and Bitcoin volatility goes like that. I would rather be going that way. All right. I think that is all the time we have today. Again, thank you so much for coming.

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