41. What’s Bitcoin?

Ever heard of Bitcoin? You’ve all probably held a dollar bill before, but what if “money” wasn’t a physical thing you could hold in your hand? What if it was digital and lived in computers and smartphones?

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Links:

• Life on Bitcoin

 

Here is the transcript of our conversation:

 

Brittany: Hi Connor.

Connor: Hey Brittany.

Brittany: So today I wanna talk about a topic that I know is important to both of us. I wanna talk about Bitcoin. So first of all, Bitcoin. What is Bitcoin? So I’m gonna kind of explain it before we dive into it a little bit further. So most of us have held a dollar in our hands before, and we understand that we can use that dollar for buying a good or service. And the reason that dollar means anything is basically just because people believe that it holds value. They believe that the government says it has value. And so we say, Okay, it has value. And as soon as we trade that dollar for, let’s say an Apple, the seller, let’s say I buy an apple from you, you’ll hand me the apple and then you’ll probably hand me your receipt so that there’s a record of our transaction and therefore a trade has occurred between you and me, right?

It seems pretty simple. However, the problem is as we see with the government and with the Federal Reserve, which we’ve talked about before, the way they kind of treat interactions, that is putting somebody in the middle of us. So let’s say there’s you the seller, there’s me, the buyer, and then there’s just like a nameless government guy in the middle. We’ll call him a nameless government guy, So I hand you a do or I hand the guy the dollar, he hands it to you, then you hand him the apple and he hands it to me. Now, do we really need that guy there, Connor?

Connor: Yeah. That’s what we call an intermediary. That’s a fancy word. It’s like the word intermediate or mediator, Someone in between two people. So an intermediary is someone who takes something from one person and then he goes and gives it to someone else. And my favorite example of this is a movie I would not recommend for any kid, but there’s a movie called, I won’t even mention which it is, but it’s about an office. And there’s this guy who works in middle management and the company is doing this whole audit and they’re seeing where can we cut and where can we save money?

Brittany: I know what movie. I’m like, Wait, what is this

Connor: And so they go in and they interview this guy and he’s having to defend his job like, Hey, I have value, I do things. And so the guys are interviewing him and they’re like, Okay, so you take the papers from one person’s desk and then you go down two floors and put them on someone else’s desk. He’s like, Yeah, yeah. Well no, my secretary does that. And then it’s like, Okay, well what do you do? And they’re trying to figure out why do we need this guy. Why can’t the people upstairs just take the papers straight to the people downstairs? And so he then continues to defend his job. But it shows the point that we’re trying to make with these intermediaries, the economy is full of all these people whose job it is. For example, a lot of us have credit cards.

And so rather than me, I’ll go to the grocery store and I’ll swipe my credit card cuz I owe them, let’s say $30. So I’ll swipe it and it feels like I’m directly paying the grocery store, taking $30 from my account and giving it to you. But that’s not true. Visa or MasterCard, are an intermediary. They’re in between me and the grocery store. I’m not actually paying the grocery store directly. The grocery store. The credit card company will say Visa, Visa is paying the grocery store, Here are your 30 bucks. And then later on Visa comes to me and says, Okay, you owe us $30 and if you don’t pay it by next week, you owe us a late fee. And so they are an intermediary. Now, in some cases that’s convenient. Maybe I don’t have $30 at that time, which is why a credit card is nice.

But even with a debit card, which uses your checking account, so it’s not a credit card that you pay later, you actually need money in your account with a debit card, you’re still using Visa, you’re still using these companies or a bank rather than being able to. So Bitcoin’s exciting. Why? Because we can get rid of these intermediaries that charge us little bits of money. They charge fees, they’ll charge. For example, here’s a more relevant example, Brittany. We sell The Tuttle Twins books. People can go to our website and they can buy the books. They’re not buying them, they’re not paying us directly. They’re paying money to our merchant provider. In this case, we use PayPal. So when people put in their credit card number, then behind the scenes PayPal will charge the card and PayPal charges. I think it’s like 3% or something like that. So when people pay us $10 for a book, we’re not actually getting $10, we’re getting whatever,

Brittany: Like $9 and something,

Connor: $9 and 70 cents I guess, or something like that. But that adds up over time and they’re just an intermediary. What if the whole world was running on something like Bitcoin where people could just pay other people directly? We wouldn’t have these companies in the middle taking all this money out of the economy for themselves.

Brittany: Do you have something else too? And you have more privacy, especially with credit cards and everything being just out there. Everybody can kind of track us. The government, we know that with NSA, in fact, we talked about that in an earlier episode with Edward Snowden, that they can see your purchases, they can see what you’re getting. And I’m not saying that you have anything to hide or that you need to be hiding things. However, we have a right to privacy, which we talked about in the Fourth Amendment episode, and that’s really important. But when we have these third parties, these intermediaries, ours, our transactions are less secure. They’re less private, and that’s not good for anybody either.

Connor: Yeah, it’s really exciting with something like Bitcoin that it can provide some of this privacy and direct payment. I feel like we should take a moment and explain a little bit more about how it works, which is tough because this is an episode that’s kid-friendly and some of this can get very complex. So we’re gonna boil this down. Extremely

Brittany: Adults. For most adults, this can get complex.

Connor: Very, very true. So Bitcoin is basically digital currency, electronic. It’s not paper money, it’s not coins, but a computer program. Some computer code was written in a way to make it so that everyone can have a digital wallet. So you can have like your password, like a secret code that only you know, and as long as that’s a password, just that then the Bitcoin or the, there’s other cryptocurrencies, which is another name for it, but Bitcoin’s one of the more popular ones. So we’ll just keep talking about Bitcoin. But there are others that are awesome as well. And so you can have Bitcoin in your little Bitcoin wallet, and if you want to then send money to someone, you can use an app or website or whatever and you can send money directly to them. And there are computers all over the world that are running this software, this computer code, and they’re always checking everything.

They’re saying, Okay, did that payment go through correctly? Connor’s Bitcoin correctly, go to Britney’s. And all these computers are always kind of checking it just to make sure they’re creating a lot of security to look at the whole system and make sure everything’s working correctly. And so it’s nice because this is software that anyone can run. It’s not like a bank that has its own software. We can actually see their code. Maybe they have something bad in there, we don’t know. We can’t check it. Anyone can download the Bitcoin software and run it on their computers. Anyone can look at it. So it creates a lot more trust. One of the reasons why we don’t like the Federal Reserve is everything’s in secret. We don’t know what the reasons are and what the decisions are and so forth. But with Bitcoin, with what’s called open-source software, anyone can look at the code.

I could literally take the whole code of Bitcoin, I can then copy and paste it, call it Tuttle coin. I like that. And have my own cryptocurrency. And that’s why we have so many cryptocurrencies. People have taken the computer code, they’ve tweaked it, they’ve changed things, and they have their own cryptocurrency, which is great because it’s a free market. It’s not a government saying, you will use this money, it’s people, Maybe you like Bitcoin, maybe you like Ethereum better, maybe you like Dogecoin, maybe you like all these different coins. Yeah, people can pick and choose. Now I wanna mention I know think you’re familiar with this as well, Brittany, I had a friend when he got married a few years ago. You can find this video on Amazon. My friend’s name is Austin, and he got married to Becky.

And we did this thing this Kickstarter project where we raised I think like $70,000, a few of us to put together this project where we hired some guys, some videographers who film to tag along with Austin and Becky when they got back from their honeymoon. When they came back from their honeymoon, they had to give us their wallets, their cellphones, and any money that they had, and they had to figure out how to get home with their luggage using only Bitcoin. And so they had this experiment where for several months they tried to live entirely on Bitcoin. The documentary is called Life on Bitcoin. So you can find it on Amazon if you want a fun family-friendly watch. This was back in 2013 when they did this. And so for several months, they have to figure out how do you buy groceries. How do you pay for gas? How do you pay your landlord? How do you travel all in Bitcoin? And so the documentary shows how at the time, this is seven years ago, how difficult it was. Cause they’d have to teach people like, Hey, do you accept Bitcoin? What? What’s Bitcoin?

Brittany: What is Bitcoin?

Connor: And so then they’d have to persuade them and then help them adopt it and all this kind of stuff. But once people start using it as it catches on, a lot of people realize, Well wait a minute, there’s something awesome here about this because there are so many problems with our current money. It’s like fake monopoly money that we use. We talk about this a bit in The Tuttle Twins and the creature from Jekyll Island, how the government has basically stolen a lot of the value of our money over time because of inflation. And so something like Bitcoin could In fact, we mentioned Bitcoin at the end of that book when we talk about some of the alternatives. And Bitcoin is mentioned as one of them.

Brittany: There’s another cool thing about it. And you mentioned, how it’s harder when you said you use PayPal and PayPal takes a little bit of your money. So let’s talk about immigrants who maybe move to America to make a better life for themselves, but they’re sending money back home to another country. So a lot of times when they do that, the money they’re sending home, they lose so much of that in the process of just sending it. Because these companies, these third parties, take a fee. So by the time it gets to their family, they’re not actually getting the full amount. So this is gonna save people who need a lot of money. It’s also doing something else really cool. There are people who live in remote areas that have never really used banks before. We use banks all the time. We don’t think of it as being anything crazy.

But when you live, let’s say in Africa, in a remote village, maybe a bank is a three-day walk, or maybe you don’t have access to a bank. However, nowadays everyone has smartphones. Even people in these little villages in Africa have smartphones. And with Bitcoin, all you really need is a smartphone and internet service. And once you have that, you’re connected to the world. So a lot of these small villages have never been able to make transactions with other people before. They have been restricted to their own small villages for the first time ever. Bitcoin and other cryptocurrencies are allowing them to be kind part of the broader economy. And that’s huge because that’s getting them out of poverty, that’s helping them better their life. So that is almost like, that just almost touches me. I get tears. That’s amazing.

Connor: Yeah, it’s so amazing to provide that opportunity. The word, I believe the word for when you’re sending money to another country, to family, another country, it’s a big word, it’s remittance. I did not know that When you’re sending money to family back in Ecuador or whatever, and there’s so much money that gets sent this way, and you are right, there are these companies, these intermediaries who will do it like Western Union for example, and they charge quite a bit of money. And so again, if you can just send money straight directly to that person and within seconds they get that money, I mean, it’s just amazing, right? Cause then you’re saying they charge you a hundred dollars as a fee. That’s a hundred more dollars that your poor family in Ecuador, right, can use to buy medicine Money a hundred

Brittany: Is so got at. Yeah,

Connor: Absolutely. So it’s really, really cool. Solves a lot of problems. But let me play devil’s advocate for a minute. And Brittney. So there are people who criticize things like Bitcoin, especially a lot of people in government really don’t like how secretive it can be. And so there are people who say, Well, if we have something like cryptocurrencies, if there are opportunities for criminals to be able to hide, they can use these cryptocurrencies like Bitcoin and they can do really bad things. So this is bad. We shouldn’t allow Bitcoin because someone bad might use it to hide their criminal activity. How do you respond?

Brittany: Well, the funny thing about that is you could do that with cash too. Not everybody uses a debit card or a credit card for every transaction. So it still exists. It already exists. And also on that note, bad things are going to happen. When we talk about the market and free markets, we talk about it being a better system. That does not mean everything is perfect. Bad people will still exist, and people will still make poor choices. But that doesn’t necessarily mean the government needs to be involved in it as long as nobody’s getting hurt. And two, it doesn’t make it necessarily a bad person. So I think my main argument would be that this is already happening with cash and it’s really nobody’s business what we’re doing.

Connor: Yeah, I think that’s exactly right. Now another thing that the government does is have a monopoly on money. There’s no competition and currencies. So why do you suppose, Brittany, talking about this issue of the monopoly of money? Fiat currency means that the government mandates it like this. You must accept dollars, we use dollars, or we use Franks or Pesos or Bolivian or whatever your country is. So if the government says this will be our currency, why do you suppose that the government does not like competition in currency, in money?

Brittany: Well, they’re not gonna get it, and you’re gonna benefit from it. And that I think is the main thing is governments don’t benefit from Bitcoin. And that’s wonderful. I mean, that’s the only way I can really think to say it. They have nothing to gain from it, which is why it’s such a powerful tool in the hands of individuals like you and me.

Connor: Well, let me flip that. Why do they gain from having a monopoly then? How do they gain under the status quo? And that might help us understand why they see stuff like this as a threat.

Brittany:

Well, everyone has to use a dollar. I mean, even Bitcoin, like you just said, with our friends Austin and Becky, there are not a lot of places that accept Bitcoin. So when they did their experiment, they had to seek it out. So right now everyone has to use the dollar, which means we’re essentially funding the government, we’re keeping them in business because we have to use what they’re selling. We don’t have a choice.

Connor: I think another important point to make on this issue is that when the government controls how much or what type of money is used, then the people in power get to decide when to make new money. In The Tuttle Twins and the creature from Jekyll Island, we show how over time kings would enrich themselves and kind of create new gold coins and inflate the money, and so forth. And so you always have this temptation when you know have the ability to make new money. The people in power are gonna do that. And the way that works is when you create the new money, if I create a million dollars snap of a finger, I get to use that million dollars when it has a lot of purchasing power. And we show in that same book how over time when the inflation kind of trickles down through the economy, all of a sudden everything starts costing more.

So my million dollars that I snapped into existence, I can buy a mansion with that. But once all that new money gets out into the system and people see and feel the effects of having all the additional currency, suddenly maybe that mansion would cost 1.2 million. You’re cotton candy that was 50 cents, maybe costs a dollar now. This is why over time, the dollar has been inflated, in other words, they print so much, so much make all this new money. That’s why grandpa’s complaining that, oh, well that was the younger movie tickets hardly cost ending. And now they cost a lot. Whereas with things like Bitcoin or Ethereum or whatever your cryptocurrency of choice is, the government can’t control how much is produced. They can’t in fact control it at all. And so my feeling is the biggest reason why governments see things like cryptocurrencies as a threat is that they cannot control them. Because it is, and this is a fancy word, but it’s a really important word because it is decentralized.

Brittany:

Ah, that’s my favorite word.

Connor:

So the Federal Reserve is the central bank. They’re centralized, they control the banking. So they’re like central planning. We talk about that in the road to Serdom book. And so that’s centralized when things are kind of controlled, decentralized just means the opposite. So rather than centralized, you have things spread out. There’s no central control. The government is not in charge. As I said, these computers all around the world are all running the software to make sure that no one’s doing any funny business to make sure there’s no stealing, and there are no problems. And so when no one is in control, that gives people like you and me, Brittany, way more control of ourselves, which is what freedom is all about. And so, probably the best note to end on of why I think so many of us are so excited about cryptocurrencies, we’ll see what the future holds.

But certainly, it’s a big threat to those in power who love printing all the new money they want. So we will add some show notes to this page about Bitcoin, a link on the Amazon site to life on Bitcoin if you wanna check that out. Kind of fun to watch and some other resources about Bitcoin as well. So make sure to check out tuttletwins.com/podcast for all your show notes needs. Make sure you’re subscribed. Share this with friends and family on social media. Help us out. Let’s get some new listeners. We really appreciate you guys listening. And Brittany, until next time, I’ll talk to you later.

Brittany: Talk to you later.