BITCOIN FOR BEGINNERS 💰 Watch This BEFORE Investing In Bitcoin!

- So today we're going to be talking about

Bitcoin for beginners.

So now, before I get into this video

because Bitcoin is such a broad topic,

I wanted to point you guys in the direction

of where this video is heading

just to make sure this is the video you're looking for.

Because there are so many possible things

you could be looking for about Bitcoin

and you may be somebody who is further along

in the learning process and this may be very basic

information for you.

So I intend this to be a video for a complete beginner

who does not understand Bitcoin and you're looking

to learn the basics and you're also someone who might

be interested in investing in this currency.

So because I have an investing channel on YouTube

that is who I'm gearing this video towards

so I just kind of wanna point you guys

in the direction of where I'm heading

with this video.

First of all we're going to define

what Bitcoin is as well as what cryptocurrencies are.

Then we're going to talk about Bitcoin versus

traditional Fiat currencies.

Then we're going to talk about why someone

would use a digital currency or what the benefits

are of the digital currency.

Then we're talking about what is a Fiat currency

or our traditional government backed currency,

we're going to go into that.

How Bitcoin is used.

The basics of Bitcoin mining.

By no means am I an expert on Bitcoin or Bitcoin mining

so we are not going to be going in depth about that

but we're gonna cover the basics that you should know

if you're someone who wants to invest in this currency.

What determines the Bitcoin value?

The concerns that people have or the main concerns

people have about Bitcoin and then how to

actually go about investing in Bitcoin.

So guys, that's where we're headed with this video.

I just wanted to make sure you are on the right video.

If you're looking to learn those basics.

But anyways, guys, let's get right into it.

So basically Bitcoin is a decentralized cryptocurrency

payment network.

Bitcoin is the payment network,

so when it has a capital B in front it's referring to

the actual network itself and when you see bitcoin

with a lowercase B this is the actual unit of currency.

So Bitcoin with a capital letter,

that is the overall decentralized cryptocurrency payment

network itself while the lowercase version

is just one unit of this payment network

or one unit of that currency.

Now a cryptocurrency is a digital currency

where encryption techniques regulate degeneration

of units of currency as well as verify the transactions.

And we're gonna get more into that transaction verification

when we talk about the actual bitcoin mining process

and how those transactions are verified, basically.

The decentralized Bitcoin network operates

independently from a central network or bank.

So traditional currencies, they have a centralized network

or bank that basically facilitates all of those

transactions and the generation of currency as well.

So it is a centralized network and there are

many advantages to having a decentralized network.

First of all, with a decentralized network

there's a lower risk of having that network

being compromised because it's not centralized

to one specific location.

One common thing, and many of you may disagree

with me on this but,

the general population does not understand Bitcoin.

Most people just don't understand it because

it is confusing and at first I did not understand it.

If you guys have been watching my channel for a while

I'm sure you saw a video I did a couple weeks ago

talking about Bitcoin and it was a very under researched

video and I apologize about that because I really had

no business making that video.

And you guys did not hesitate to call me out on that

so I apologize about that but this video is much better

researched and I hope this is a much better quality video

for you.

But the currency is used to purchase thousands of illegal

items each day but unfortunately due to the use

of this currency in the purchase of illegal goods

and services, there's kind of a stigma surrounding

this currency, okay.

So Bitcoins are the preferred currency of the deep web.

The deep web is basically web pages that are not indexed by

Google so if you went on there and you searched in Google

how to buy marijuana.

You're not gonna be linked to a webpage because they're

not going to index the pages of these illegal services

being offered so in order to access the deep web

you have to have a method of getting to it

and most people used an anonymous web browser

and you have to have the actual link

to be able to get to these pages.

Most people used to use the Silk Road Marketplace.

I'm not sure if that is still around.

Obviously I've never been on the deep web.

I have no interest in going there.

It's kind of cool, though, if you guys wanna look

up that on the internet or on some YouTube videos,

it's kind of cool to find out more about that deep web.

Well, people would use that Silk Road Marketplace

as a way to buy illegal goods and services.

But in order to access this you need to go onto the deep web

and basically have links to get there.

So if you go online on Google and search for

illegal services and illegal things,

obviously Google is not going to index these pages

or direct you towards them because these are things

that are illegal.

So because Bitcoin is the preferred currency of the deep web

due to its anonymity,

it's used to purchase illegal things like drugs,

illegal firearms, forged documents and even hitman services.

I'm not kidding you guys, you can go on the deep web

and basically buy a service to have someone killed.

It's very scary stuff that nobody should be involved with

but this is one reason that people

are concerned about Bitcoin.

And the truth is, guys, just as many people purchase

illegal services with regular Fiat currency.

So this is no reason to be concerned with Bitcoin.

Just because it's used to purchase

illegal services and goods,

there's plenty of people doing that with regular US dollars

and regular currencies every single day.

So that's not any reason to avoid Bitcoin.

So a little more information

about that Silk Road Marketplace.

This was basically the online black market.

Part of the deep web, like we said,

you have to have specific links to access it,

you would browse securely and anonymously

without traffic monitoring.

Most people would use the Tor web browser

for to basically mask their IP address

and then you would purchase illegal goods

and services with a bitcoin for full anonymity.

So at that point, you are browsing anonymously

and then purchasing with bitcoin to purchase anonymously

that way that transaction or that purchase

can never be linked back to you.

So that is the basics of Bitcoin,

basically how people have used Bitcoin

and the main reason people have concerns with it

which is the fact that it has been used

in the past and still is used today

in the purchase of illegal goods and services

but like we said, plenty of people are doing that

with regular currency so I personally don't

see that as a concern.

Now I want to explain the major reason

that people like Bitcoin and that is the fact

that Bitcoin is a finite resource.

And what I mean by this is there's

only so much of it out there

and we're gonna go into that with this video

and explain why that is.

But the thing is with traditional Fiat currencies

like US dollars, we can just print more money

when we decide that we wanna print more money,

they can just go ahead and say okay, we're going to

increase the supply of US dollars.

US dollars are backed by a government.

They're not backed by anything physical.

Now Bitcoin is backed by the physical Bitcoins themselves.

It's not a physical thing,

but it is a digital currency

so it is backed by something and there is a finite number

of bitcoins that exist.

And a certain number are mined each day.

And that number is decreasing as we go forward.

We're gonna explain that more as we go along here.

But unlike Fiat currencies, Bitcoin is a finite resource.

It's most similar to commodities like silver or gold.

We cannot make more gold, silver or bitcoin.

There is a set number that exists,

you can't just go out there and decide okay,

we're gonna make more gold, we're gonna make more silver.

With traditional Fiat currencies you can say,

absolutely, I'm gonna make more US dollars.

But you can't go out there and make more bitcoins,

that is why many people like the principle of this currency.

Now 21 million is the maximum number of Bitcoins

that will ever exist.

This is basically set up in the algorithm of Bitcoin.

And the final bitcoin will be mined

in the year 2140.

So the last bitcoin will be mined that year

and for those of you who are wondering

because right now roughly 16.5 million

of those 21 million bitcoins have been mined.

So at that rate it seems like we would hit that,

the last final bitcoin being mined, a lot sooner.

But the thing is there is a block reward having frequency.

Every four years, the actual reward diminishes

by 50% so over time you're going to see

less and less bitcoins being given out

as far as a token for facilitating that mining

and you know, taking care of those transactions.

So that is why that decay ratio leads it

to the point where we're not gonna see that final bitcoin,

the 21 millionth bitcoin being mined,

until the year 2140.

Like I said, roughly 16.5 million bitcoins

have been mined so far at an average rate, right now,

due to that halving frequency of 1800 bitcoins

being added each day.

That's basically what the miners are given

for mining those bitcoins.

It's their reward for facilitating this whole network

and these transactions.

Now what's interesting is that most of the currency

is inactive, sitting in Bitcoin wallets.

So while most currency is being used

in the purchase of goods, most people use US dollars

to buy things, most people that have Bitcoin

are not using it.

They're just sitting on it because they are hoping

it appreciates in value which it has significantly.

So most people who have Bitcoin are not using it

to buy goods, they're not using it to go out there

and buy things like coffee or go travel and to pay

for things,

they're using Bitcoin mostly just to sit on it

and hope it appreciates in value.

Okay, so why would someone use a digital currency

like Bitcoin?

There's a couple of reasons here

that support the use of digital currency.

Number one is the fact that there is no central authority

because there's no government backing this currency.

That is why many call Bitcoin the currency of

the people because it is the people involved in a network

who ultimately control the currency.

Number two is basically the same reason.

It's kind of similar, pretty much, freedom from a government

and the rules are set by the people.

So those very much tie in together.

The central authority also has to do with the fact

that this is a decentralized network.

There is no central bank or authority

that facilitates all these transactions.

It is a network controlled and operated

by the people.

Number three, there are no political issues

sending money.

So if you're sending money to people

from other countries,

you don't have to worry about political issues

like any kind of control or confiscation of money.

You can send money to someone else in another country

and the government has no right to step in

or get involved because they have nothing

to do with this currency.

It is the currency of the people.

Number four, no bank account is needed.

This is a plus for some and a minus for others

because people who are concerned about the security

of the Bitcoin network as far as not having

any bank account needed, there's no real verification

as far as opening a Bitcoin wallet.

So that does make it an anonymous currency

which is a concern for some people.

But for other people that is the reason they like Bitcoin

is for the anonymity so that's one that

people will go either way on.

Number five, it is cheaper to send money,

it's faster and it's safer because of this

decentralized network that validates all these transactions.

Number six is the fact that the physical Bitcoin

currency, there is a limited supply out there.

We already talked about how Bitcoin is very similar,

if not pretty much the same as a commodity money.

Actually we're gonna talk about that.

I got ahead of myself here.

We're gonna talk about commodity money here in a second.

Number seven is a good one, too.

There's no risk of counterfeit money.

There's no such thing as a counterfeit bitcoin

and it can never exist.

First of all, because it is non-physical.

Physical bitcoins are not real.

There's no such thing as a physical bitcoin.

It's a non-physical digital currency.

And as a result, every single bitcoin out there

has a detailed history so it would be absolutely

impossible to counterfeit this money.

So now let's talk about a Fiat currency

which is the currency we are familiar with today.

Basically this is legal tender who's value

is backed by the issuing government.

So nothing backs this currency,

nothing holds the value of this currency

other than the strength of the government

backing that currency.

Now US dollars, the Euro and many other world currencies

are what you call Fiat money.

Money backed by a government.

Fiat currencies can be inflated or deflated

based on the supply.

So that is the big difference between Bitcoin

and Fiat money is the fact that if the United States wants

they can print more money and increase the supply

to adjust the actual value of that currency.

Now you cannot make more Bitcoin as we already talked about,

the network is set up in a way that there's only

ever going to be 21 million bitcoins with a controlled

supply entering the market.

You cannot simply make more bitcoins,

it doesn't work that way.

So that is the big difference is the fact

that Fiat currencies, nothing is preventing the government

from just printing more money.

They can just make more of it

and basically deflate the value

through more supply on the market.

Fiat money is not backed by a commodity.

Like I said, it's just backed by the issuing government.

Now commodity money is what we used many, many

years ago, this is basically money where the value

comes from what it is physically made of.

So think of silver or gold coins

that you may still have.

I actually have a collection of a bunch of silver coins

or junk silver just 'cause I was collecting coins

at one point but those coins that were physically made

of silver, that is commodity money

because the value is in what the actual money is made of.

Or what the money is backed by.

So when we were on the gold standard,

that was commodity money because our dollars

were backed by gold.

So in theory, you could have cashed in your dollars

and gotten the equivalent amount back in gold.

That is what you call a commodity money

or a backed currency.

Now Fiat money is not backed by anything.

It is backed by a government alone.

Now that is why you can't make more commodity money, either,

because there's a finite amount of it that exists.

So if our dollars were backed by gold

we would have to have the equivalent amount of gold

in reserve in order to issue more currency.

Or if our money was physically made of gold or silver

you obviously have to have that gold or silver

in order to make more of that currency.

So US dollar and other Fiat money is called free floating

because it's not being backed by anything.

It's just out there floating in the air.

The only reason it has value is because we give it value

and the government basically gives it a value

and we all agree, okay, yes, this has value.

This holds value.

It's backed by the strength of our government

while Bitcoin is backed by commodity money.

It's backed by the physical bitcoins themselves

and the fact that there is a finite number

of these bitcoins out there that exist.

So how is Bitcoin traded or basically

how do you use bitcoin if you have it?

Well, if you're looking to send money to someone,

you would basically send bitcoin from one digital wallet

to another in a peer to peer network.

Now if you are looking to invest in bitcoin

and that's the last thing we're gonna talk about

in this video is two ways to invest.

It's very easy to invest in Bitcoin, not much to it.

But bitcoin exchanges allow the coins to be bought

and sold on the open market, similar to a stock exchange.

It's the same exact kind of deal where you're

exchanging bitcoins with other buyers and sellers.

And the actual Bitcoin exchange charges a fee

for facilitating that transaction.

Now you can also, if you find a bitcoin ATM

which these do exist out there,

I've never seen one.

But you can go to a Bitcoin ATM

and trade Fiat currency for the equivalent Bitcoin

at whatever the Bitcoin to that currency value is

at that time, whatever that exchange rate is.

Now bitcoins can be used to purchase things

as the currency is infinitely divisible.

So you can have .00001 bitcoins

and whatever that would be worth in US dollars

you can divide that as many times as you want

because it's a digital currency,

it's a non-physical good.

That's one of the downsides of a physical commodity money

is it's really hard to cut a gold coin in half

or to cut a little chunk of silver off there.

You cannot divide it.

So that's one of the advantages

of having a divisible currency

is you can divide it up into as many chunks as you want

but obviously if everything, let's say everything

went to shit and we're back using gold and silver

to pay for things and you had a gold bar

and you're trying to buy a loaf of bread,

what are you gonna do?

Flake off a little piece of gold

to buy that bread?

That's the advantage of bitcoin is the fact that it's

infinitely divisible.

Now what's also interesting is that every transaction,

any of the things listed above here,

this is recorded on the block chain.

Now think of the block chain as the public record.

And every single person involved in this network

has to be in consensus on that public record

so they all have to verify the transactions

against that public record

and decide, okay, yes, this is legitimate.

Or okay, no, this is not legitimate.

That's gonna make a little more sense right now.

Let's talk about the basics of bitcoin mining.

And guys, this is where I'm going to be honest.

This is not my area of expertise.

This is the very basics of it.

If you wanna learn more about it I'm sure you can find

so much more information about bitcoin mining

but I just wanted to explain the bare bones essentials

as far as what you would need to know.

So basically bitcoin miners which are the people out there

who actually buy the equipment,

buy the computers and mine these bitcoins,

what they're doing is solving complex math problems

and puzzles and in exchange for them doing that,

what they're basically doing is validating

and facilitating all these transactions in this network

and basically in exchange for doing that,

they are issued bitcoins.

Now they're not issued whole bitcoins,

they're issued fractions of bitcoins

because it's divisible.

Now mining is intentionally difficult

and resource intensive because they want this

to be something that people have a difficult time doing

so that way not one person can control the whole

network and get all those bitcoins.

It's intentionally difficult and resource intensive.

That's why you need very sophisticated

and advanced computer equipment

in order to be a bitcoin miner.

You can't just take your laptop out

or your regular desktop computer from your house

and start mining bitcoins.

You have to actually build or purchase machines

built for bitcoin mining

that are built to handle those

resource intensive math problems

and sophisticated loads.

Now this creates an incentive for the actual bitcoin mining

which remember, is how these transactions are facilitated

and you also need miners all over the world

in order for this to be a decentralized network.

If one group of people did all the bitcoin mining

that would be a centralized network

because it's all happening at one location.

So they want this to be a distributed network

all over the world and they want many miners

involved in the operation.

So this is a perfect way to do this

is by giving them a small amount of money

or a small amount of bitcoin for facilitating

those transactions on a distributed network

and this is also a smart way of circulating

the new currency because everybody's handed

a small amount of the money,

it's a good way to put those new bitcoins

that are being mined into circulation.

Now the bitcoin miners validate transactions

keeping the Bitcoin network secure.

That's essentially what their job is

as a bitcoin miner.

And any transactions are added to that block chain

or think of that, again, as just a public record

for consensus.

Now the block chain basically allows miners to separate

legitimate transactions from things like re-spend attempts.

So let's say you already spent

all the bitcoin in your wallet

and you tried to re-spend that money.

That transaction will not be validated

because the miners will look at that block chain

and go wait a second, no, you spent that money.

Here's the record of this transaction.

And it would be looked at as an illegitimate transaction.

That is essentially what the bitcoin miners do.

That is how they spread the new currency out

and that is what makes this a decentralized network.

So now here's a big question many, many people have.

What actually determines the value of Bitcoin?

So if you go onto a bitcoin price chart

and you see what US dollars would get you

in terms of bitcoin and you see how that price

changes all the time,

you may be asking yourself how is that value determined?

And the truth is there are five main factors

that contribute to the value of Bitcoin

at any given time.

Number one is the fact that there is a finite supply

on the market.

So right now there are roughly 16.5 million,

I think we're just shy of 16.5 million bitcoins

on the market.

Secondly is the fact that there is a fixed number

of bitcoins being added to the market each day.

That would be 1800 per day.

Number three is the fact that there is a finite

number of this resource that exists

which is 21 million bitcoins.

There will never be anymore than 21 million

based on the algorithm.

Number four is a big one, too.

This is the slowing supply going to the market

and like I said, guys, this has to do with the

block reward having frequency.

So like I said before,

every four years the amount that you get

as far as a bitcoin miner,

your reward for mining decays by 50%.

That is why the majority of the bitcoins

have already been mined but we're only going

to see that final bitcoin, that 21 millionth bitcoin,

mined in the year 2140.

That's a long time from now

and I know if you're sitting here saying to yourself,

wait a second, 1800 bitcoins a day,

we only have 21 million total,

we'll hit that a lot sooner than 2140.

But you have to remember that every four years,

your reward for being a bitcoin miner

decays by 50%.

So I drew a very basic example here

of what this would look like,

what a decay ratio would look like for this.

This isn't the actual point that we're at now.

But if you start up here at the full amount here

then you went down 50% after four years

and then another four years, another 50%,

you can see how that exponential curve

gets lower and lower to the point where you're

almost touching that bottom line.

To the point where bitcoin miners are getting

very little reward for actually facilitating

those transactions.

And that is why there is a slowing supply

of bitcoins going to the market,

it's because that block reward having frequency.

And number five, the main factor is just supply and demand.

The market supply versus the market demand.

So are more people looking to buy bitcoin

than sell it or are more people looking

to sell it than buy it?

It's just like a stock.

If you guys are familiar with investing in stocks

I'm sure you'll understand the basic principle

of supply and demand.

While the underlying value of something doesn't change,

the price changes frequently.

When there's a demand for that stock

or whatever it is,

when there's a demand for bitcoin and people wanna buy it

and there's not as many people selling it,

it's going to drive the price higher.

When there is a low demand or there is a large supply

going to the market,

it's going to drive the price lower

because more people are looking to sell then

they are looking to buy.

So most of you guys, it comes down to

the principles of supply and demand.

And the fact that this is a finite currency.

There's a fixed number of bitcoins that exist.

That is really what determines the value of bitcoin

and that is why so many people are utterly fascinated

by Bitcoin and why a lot of people are buying

and holding Bitcoin as an investment.

Now I'm not saying I recommend you guys do this,

personally, I'm not invested in Bitcoin.

But I just wanted to share you guys,

share this information with you guys

in case you were looking to invest in Bitcoin.

Do your own research and make your own

investing decisions but there are a few major concerns

with Bitcoin and I'm not saying that this is how I feel.

I'm saying that if you look at both sides of the table,

these are the concerns people have with Bitcoin.

Number one is the lack of regulation

and the anonymity.

The argument is that because Bitcoin

is largely used on the deep web

and as a black market currency,

there's concern that if there are enough

people using it for things like buying

illegal firearms,

and I know I said before,

people use Fiat currency to do this all the time.

But it seems like Bitcoin they have a target

on their back just because of the media.

They get ahold of it and they start talking about

how Bitcoin is being used for illegal activities.

If enough of this is going on,

what if our government steps in

and forces regulation on this.

At that point, what if there is not the same amount

of anonymity?

That could defeat the whole purpose of Bitcoin

and the underlying value of these bitcoins

could plummet as a result.

This is just an argument people have had.

Not my personal opinion.

Number two, does this abrupt appreciation in Bitcoin value

indicate a speculative bubble?

So for those of you who are familiar with

the dotcom bubble, when everyone was buying internet stocks

left and right and they were just flying sky high in value

and then we reached a tipping point where the value

was being propped up on stilts and speculation,

and there was nothing backing that value,

prices plummeted at that point.

There's a lot of people who are worried that

the value of Bitcoin has appreciated so rapidly

that we've reached the speculative bubble status

to the point where this is a bubble

that at some point is going to burst

and people are going to lose a lot of money.

This is just another argument people have

or are concerned with Bitcoin

is it really did appreciate in value

at a staggering rate.

Number three is the fact that Bitcoin

really is not a functional currency.

And what I mean by this, before you jump

down my throat here,

is the fact that Bitcoin, the value is so volatile,

there's no way to ever say okay,

if you go to Starbucks,

a Starbucks cup of coffee is going to cost you

.0001 bitcoin and I don't know the value so I have

no idea if that price makes sense.

But because bitcoin is so volatile

you'll see multiple percentage price swings per day,

there's no way to set a value of something,

a physical good, in Bitcoin,

because it fluctuates so frequently.

So you would have to consider what that good costs

in a Fiat currency and then what the Bitcoin is valued at

based on that Fiat currency,

and then basically use that method

to be able to buy something.

But a clothing store or a coffee shop

could never say oh, a coffee is exactly this amount

of money because the Bitcoin value fluctuates

so frequently and it's very volatile

compared to looking at the value

of other Fiat currencies.

It has drastic price swings.

So unless it ever balances out,

it can never really be used as a functional currency

as we use Fiat currency today.

So the last thing I'm gonna cover

is how to invest in Bitcoin.

It's very simple.

All you have to do is physically buy the coins.

I know a lot of people have seen like

Bitcoin exchanges.

I know there is a exchange traded fund on the stock exchange

where you can actually invest in a fund

that owns Bitcoins,

I would not recommend that and I talked about

this in the last video I did which I deleted

because it was not a good video.

But basically the issue with that is the fact

that there's such a demand for this exchange traded fund

that people are paying almost twice,

if not two times the value of the underlying bitcoins

to get exposure to them through that exchange

traded fund so if a bitcoin was $2,000,

you would have to spend or pay $4,000 worth of shares

of this ETF in order to get exposure to $2,000

worth of bitcoin.

So that's just insane

especially because it's so easy to actually buy

physical bitcoins.

So if you are someone who wants to invest

in Bitcoin, you've done your research,

you've decided this is for me,

two ways to do it.

Number one is a Bitcoin buy/sell marketplace.

And the one people use is Coinbase.

This is, the only problem with this is the fact

that they don't actually hold the coins themselves.

They basically source the coins when you go to buy them

so if you wanna buy bitcoins you have to go on Coinbase

and basically order those coins

and they're going to source them from a seller.

So the issue with that is during drastic price moves,

there's low liquidity.

So let's say the bitcoin was way up in value

and you said oh my gosh, I want to,

I know most people would say buy,

so if you were looking to sell when it was

way up in value you probably wouldn't have an issue.

If you were looking to buy when it's way up in value,

which is a bad strategy,

if you were looking to do that,

you might have issues with Coinbase

because they have to source those coins

and if there are thousands of people

trying to buy them at once,

they may not be able to source those coins.

Or, if Bitcoins fall drastically in value

and people are still doing the wrong thing,

selling while they're down in value,

there may be so many people trying to sell them

at once that there is a bottleneck

and there is poor liquidity.

If you're somebody that's trying to buy bitcoins,

I would recommend using Coinbase

because you're just buying them and holding them.

But if you're looking to trade in and out of Bitcoins

and trade the price swings,

you wanna use a Bitcoin exchange

where basically you're buying and selling

to other bitcoin buyers and sellers

and the exchange, essentially,

just facilitates those transactions for a fee.

So that way you'll have much higher liquidity,

and you can pretty much buy and sell as you need to

without worrying about having issues

with order fulfillment.

Anyways, guys, that's pretty much it.

That's Bitcoin for Beginners.

If you guys enjoyed this video please take a second

to drop a like below and if you have any friends

or family members or people you know who are looking

to learn more about Bitcoin,

please do not hesitate to share this video with them.

If you are new to my channel please consider

subscribing to be notified of any future uploads

and as always, I thank you for taking the time

to watch this video.