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51.01APrelude: Bitcoin -- Why Should I Care?IntroBitcoin Why Should I Care?NANANANANANANAReady For Reviewhttps://www.dropbox.com/s/kkuycw383a18tup/Intro-01-honey-badger-money-bitcoin-01.svg?dl=0https://marvelapp.com/8ai4f0h/screen/684357561
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51.02APrelude: Bitcoin -- Why Should I Care?Storyboard #1Before Bitcoin people had to rely on INTERMEDIARIES:
To spend money. To send money. To receive money. 		NANANANANANANAReady For Reviewhttps://www.dropbox.com/s/x9mh3ctgm819k6v/Storyboard-01-intermediaries-01.svg?dl=0https://marvelapp.com/8ai4f0h/screen/684357571
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51.03APrelude: Bitcoin -- Why Should I Care?Storyboard #2An intermediary is simply a bank, government or other entity that sits in-between the sender and receiver of money.

They exist to verify that the person sending money actually HAS the money in the first place.
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51.04APrelude: Bitcoin -- Why Should I Care?Storyboard #3Bitcoin is designed to let you store, send and receive money —
without being dependent on any organization, whether a bank, or even the government itself.
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51.05APrelude: Bitcoin -- Why Should I Care?Storyboard #4On 15 Sept 2008, the historic and legendary bank Lehman Brothers collapsed.

It was the end of a firm that was founded in 1850, and was the largest bankruptcy in US history.		NANANANANANANAReady For Reviewhttps://www.dropbox.com/s/rg97axwdif91338/Storyboard-04-lehman-brothers-01.svg?dl=0https://marvelapp.com/8ai4f0h/screen/684357601
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51.06APrelude: Bitcoin -- Why Should I Care?Storyboard #5In response, a few weeks later on October 3, the US government authorized a $700 billion bailout of all the remaining large banks. NANANANANANANAReady For Reviewhttps://www.dropbox.com/s/zwhlsbz7excsaos/Storyboard-05-700b-bailout-01.svg?dl=0https://marvelapp.com/8ai4f0h/screen/684357611
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51.07APrelude: Bitcoin -- Why Should I Care?Storyboard #6A few weeks after that on October 31 (Halloween!), a pseudonymous person (or group of people) named “Satoshi” publicly published the initial technical paper for a new electronic payment system: Bitcoin.NANANANANANANAReady For Reviewhttps://www.dropbox.com/s/adajnylurnamcgm/Storyboard-06-bitcoin-technical-paper-01.svg?dl=0https://marvelapp.com/8ai4f0h/screen/684357621
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51.08APrelude: Bitcoin -- Why Should I Care?Storyboard #7The identity of Satoshi remains a mystery to this very day!
(and we will discuss this in later quizzes why this is important)		NANANANANANANAReady For Reviewhttps://www.dropbox.com/s/n6jiaygaoacxsny/Storyboard-07-satoshi-remains-a-mystery-01.svg?dl=0https://marvelapp.com/8ai4f0h/screen/684357631
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51.09APrelude: Bitcoin -- Why Should I Care?Storyboard #8More importantly, the technical paper introduced a new idea that had never existed before: DIGITAL MONEY that does not need to rely on a central authority, company or government. NANANANANANANAReady For Reviewhttps://www.dropbox.com/s/sd9ruy05k3n3mxw/Storyboard-08-no-central-authority-01.svg?dl=0https://marvelapp.com/8ai4f0h/screen/684357641
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51.1APrelude: Bitcoin -- Why Should I Care?EndLet’s explore some of the characteristics that make Bitcoin so special.

Or

I don't mean to badger you but there's a lot more to learn about Bitcoin. Let's dig in...

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101.01bitcoinWhatIsItBBitcoin: What is it?whatIsBitcoinSo what exactly is Bitcoin?So what exactly is Bitcoin?Bitcoin is digital money.

It can be transferred instantly and securely between any two people in the world — without the need for a bank or any other financial company in the middle.		1Digital moneyCorrect. You just earned 1 “sat”!
A video game
Incorrect, please try again.
A new cartoon character
Nope. At least not one that we know of!Ready For Reviewhttps://www.dropbox.com/s/sutfjfs9l2b2upn/01-so-what-exactly-is-bitcoin-01.svg?dl=0https://marvelapp.com/8ai4f0h/screen/681786101
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101.02bitcoinWhatIsItBBitcoin: What is it?satI just earned a “Sat". What is that?I just earned a “Sat". What is that?One “Sat” is the smallest unit of a bitcoin.

We all know that one US Dollar can be divided into 100 cents. Similarly, one Bitcoin can be divided into 100,000,000 sats.

In fact, you do not need to own one whole bitcoin in order to use it. You can use bitcoin whether you have 20 sats, 3000 sats — or 100,000,000 sats (which you now know is equal to one bitcoin).
2The smallest unit of BitcoinCorrect. You just earned another two sats!! A small satelliteMaybe… but that is not the correct answer in this context 🙂A space cat 🐱🚀Ummm.... not quite!Ready For Reviewhttps://www.dropbox.com/s/tabgtfnfr9w3jfa/02-i-just-earned-a-sat-01.svg?dl=0https://marvelapp.com/8ai4f0h/screen/681786111
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101.03bitcoinWhatIsItBBitcoin: What is it?whereBitcoinExistWhere do the bitcoins exist?Where do the bitcoins exist?Bitcoin is a new form of money. It can be used by anyone, anytime -- anywhere in the world.

It is not tied to a specific government or region (like US Dollars). There are also no paper bills, metal coins or plastic cards.

Everything is 100% digital. Bitcoin is a network of computers running on the internet.

Your bitcoin is easily managed with software on your smartphone or computer!		5On the InternetCorrect. You just earned another 5 sats.On the moonIncorrect. Well… at least not yet ;) In a Federal bank account Wrong. Please try again.Ready For Reviewhttps://www.dropbox.com/s/bddhgqmm640fh62/03-where-do-the-bitcoins-exist-01.svg?dl=0https://marvelapp.com/8ai4f0h/screen/681786121
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101.04bitcoinWhatIsItBBitcoin: What is it?whoControlsBitcoinWho controls Bitcoin?Who controls Bitcoin?Bitcoin is not controlled by any person, company or government.

It is run by the community of users -- people and companies all around the world -- voluntarily running bitcoin software on their computers and smartphones. 		5A voluntary community of users around the world That is right. Bitcoin is made possible by people all around the world running bitcoin software on their computers and smartphones. Mr Burns from The Simpsons An amusing thought — but not correct! The government of France Wrong. There is no company nor government that controls Bitcoin.Ready For Reviewhttps://www.dropbox.com/s/5p0e81auqujb5mc/04-who-controls-Bitcoin-01.svg?dl=0https://marvelapp.com/8ai4f0h/screen/682676971
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101.05bitcoinWhatIsItBBitcoin: What is it?copyBitcoinIf Bitcoin is digital money, can’t someone just copy it — and create free money?If Bitcoin is digital money, can’t someone just copy it — and create free money?The value of a bitcoin can never be copied. This is the very reason why Bitcoin is such a powerful new invention!!

Most digital files — such as an iPhone photo, an MP3 song, or a Microsoft Word document — can easily be duplicated and shared.

The Bitcoin software uniquely prevents the duplication — or “double spending” — of digital money. We will share exactly how this works later on!		5No — it is impossible to copy or duplicate the value of bitcoinThat is absolutely correct! Yes, you can copy bitcoins just as easily as copying a digital photoYou know that it is not true. Try again.Yes, but copying bitcoin requires very specialized computersIncorrect. There is no way for anyone to copy, or create a duplicate, of bitcoin.Ready For Reviewhttps://www.dropbox.com/s/aeqkr08hbqyeh5h/05-cant-copy-bitcoin-01.svg?dl=0https://marvelapp.com/8ai4f0h/screen/682767781
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201.01WhatIsMoneyCWhat is Money? moneySocialAgreement
Money is a social agreement.
Why does money have value?Money requires people to trust.

People trust the paper dollar bills in their pocket. They trust the digits in their online bank account. They trust the balance on a store gift card will be redeemable.

Having money allows people to easy trade it immediately for a good, or a service.		10Because people trust that other people will value money similarly Correct. This is what allows money to work!Because your mother told you so She may well have. But that is not the correct answer here!Because a dollar bill is worth its weight in goldNope. In the past you could exchange US dollars for gold. But this is no longer the case. Ready For Reviewhttps://www.dropbox.com/s/1fnldwucqjdm3i7/01-money-is-a-social-agreement-01.svg?dl=0https://marvelapp.com/8ai4f0h/screen/684351811
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201.02WhatIsMoneyCWhat is Money? coincidenceOfWantsMoney solves the “coincidence of wants”... What is that??Which coincidence does money solve? Centuries ago, before people had money, they would barter -- or haggle over how to trade one unique item, in exchange for another item or service.

Let’s say you wanted to have a meal at the local restaurant, and offered the owner a broom. The owner might say “no” -- but I will accept three hats instead, if you happen to have them.

You can imagine how difficult and inefficient a “barter economy” would be !

By contrast, with money, you can simply present a $20 bill. And you know that the restaurant owner will readily accept it. 		10Coincidence of wantsThat is right. Money allows you to easily purchase something, without haggling about the form of paymentCoincidence of day and nightNo silly, you know that is not the answer.Coincidence of the moon blocking the sunNot quite. We call that a solar eclipse 🌚Ready For Reviewhttps://www.dropbox.com/s/i3izi9gav604fcc/02-coincidence-of-wants-01.svg?dl=0https://marvelapp.com/8ai4f0h/screen/684351821
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201.03WhatIsMoneyCWhat is Money? moneyEvolution
Money has evolved, since almost the beginning of time. 		What are some items that have been historically used as a unit of money? Thousands of years ago, society in Micronesia used very large and scarce stones as a form of agreed currency.

Starting in the 1500’s, rare Cowrie shells (found in the ocean) became commonly used in many nations as a form of money.

And for millenia, gold has been used as a form of money for countries around the world -- including the United States (until 1971).
10Stones, seashells and gold Correct. Items that are rare and difficult to copy have often been used as money.Tiny plastic Monopoly board game houses Wrong. They may have value when playing a game -- but not in the real word! Coins made of chocolateNope. They may be tasty. But they are not useful as money.Ready For Reviewhttps://www.dropbox.com/s/1nn0noi5zs8sxpd/03-money-has-evolved-01.svg?dl=0
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201.04WhatIsMoneyCWhat is Money? whyStonesShellGoldWhy were stones, shells and gold commonly used as money in the past? Why were stones, seashells and gold used as units of money?Well, these items all had some -- but not all -- of the characteristics of good money.

So what characteristics make for “good” money?
Scarce: not abundant, nor easy to reproduce or copy
Accepted: relatively easy for people to verify its authenticity
Durable: easy to maintain, and does not perish or fall apart
Uniform: readily interchangeable with another item of the same form
Portable: easy to transport
Divisible: can be split and shared in smaller pieces		10Because they have key characteristics -- such as being durable, uniform and divisible. Correct. More key characteristics include being scarce and portable.Because they are pretty and shiny.Incorrect. That may be true, but alone are not great characteristics of money. Because they fit inside of your pocket Not quite. Although these items were surely portable, that alone was not the reason to be used as money. Ready For Reviewhttps://www.dropbox.com/s/1k2r5iff90hr199/04-why-used-as-money-01.svg?dl=0https://marvelapp.com/8ai4f0h/screen/684351841
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201.05WhatIsMoneyCWhat is Money? moneyIsImportant
Money is important to individuals
What is the primary reason money is important? Everybody knows that money matters.

Most people exchange their time and energy -- in the form of work -- to obtain money. People do so, to be able to buy goods and services today -- and in the future.
10Money allows people to buy goods and services today -- and tomorrow. That is right!Money allows you to go to the moon.Incorrect. Although that may change in the future ;) Money is the solution to all problems. Not quite. Although some people may believe such, this answer does not address the primary purpose of money. Ready For Reviewhttps://www.dropbox.com/s/fz9nnxaxd6dcfns/05-money-is-important-01.svg?dl=0https://marvelapp.com/8ai4f0h/screen/684351851
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201.06WhatIsMoneyCWhat is Money? moneyImportantGovernementMoney is also important to governments Who can legally print US Dollars, anytime they wish? Modern-day economies are organized by nation-states: USA, Japan, Switzerland, Brazil, Norway, China, etc.

Accordingly, in most every nation, the government holds the power to issue and control money.

In the United States, the Central Bank (known as the Federal Reserve, or “Fed”) can print, or create, more US Dollars at any time it wants.

The “Fed” does not need permission from the President, nor Congress, and certainly not from US citizens.

Imagine if you had the ability to print US Dollars anytime you wanted to -- what would you do??		10The US Central Bank (The Federal Reserve) Correct. The US Government can print as much money as they want at any time.Mr Burns from The SimpsonsIncorrect. Although it did seem like he always had a lot of money.A guy with a printing press in his basement No. Whilst some people do create fake dollar bills, it is definitely not legal! Ready For Reviewhttps://www.dropbox.com/s/pz0wh0atyr1bbg7/06-important-to-governments-01.svg?dl=0https://marvelapp.com/8ai4f0h/screen/684351861
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301.01HowDoesMoneyWorkDHow Does Money Work? WhatIsFiatFiat Currency: What is that? Who creates fiat money, such as US Dollars or Swiss Francs?All national currencies in circulation today are called “fiat” money. This includes US Dollars, Japanese Yen, Swiss Francs, and so forth.

The word “fiat” is latin for “by decree” -- which means “by official order”.

This means that all fiat money -- including the US Dollar -- is simply created by the order of the national government.
20It is created by order of the National government in a given country.Correct. The central bank of a government creates fiat money. By the manager of the local branch bank.Incorrect. A local bank can only manage money that has been previously created by the government.The Monoploy Money Man. Nope. Try again! Ready For Reviewhttps://www.dropbox.com/s/2sf89bzbxojefv3/01-fiat-currency-01.svg?dl=0https://marvelapp.com/8ai4f0h/screen/684841701
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301.02HowDoesMoneyWorkDHow Does Money Work? whyCareAboutFiatMoneyI trust my government.
Why should I care about fiat money?
Why should I care about the government controlling fiat money?As shared in a prior quiz, the US Central Bank is the Federal Reserve, or the “Fed”.

The Fed can print more dollars at any time -- and does not need permission from the President, nor Congress, and certainly not from US citizens.

Having control of money can be very tempting for authorities to abuse -- and often time leads to massive inflation, arbitrary confiscation and corruption.

In fact, Alan Greenspan, the famous former chairman of The Fed, famously said the US “can pay any debt that it has, because we can always print more to do that”. 		20All fiat currency is eventually abused by government authorities.Correct. Throughout history, governments have been unable to resist the ability to print money, as they effectively have no obligation to repay this money.Local banks might not have enough vault space to hold all of the dollar bills.Nope, that is certaily not the case.There might not be enough trees to make paper for all of the additional dollar bills.Wrong. Please try again.Ready For Reviewhttps://www.dropbox.com/s/lzwjqul1cup3cn1/02-i-trust-my-government-01.svg?dl=0https://marvelapp.com/8ai4f0h/screen/684841711
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301.03HowDoesMoneyWorkDHow Does Money Work? GovernementCanPrintMoney
Who should care that the government can print unlimited money?		What does it mean when the government prints money?Well, everybody should care!

The practice of government printing money -- or increasing the supply of dollars -- leads to inflation.

Inflation is an increase in the price of goods and services. In other words, the price for something in the future will be more expensive than today.

So what does inflation mean for citizens?

In the United Kingdom, the Pound Sterling has lost 99.5% of its value since being introduced over 300 years ago.

In the United States, the dollar has lost 97% of its value since the end of WWI, about 100 years ago.

This means a steak that cost $0.30 in 1920... was $3 in 1990… and about $15 today, in the year 2020!
20The printing of additional money leads to inflation.Correct. This means that goods and services will cost more in the future.People must exchange old dollar bills at the bank every year.Nope. Older dollar bills are just as valid as newer ones.The appearance of the dollar bill changes.Incorrect. Although the government may issue new looks for bills, this has nothing to do with increasing the money supply.Ready For Reviewhttps://www.dropbox.com/s/1smzp6bv5nnbgmr/03-print-unlimited-money-01.svg?dl=0https://marvelapp.com/8ai4f0h/screen/684841721
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301.04HowDoesMoneyWorkDHow Does Money Work? FiatLosesValueOverTimeDoes this mean that all fiat money loses value over time? What happens to the value of all fiat money over time?That is correct.

In the history of the world, there have been 775 fiat currencies created. Most no longer exist, and the average life for any fiat money is only 27 years.

The British Pound is the oldest fiat currency. It has lost more than 99% of its value since 1694.

There is no precedent for any fiat money maintaining its value over time. This is inflation.
It is effectively a form of theft of your own hard earned money !
20Every fiat currency that ever existed has lost a massive amount of value.Correct. This is true even for USD, which has lost 97% of its value during the last 100 years.The value stays the same forever.Incorrect. Please try again. The look and design of paper bills is updated every 10 years or so.Not quite. Although the design of papers bills may change, this has nothing to do with their value. Ready For Reviewhttps://www.dropbox.com/s/0343pbsl1bbnv4s/04-fiat-money-loses-value-01.svg?dl=0https://marvelapp.com/8ai4f0h/screen/684841731
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301.05HowDoesMoneyWorkDHow Does Money Work? OtherIssuesOK, fiat money loses value over time. Are there other issues? What are some other issues that exist with fiat money?Yes, there are many other issues that exist with modern fiat money.

First, it can be extremely difficult to move money around the world. Often, governments will outright restrict the movement -- and sometimes even confiscate money -- without a valid reason or explanation. And even when you can send money, high transaction fees make it very expensive.

Second, even in the US, there has been a complete loss of privacy, as the majority of commerce takes places with debit and credit cards, as well as online with other systems such as PayPal and Apple Pay.

Ever notice how an ad appears in your social media or Gmail just moments after searching for a certain product or service? This is known as “surveillance capitalism”, and is based on companies selling your personal financial data. 		20Money is difficult to move around the world, and can also be surveilled.Correct. We will explain more about these issues in subsquent quiz modues. Keep digging!!Money is no longer needed in the 21st Century.Wrong answer. You know that is not true.Money is the root of all evil. While some may believe this to be so, it is not the answer we are looking for here.Ready For Reviewhttps://www.dropbox.com/s/emry12uzieeyhq4/05-are-there-other-issues-01.svg?dl=0https://marvelapp.com/8ai4f0h/screen/684841741
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401.01BitcoinWhySpecialEBitcoin: Why is it special? LimitedSupplySpecial Characteristic #1:
Limited Supply
Is the supply of bitcoin limited forever?Governments can print fiat money in unlimited quantities.

By way of contrast, the supply of Bitcoin is fixed — and can never exceed 21 million coins.

A continually increasing supply of fiat money creates inflation. This means that the money you hold today is less valuable in the future.

One simple example:
A loaf of bread that cost about 8 cents in 1920. In the year 1990 one loaf cost about $1.00, and today the price is closer to $2.50 !

The limited supply of bitcoin has the opposite effect, one of deflation.

This means that the bitcoin you hold today is designed to be more valuable in the future — because it is scarce.
25Yes. There can never be more than 21 million bitcoin created.Correct. By limiting the amount that can be created, Bitcoin is designed to increase in value over time.No. The government can create more bitcoin at any time.Wrong answer. The government has no control over Bitcoin.No, the bitcoin software can be changed to allow more bitcoins to be created.Incorrect. One of the key attributes of bitcoin is that the supply is limited forever.Ready For Reviewhttps://www.dropbox.com/s/vfdvcadqi9rqpis/01-limited-supply-01.svg?dl=0https://marvelapp.com/8ai4f0h/screen/685608181
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401.02BitcoinWhySpecialEBitcoin: Why is it special? DecentralizedSpecial Characteristic #2: Decentralized Is bitcoin centralized?Fiat money is controlled by banks and governments — which is why people refer to it as a “centralized” currency.

Bitcoin is not controlled by any person, government or company — which makes it “decentralized”

Not having banks involved means that nobody can deny you access to bitcoin — because of race, gender, income, credit history, geographical location — or any other factor.

Anybody — anywhere in the world — can access and use Bitcoin anytime you want. All you need is a computer or smartphone, and an internet connection!		25No. Bitcoin is completely “decentralized”.That is correct. There is no company, government or institution that controls bitcoin. Anyone can use bitcoin — all need is a smartphone and an internet connection.Yes. It is centrally controlled by the United Nations.Wrong answer. Please try again. Yes. It is centrally controlled by the world’s largest banks.Incorrect. You already know this is not true!Ready For Reviewhttps://www.dropbox.com/s/6gy9lraxpg4zrbh/02-decentralized-01.svg?dl=0https://marvelapp.com/8ai4f0h/screen/685608191
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401.03BitcoinWhySpecialEBitcoin: Why is it special? NoCounterfeitMoneySpecial Characteristic #3:
No Counterfeit Money
Can people counterfeit Bitcoin?Paper money, checks and credit card transactions can all be counterfeit, or faked.

The unique software that runs the Bitcoin network eliminates the possibility of duplicating money for counterfeit purposes.

New bitcoin can only be issued if there is agreement amongst the participants in the network. People who are voluntarily running bitcoin software on their own computers and smartphones.

This ensures that it is impossible to counterfeit, or create fake bitcoins.
25No. It is impossible to counterfeit Bitcoin. That is the right answer. In a subsequent quiz, Honey Badger will explain details as to why this is so!Yes. Although creating fake bitcoin requires very specialized computers.Incorrect. There is no way for anyone to copy or duplicate the value of a bitcoin.Yes. The govrenment can print as much bitcoin as it likes.Wrong. Although the government can print unlimited dollars, it can not print bitcoin.Ready For Reviewhttps://www.dropbox.com/s/o375lhzglr7iud8/03-no-counterfeit-money-01.svg?dl=0https://marvelapp.com/8ai4f0h/screen/685608201
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401.04BitcoinWhySpecialEBitcoin: Why is it special? HighlyDivisibleSpecial Characteristic #4:
Highly Divisible
What is the smallest amount of Bitcoin one can own, or use?Old-fashioned fiat money can only be spent in amounts as small as one penny — or two decimal places for one US Dollar ($0.01).

On the other hand, Bitcoin can be divided 100,000,000 times over. This means that you could spend as little as ₿0.00000001. You will note the "₿" symbol, which is the Bitcion equivalent of "$". Sometimes you will also see the use of BTC, instead of ₿.

By way of contrast, Bitcoin can handle very small payments — even those less than one US penny!		250.00000001 BTCYes. You can divide a bitcoin into 100,000,000 pieces. As you already know, the smallest unit of bitcoin — B0.00000001 — is known as a “sat”.One whole bitcoin. It is not possible to use anything less.Wrong. Bitcoin is highly divisible. You can easily use a very small fraction of a bitcoin.0.01 BTCIncorrect. Although the smallest unit of US currency is one penny, a bitcoin is divisible by much more than 100x. Ready For Reviewhttps://www.dropbox.com/s/qmlzdo4pe4vs8zz/04-highly-divisible-01.svg?dl=0https://marvelapp.com/8ai4f0h/screen/685608211
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401.05BitcoinWhySpecialEBitcoin: Why is it special? securePartOneSpecial Characteristic #5:
Secure -- Part I
Is the Bitcoin network secure?The bitcoin network is worth well over $100 billion today. Accordingly, the network must be very secure — so that money is never stolen.

Bitcoin is known as the world’s first cryptocurrency.

The “crypto” part of the name comes from cryptography. Simply put, cryptography protects information through very complex math functions.

Most people do not realize — but Bitcoin is actually the most secure computer network in the world !

(you may have heard about bitcoin “hacks” — which we will debunk in the next quiz)
25Yes. The bitcoin network is very secure.Correct. In fact, the Bitcoin network has never once been hacked. Answer the next question to learn more!Maybe. It depends on the day of the week.Nice try, but wrong. The bitcoin network is safe and secure — 24 hours a day, 365 days a year.No. It is open source software, and is easily attacked.Incorrect. Although bitcoin is indeed “open source” software — or available to the public for free — is still extremely secure. Ready For Reviewhttps://www.dropbox.com/s/uuzllsjsfi3t4s4/05-secure-part-i-01.svg?dl=0https://marvelapp.com/8ai4f0h/screen/685608221
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401.06BitcoinWhySpecialEBitcoin: Why is it special? securePartTwoSpecial Characteristic #5:
Secure -- Part II 		Has Bitcoin ever been hacked?To be direct: the bitcoin network itself has never been hacked. Never once.

Then what exactly has been hacked?

Certain digital wallets that did not have proper security in place.

Just like a physical wallet holds fiat currency (in the form of paper bills), digital wallets hold some amount of bitcoin.

In the physical world, criminals rob banks — and walk away with US Dollars. The fact that someone robbed a bank does not have any relationship as to whether the US Dollar is stable or reliable money.

Similarly, some computer hackers have stolen bitcoin from insecure digital wallets — the online equivalent of a bank robbery.

However, it is important to know that the bitcoin network has never been hacked or compromised !
25No. Bitcoin has never been hacked.That is correct. The bitcoin network has never been compromised. However, it is important to make you use secure digital wallet (such as Galoy!) to keep your personal bitcoins safe at all times.Yes. Bitcoin gets hacked frequently.Wrong. Please try again.Yes. Bitcoin usually gets hacked on holidays, when traditional banks are closed.No silly, you know that is not the correct answer.Ready For Reviewhttps://www.dropbox.com/s/d1sml966y2otamc/06-secure-part-ii-01.svg?dl=0https://marvelapp.com/8ai4f0h/screen/685608231
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MoneyWhatIsScarcityFMoney: What is scarcity?
We previously learned that fiat money has many shortcomings and problems.

Most fundamentally, fiat currency loses its value over time, because governments always print more money when they need it.

In this section we will learn some basic concepts related to how money works -- and related these concepts to the limited supply of bitcoin. 		[storyboard -- no associated question]1
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MoneyWhatIsScarcityFMoney: What is scarcity? What types of scarcity exist in the world? In the physical realm, there are two forms of scarcity: artificial and natural.

Artificial scarcity is man-made. Example include:
A limited edition baseball card
Rare vintage automobiles
A unique work of art from a painter

In all of these examples, the item is limited -- or scarce -- because people only created a very small number of each.

Natural scarcity is different, and relates to items that, as the name implies, exist in nature. Just two examples include:
Rare seashells from the ocean
Gold
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MoneyWhatIsScarcityFMoney: What is scarcity?
Why should I care about artificial scarcity?

Artificially scarce items (baseball cards, automobiles, works of art) have a number of unique risks.

This results from a fundamental fact: Artificial items are all CENTRALLY created by one person, or a group of people.

By way of contrast, naturally scarce items -- like seashells or gold -- are not created by a single person or group.

Naturally scarce items are typically distributed in various places on earth. You can think of these items as DECENTRALIZED. They exist in the wild, and are available to anyone who has the ability to search for, and acquire them.

It is also worth noting that naturally scarce items are much harder to counterfeit.
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MoneyWhatIsScarcityFMoney: What is scarcity? I am not sure I fully understand.
Can you provide an example?
Of course !

Think of gold. It exists naturally in the ground, in many different places around the world.

Historically, to acquire gold, a person did not need permission from anyone else. If you wanted to mine for gold, you simply needed desire and resources (e.g., equipment and labor) to do so.

In other words, there is no center from which all gold begins its existence -- and no central authority who can restrict, or increase, the natural supply of gold.

This is an important distinction, as we consider different scarce items, both CENTRALIZED and DECENTRALIZED versions. Particularly those items used as money.
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MoneyWhatIsScarcityFMoney: What is scarcity? Gold as moneyGold has been used by mankind as money for thousands of years for a few basic reasons. It is:
Decentralized, or distributed in many places -- as covered in the last quiz
Durable -- it basically lasts forever
Uniform -- one ounce of gold is readily exchangeable for another ounce of gold

….and most importantly, gold is SCARCE !

It is not easy to find and acquire new gold, and it is very difficult to counterfeit or copy gold.

As you already know, these properties, namely...
Durable
Uniform
Scarce
…are key characteristics of GOOD money.
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MoneyWhatIsScarcityFMoney: What is scarcity? Gold has good characteristics. Why doesn’t everybody use it as money? That is a great question.

The primary disadvantage of gold (and other rare precious metals, such as silver) is the physicality and weight.

It is not very easy to store, secure or transfer meaningful amounts of gold.

Additionally, it is not easy to break gold up into small pieces, and share them whenever you want.

And as we learned earlier, two additional key characteristics of GOOD money are:
Divisibility
Portability
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MoneyWhatIsScarcityFMoney: What is scarcity? The United States effectively used gold as money -- until 1971. For much of the 20th century, a US citizen could exchange paper dollar bills, and receive gold in return.

This ended in 1971, when President Nixon removed the United States from what was known as the ‘gold standard’.

Since then, the US Dollar has been a fiat currency -- “by order” of the government.

There is nothing scarce about US Dollars anymore.

As you already know, the Fed (the US Central Bank) can simply print more dollars anytime. As they did when printing $586 billion during one single WEEK in March, earlier this year !
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MoneyWhatIsScarcityFMoney: What is scarcity? Do you remember…
Is bitcoin scarce?
You will recall that the Bitcoin technical paper was published on October 3, 2008 -- a few weeks after Lehman Brothers filed for bankruptcy.

Subsequently, the bitcoin network -- software running on computers connected to the Internet -- went live on January 3, 2009.

Both the technical paper -- and the network software -- have limited the total supply to 21 million bitcoin.

This can never be changed. It is limited. Forever.

Scarcity is perhaps the most critical characteristic of GOOD money. In the next series of quizzes, we will build on this concept -- and teach you how bitcoin actually works !
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G. Bitcoin Mining:
How Does It Work?
The digitization of fiat money was necessary for ecommerceWith the advent of the internet, information could be digitized, and easily distributed globally.

Correspondingly, the digitization of money was necessary for e-commerce.

Today, less than 10% of all US Dollars exist in the form of cash, or paper money. More than 90% of US Dollars are “digital”. They exist solely in an electronic ledger created by banks.

These digital versions of US dollars are then processed by:
Credit Card Networks (Visa, MasterCard, American Express)
Retail Tech Giants (Amazon, Apple, Alibaba)
Internet-native Payment Processors (PayPal, Venmo, Square) 		1
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G. Bitcoin Mining:
How Does It Work?
These large companies are sole arbiters of transactions As the sole arbiters of how their money is used.

All of these companies -- from Visa and Apple, to PayPal and Venmo -- can censor transactions.

They can also seize money and close accounts at any time, for any reason. And often do such without any consent from the customer (that’s you) !

Lastly, since they are large, centralized entities, these companies are often the target of government pressure, and also hacks of customer data.

A recent example is when the private and personal data of 150 million Equifax customers was breached in 2017.
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G. Bitcoin Mining:
How Does It Work?
Bitcoin solves issues created by relying on artificial scarcityPrior to the invention of Bitcoin, there did not seem to be a way to create true scarcity in the digital realm.

As we saw in previous quizzes, in order to ensure people do not “double spend” digital dollars, society has come to rely on large, centralized companies to manage digital payments.

One key element that makes Bitcoin special, and the first digital currency that has true scarcity, is rooted in mathematics.

In math, there are very rare numbers known as “prime numbers”. These can only be wholled divided by the number 1, and itself.

Examples of prime numbers include 5, 7 and 11.
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G. Bitcoin Mining:
How Does It Work?
What do prime numbers have to do with Bitcoin? Primes become increasingly rare as numbers become larger.

For example, there are 25 prime numbers between 1 and 100.

However, there are only 14 prime numbers between 900 and 1000.

Above the number 1 billion, prime numbers become very scarce.

In the Bitcoin network, the production of new bitcoins occurs through a global competition where participants search for very rare numbers.
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G. Bitcoin Mining:
How Does It Work?
Bitcoin: The first example of true digital scarcityBefore the invention of Bitcoin, people had discovered certain assets in the world that were…
Scarce and physical -- like rare seashells or gold
Scarce and digital, but controlled by a central company -- like Visa or Venmo
Abundant and digital -- like mp3 music files or digital photographs

Before Bitcoin, there had never been a DIGITAL asset that was decentralized AND SCARCE. 		1
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G. Bitcoin Mining:
How Does It Work?
Bitcoin Mining: the search for a scarce digital commodity First, as covered in the last quiz, Bitcoin mining involves the search for something rare.

Second, Bitcoin mining yields a valuable reward.

This again is very similar to mining in the physical world -- where people who spend time and money to search receive a reward -- in the form of the gold or other commodity for which they were mining.
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G. Bitcoin Mining:
How Does It Work?

Bitcoin Mining: How big is the reward?
We already know that there can never be more than 21 million Bitcoin ever created, because the supply is limited and capped in the network software.

The network software also dictates that new 6.25 new bitcoin are issued every 10 minutes or so.

Who gets these 6.25 new bitcoins? Well, the people who are voluntarily contributing computer power to run the network -- the Bitcoin Miners!
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G. Bitcoin Mining:
How Does It Work?
Bitcoin Mining: Proof-of-WorkIn the search for physical gold, miners use pickaxes and excavation machines, to move dirt and rocks.

With Bitcoin, miners use powerful computers to search for specific and particular rare numbers.

This process of discovering rare numbers is called “proof of work”, because it PROVES to everyone that a lot of WORK, in the form of computing power, went into finding it.
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G. Bitcoin Mining:
How Does It Work?
Bitcoin Mining: Permissionless Just like with physical gold, no permission from a central authority is required to mine.

Anyone can download the bitcoin software and search for rare numbers.

Even better than gold mining, you do not need to have physical access to a certain piece of land, or be in a specific geography, to mine Bitcoin. All one needs is a computer and access to the Internet.
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G. Bitcoin Mining:
How Does It Work?
Bitcoin Mining: Robust -- there is no single point of failure There are many people and companies all around the world voluntarily contributing computing power to the Bitcoin network.

As you now understand, they do such, in the hopes of claiming a reward, in the form of the bitcoins that are newly issued every 10 minutes.

Because there are many thousands of Bitcoin miners on the network, if some of these computers go offline, or stop working, there is no negative impact. All of the remaining miners will continue to power the Bitcoin network.

Thus, Bitcoin runs without a single point of failure.

You can contrast this with centralized systems…
If Visa network goes down, no one can pay for anything with Visa cards
The same thing holds true for PayPal, or Amazon, or any other central system

Bitcoin’s unstoppable network of miners provide a critical service, processing transactions -- without the vulnerabilities or risks of a central company. 		1
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H. Bitcoin: Transactions Part I --
Blockchain Basics
Let’s start with an analogy:
Sending a personal check 		Say that Bob wants to pay Mary $50 with a personal check. Moreover, let’s assume that Bob and Mary both have checking accounts at the same bank.

When Mary deposits the check into her account, the bank simply does the following:
Debits $50 from Bob’s account
Credits $50 to Mary’s account

The entire process only requires adding two entries into the bank’s LEDGER.

Bank officials do NOT go into a vault, take $50 from Bob’s “pile” of cash, and move it over to Mary’s “pile” of cash.

Doing that would be silly !
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H. Bitcoin: Transactions Part I --
Blockchain Basics
Bitcoin operates on a special ledger:
The Blockchain
The equivalent of paying with a bank check in the digital world of Bitcoin is known as a transaction.

Similar to how banks maintain a ledger, Bitcoin maintains a special kind of ledger, called a blockchain.

People and companies all around the world running Bitcoin validation software continuously check the blockchain. They handle all validation of all transactions, instead of relying on central authority (such as bank).
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H. Bitcoin: Transactions Part I --
Blockchain Basics
Bitcoin Full NodeEach person or company running the software that keeps a copy of the entire Bitcoin ledger, or blockchain, is running a “full node”.

Each full node constantly checks to enforce the rules of bitcoin.

In this way, no central authority can arbitrarily create different rules for Bitcoin. Nor can anyone edit records to steal bitcoin, or spend bitcoin they do not have.

With thousands of full nodes running all around the world, Bitcoin transactions are continually verified without any central authority involved. Ever !
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H. Bitcoin: Transactions Part I --
Blockchain Basics
Bitcoin is a public blockchainBitcoin is known as a public blockchain, because anyone can look at a record of all of the transactions at any time.

This is simple to do.

You already know that any person or company running a full node already has a complete record of all transactions that have ever taken place on the Bitcoin network, going back to inception of the network in January 2009 !
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H. Bitcoin: Transactions Part I --
Blockchain Basics
Digital signature
Bitcoin owners carry out transitions in a way that is somewhat analogous to how one would use a personal check.

First, you specify the amount of bitcoin to be included in the transaction.

Second, you specify the recipient of the transaction.

Third, and finally, you sign the transaction.

With Bitcoin, instead of scrawling one’s signature on an easily forged piece of paper, you sign the transaction with your unique digital signature.
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I. Bitcoin: Transactions Part I --
Wallets and Digital Signatures
Bitcoin Private KeyAs covered in the last section, Bitcoin owners sign transitions with a digital signature. All Bitcoin signatures use something called cryptography.

Cryptography in software has existed for many decades. It allows for secure communication over the public Internet, where ONLY the sender and receiver of the message can view its contents.

The term cryptography is derived from the Greek word “kryptos”, which means “hidden”.

Your Bitcoin digital signature is created using a secret known only to you: your private key. 		1
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I. Bitcoin: Transactions Part I --
Wallets and Digital Signatures

Digital Wallet
Your private key is generated when you create a Bitcoin digital wallet.

A digital wallet is a special piece of software running on your computer or smartphone. Your digital wallet allows you to easily send, receive and spend bitcoin -- just like a physical wallet allows you to easily hold and spend cash.

Galoy is one such digital wallet !
(and obviously we believe the best digital wallet for managing your bitcoin :)
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I. Bitcoin: Transactions Part I --
Wallets and Digital Signatures
So what exactly does a private key do? A private key, as the name suggests, should always be kept secret.

Your private key allows you, and you alone, to prove which bitcoin you actually own. It also allows you to spend or send your bitcoin.

If someone else were to obtain your private key, they would be able to control your bitcoin.

In a way, this makes your private key very similar to cash. If someone takes cash from the wallet in your pocket… well, unfortunately that cash is now theirs to do with, as they please. 		1
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I. Bitcoin: Transactions Part I --
Wallets and Digital Signatures
If there are private keys, are there also public keys? Yes, there are indeed public keys.

You will recall that the entire Bitcoin ledger, or blockchain, is public. Anyone running a full node can view all of the transactions ever completed on the Bitcoin network.

Similarly, anyone running a full node can view how much Bitcoin is held in any specific digital wallet.

On the public Bitcoin ledger, each listing for a bitcoin wallet has a unique ID, known as a “public key” .
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I. Bitcoin: Transactions Part I --
Wallets and Digital Signatures
If the amount in each wallet is public, can someone just steal my bitcoin? As we covered before, this is simply not possible !

Anyone can see how much bitcoin is contained within any specific digital wallet. This is done by looking at the records for the public key of that specific wallet, which are listed on the Bitcoin ledger for all to see.

However, no one can send or spend the bitcoin in that wallet, unless they ALSO know the private key for the digital wallet. 		1
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I. Bitcoin: Transactions Part I --
Wallets and Digital Signatures
Does this mean that Bitcoin is NOT anonymous? Not exactly.

Bitcoin is pseudonymous, in a way that is very similar to email.

Let’s say that you want to create a new Gmail account with the following handle:
blahblahblah@gmail.com

If you send your friends an email from
blahblahblah@gmail.com -- and do not tell them you are the owner of this email address -- your friends will have no idea that you actually sent the email.

Similarly, unless you reveal that your bitcoin is associated with a specific public key, no one will know that you actually own that bitcoin.
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I. Bitcoin: Transactions Part I --
Wallets and Digital Signatures
So what does a public key look like?Both public keys and private keys are simply long strings of numbers and letters.

For example, the public key for the Honey Badger’s Galoy wallet is: [Gx78kasfIDFs82DkcR39kdc9DD3ak4Ty]		1
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I. Bitcoin: Transactions Part I --
Wallets and Digital Signatures
How might one use a public key? For one, if you look up public key
[Gx78kasfIDFs82DkcR39kdc9DD3ak4Ty]
on the network, you can see how much bitcoin Honey Badger has in his wallet at that very moment. You do not need to ask him permission to see !

You can also send bitcoin to that public key address at any time. Again, you do not need permission in advance. Rest assured, the Honey Badger will be very thankful to receive it :)

The one thing you can not do is send money from that address. Only Honey Badger himself can do this -- by using his own private key !
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I. Bitcoin: Transactions Part I --
Wallets and Digital Signatures
Bitcoin Transactions and Miners You now know that a digital wallet -- such as Galoy -- can be used to send, receive and store Bitcoin.

Every second, new Bitcoin transactions are initiated from wallets around the world.

So if there is no central payment processor (such as Visa or Venmo), how do all of these transitions get reconciled, or settled?

Well, when each transaction is broadcast to the network, it is not immediately settled.

You recall that Bitcoin Miners voluntarily contribute their computing power to the network, in the hopes of earning the reward of 6.25 new BTC that is issued every 10 minutes. In other words, the miners are engaged in a competition to complete the “proof-of-work” for all new transactions.

The Bitcoin Miners, in this process, reconcile (or settle) the transactions by agreeing which ones are valid -- and, quite importantly, rejecting any fake or counterfeit transactions.
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I. Bitcoin: Transactions Part I --
Wallets and Digital Signatures
Bitcoin Transactions and Blocks Every 10 minutes or so, somewhere in the world, a Bitcon miner finds the “proof-of-work” that validates and settles all of the transactions that took place during the previous moments.

These transactions from the previous 10 minutes are grouped into a “block”.

The miner then submits this block to the entire Bitcoin network, for final validation.
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I. Bitcoin: Transactions Part I --
Wallets and Digital Signatures
So what exactly is a block? Each block is like a new page in the Bitcoin global ledger. It contains all of the worldwide transactions that took place during a 10 minute period.

People and companies running full nodes on the network verify that the transactions contained within the block are valid. Anyone can run a full node. So this means thousands of users are constantly verifying the validity of each new block.

If the network confirms that the proposed block from a miner is valid, the miner receives their reward -- in the form of 6.25 newly issued BTC.

At that point, all of the transactions in that block become a permanent part of Bitcoin history.
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I. Bitcoin: Transactions Part I --
Wallets and Digital Signatures
So what exactly is a blockchain? When a block is confirmed as being valid by the network, it is added to the Bitcoin ledger.

The ledger contains ALL of the blocks that have previously been validated by the network.
In other words, the Bitcoin ledger is a simple collection of blocks. Each new block is connected sequentially, every 10 minutes, to all of the previous blocks.

Accordingly, this is why Bitcoin is known as a “blockchain”. 		1
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I. Bitcoin: Transactions Part I --
Wallets and Digital Signatures
Can the information in a block ever be changed, or edited? Quite simply, no.

When a Bitcoin miner submits a block to be verified -- and the network subsequently validates it -- the block is confirmed, sealed and added to the Bitcoin blockchain. The transactions contained within the block are irreversible, and can not be changed.

In Bitcoin parlance, sometimes people will call this “immutability”.

In a way, it is somewhat like a digital version of writing something in stone !
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[J]. Bitcoin: Monetary Policy Bitcoin policy is transparent Contrast this with the system of central banking for fiat currency, which is relatively opaque, and constantly changing 1
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[J]. Bitcoin: Monetary Policy Issuance of new bitcoin Define “block reward”

(provided to miner who finds a valid proof-of-work)
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[J]. Bitcoin: Monetary Policy What if someone tries to cheat? Block is rejected
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[J]. Bitcoin: Monetary Policy Block reward declining schedule Every 4 years…
Halves (12.5 > 6.25 > 3.125)
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[J]. Bitcoin: Monetary Policy
Is there a penalty to cheating?
Invalild blocks are costly to miners 1
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[J]. Bitcoin: Monetary Policy ipsumipsum1
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