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What is Bitcoin? - Bitcoin Explained for Beginners

2021-03-11 · Long video (solo, talking head or whiteboard) · Ali · recording, 23:23 · watch on YouTube

Topic: Money and investing · mode: Explanation and tutorial · tags: His own numbers, Sponsor segment present

Ali explains Bitcoin as a virtual currency on a decentralised ledger secured by cryptography, sets out four reasons it is controversial, and says he invests in crypto out of fear of missing out and as a form of gambling, with about 20% of his portfolio in it; he would advise a friend 2–5% and to start investing with stocks and shares.

What is said

The parts of the video and what is said in each (★ — how much it matters to the video).

00:00:00 — Intro: Tesla, Dogecoin and the four parts of the video

  • ★★ Ali presents the video as his personal guide to Bitcoin and cryptocurrencies, the introduction he wishes he had had when he started investing in crypto about four years earlier. — 00:00:00
  • ★ Ali notes that Tesla has bought $1.5 billion worth of Bitcoin and is going to start accepting it as payment. — 00:00:00 · Tesla
  • ★★ Ali says he has a personal penchant for money and thinks more people should learn about money, investing and finance and be open about it. — 00:00:58

00:01:27 — How Bitcoin and crypto work: currency, ledger, decentralisation, cryptography

  • ★★★ Ali defines a cryptocurrency by four concepts: a virtual currency based on a ledger that is decentralised and secured by cryptography. — 00:01:27

    “A cryptocurrency is a virtual currency based on a ledger, which is decentralized and secured by crypto.”

  • ★★ Ali says there are hundreds of other cryptocurrencies, but Bitcoin is the original and by far the biggest. — 00:01:27

  • ★★ Ali explains that a currency is a medium of exchange that replaced barter, and that paper money is worth something only because everyone agrees to value it. — 00:02:55
  • ★★ Ali says that when Bitcoin was invented in 2009 most people did not believe it would be a viable currency, but as it grew people began to say it could be the currency of the future. — 00:03:28
  • ★★★ Ali explains Bitcoin as one giant spreadsheet, a ledger recording every Bitcoin transaction since January 2009, like a shared spreadsheet friends keep on holiday to track who owes what. — 00:04:01
  • ★★ Ali explains that Bitcoin is decentralised: millions of people keep a copy of the ledger on their computers and check it against the others, which makes it hard to hack or to influence. — 00:07:25
  • ★★ Ali says the clever thing about Bitcoin and other cryptocurrencies is that they use cryptography to solve the problems of trust and of centralisation. — 00:08:24
  • ★★ Ali explains that cryptography rests on one-way hash functions whose output cannot be reversed to the original message; Bitcoin uses one called SHA-256. — 00:09:22
  • ★★ Ali explains that Bitcoin solves the trust problem with digital signatures from public key cryptography: a secret key only you know and a related public key others can see. — 00:10:02
  • ★★ Ali explains that Bitcoin solves decentralisation with proof of work: Bitcoin miners spend computing power on a hash-puzzle lottery, and the winner saves the ledger and is rewarded with Bitcoin. — 00:10:32
  • ★★ To learn how cryptography in Bitcoin works, Ali recommends the video "But how does Bitcoin work?" from 3Blue1Brown, one of his favourite YouTube channels. — 00:11:01

00:11:30 — Sponsor read for Brilliant's cryptocurrency course

00:12:29 — Why crypto is controversial: bubble, energy, security, illegal activity

  • ★★ Ali gives four reasons Bitcoin is controversial: the speculative bubble, its environmental impact, security issues and the threat of illegal activity. — 00:12:29
  • ★★ Ali grants that Bitcoin is to an extent a speculative bubble, its price driven by people buying because others think it is a big deal. — 00:12:58
  • ★ Ali says the price of Bitcoin is now $50,000, against almost nothing in 2011, when people were already calling it a bubble. — 00:12:58
  • ★★ Ali explains the bubble argument: the Bitcoin price soaring when Elon Musk tweets that he is buying it shows speculation, since Bitcoin itself has not changed because of the tweet. — 00:13:52
  • ★★ On the energy use of Bitcoin mining, Ali sets out both sides (banking uses more energy; mining in cold Iceland and Greenland or cheap-energy China) and says he does not know the answer. (unsure) — 00:14:51
  • ★★ Ali says that in the past decade there have been several high-profile hacks of crypto exchanges in which users lost their crypto. — 00:15:40
  • ★★ Ali, who keeps all his Bitcoin on Coinbase, says exchange hacks do not particularly worry him; those who worry can secure their Bitcoin with a hardware wallet. — 00:15:40
  • ★★ Ali does not buy the argument that Bitcoin is bad because its anonymity helps illegal activity: dollars are used illegally too, and the internet is good or bad depending on its use. — 00:16:39

00:17:08 — Why he invests and his portfolio allocation

  • ★★★ Ali thinks Bitcoin could be the future and is broadly a good thing, though it could be bad depending on how it is used. — 00:17:08
  • ★★ Ali says the primary reason he invests in crypto is fear of missing out: he first heard of Bitcoin in 2011 and later passed on it at $100 as too expensive. — 00:17:08
  • ★★ Ali calls crypto a socially acceptable form of gambling: he does not consider it an investment and is not normally a fan of gambling, but gambling on Bitcoin is fun. — 00:17:37
  • ★★ Ali says that in 2017 he put about 60,000 pounds of his own money into Bitcoin and within a few weeks was 40,000 up, more than a year's pay as a doctor, which felt addictive. — 00:17:37
  • ★★★ Ali says he then lost a lot of money in the December 2017 crash and ended up about 35,000 down, a cautionary tale, though he is still happy to gamble some money on crypto. (hedged) — 00:18:21
  • ★★ Ali says investing in crypto is fun: he genuinely thinks Bitcoin could be the future of money and wants to be part of that revolution. — 00:18:50
  • ★ Ali gives diversification against a falling stock market as a fourth reason for holding crypto, but admits it is not really legit and he added it to make a list of four. — 00:19:32
  • ★★★ Ali says about 20% of his investment portfolio is now in crypto, mostly Ethereum he bought about four years earlier and held; the other 80% is in stocks and shares. — 00:19:32
  • ★★ Ali thinks his crypto holdings are about 80% Ethereum and 20% Bitcoin. (hedged) — 00:19:32
  • ★★ Ali says Graham Stephan, far better at personal finance and richer than him, has about 1 to 2% of his portfolio in crypto, as he says on his YouTube channel. — 00:20:02

  • ★★★ Ali's main rule for crypto: only put in money you can 100% afford to lose, because it is a high-risk speculative investment. — 00:20:02

    “you only want to put in money that you can 100% afford to lose”

  • ★★ Ali says losing 35,000 pounds in 2017, about half his net worth then, did not affect him, so he knows losing his 20% crypto share would not affect his wellbeing. — 00:20:31

00:21:19 — How to get started: wallet, exchange, Coinbase, security, start with stocks

  • ★★★ Ali would tell a friend that his own 20% in crypto is a bit high and suggest starting with 2, 3 or 5%, to avoid losing 20% overnight if Bitcoin went to zero. — 00:21:19
  • ★★ To start with crypto, Ali says you need a wallet to store it and an exchange to buy and sell it; most big exchanges also store it for you. — 00:21:19
  • ★★ Ali uses Coinbase for everything, storing his Bitcoin and Ethereum there and buying and selling on it; it is available in the UK and easy, and he has no affiliation with it. — 00:21:59
  • ★★ Ali advises securing a crypto exchange account with two-factor authentication, as he does on Coinbase, and a hardware wallet that stores Bitcoin offline for more security. — 00:22:26
  • ★★★ Ali advises anyone serious about investing to start with stocks and shares, not crypto. — 00:22:26
  • ★★ For most friends Ali would recommend 95% stocks and shares and about 5% crypto, against his own 80% and 20%. — 00:23:06

Threads in this video

Where the stories that moved here went next

Mentioned

Central: Bitcoin

Also: People: Elon Musk · Graham Stephan

Works: But how does Bitcoin work?

Organizations: 3Blue1Brown · Brilliant · Tesla

Places: China · Iceland

Products: Coinbase · Dogecoin · Ethereum · WhatsApp

Also centred on Bitcoin: I Lost $54,932 Trading Bitcoin. Here's What I Learned.

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