Fascism and Mussolini

WEBVTT
Kind: captions
Language: en

00:00:00.499 --> 00:00:04.470
When people use the terms
"fascism" or "fascist"

00:00:04.470 --> 00:00:07.810
today, they're usually
using it in a derogatory way

00:00:07.810 --> 00:00:12.490
to refer to a group, a regime,
or even an individual that

00:00:12.490 --> 00:00:16.710
is overly aggressive, and
controlling, and totalitarian.

00:00:16.710 --> 00:00:21.110
But its roots, actually,
lie with Benito Mussolini,

00:00:21.110 --> 00:00:25.640
who was in power in Italy
during the 1920s, and 1930s,

00:00:25.640 --> 00:00:28.140
and through World War II.

00:00:28.140 --> 00:00:32.640
And they proudly call themselves
the Fascists and their ideology

00:00:32.640 --> 00:00:34.500
as fascism.

00:00:34.500 --> 00:00:38.880
And the root of
fascist and fascism

00:00:38.880 --> 00:00:41.160
come from the Italian
word "fascio,"

00:00:41.160 --> 00:00:43.030
which literally
refers to a bundle.

00:00:43.030 --> 00:00:45.770
It comes out of this idea
that a bundle of things

00:00:45.770 --> 00:00:48.710
will be stronger together
than individually.

00:00:48.710 --> 00:00:51.590
And this is actually
the symbol for fascism.

00:00:51.590 --> 00:00:57.360
And this symbol of this bundle,
this sheath of sticks, this

00:00:57.360 --> 00:01:00.570
actually predates Mussolini
by thousands of years.

00:01:00.570 --> 00:01:02.140
It goes back to Roman times.

00:01:02.140 --> 00:01:04.459
And even, based on some
of the things I've read,

00:01:04.459 --> 00:01:06.790
even predates Roman
times as a symbol

00:01:06.790 --> 00:01:11.540
of unity, a symbol
of official strength.

00:01:11.540 --> 00:01:14.040
And even before
Mussolini came around,

00:01:14.040 --> 00:01:17.670
the term was used by many,
many, many groups that

00:01:17.670 --> 00:01:21.210
viewed themselves as a
league of revolutionaries.

00:01:21.210 --> 00:01:25.540
A group of people somehow
fighting for change.

00:01:25.540 --> 00:01:27.260
And Mussolini was no different.

00:01:27.260 --> 00:01:32.280
When in the end of 1914
and then in early 1915,

00:01:32.280 --> 00:01:38.010
he establishes the Fasci
d'Azione Rivoluzionaria.

00:01:38.010 --> 00:01:41.810
And I'm, once again, so
sorry for my butchering

00:01:41.810 --> 00:01:43.430
of an Italian word.

00:01:43.430 --> 00:01:49.830
But this literally translates
to group action revolutionary,

00:01:49.830 --> 00:01:52.600
or you could say the
revolutionary action

00:01:52.600 --> 00:01:56.140
group, founded by
Mussolini in 1915.

00:01:56.140 --> 00:01:59.310
And it was really a splinter
of the Socialist Party.

00:01:59.310 --> 00:02:02.480
Well, there's an irony there
because Mussolini and fascism,

00:02:02.480 --> 00:02:06.860
in particular, is associated
with strongly anti-socialist

00:02:06.860 --> 00:02:08.100
ideology.

00:02:08.100 --> 00:02:16.740
But as Europe was entering
into World War I in 1914,

00:02:16.740 --> 00:02:20.650
some of the mainstream of
the Italian Socialist Party

00:02:20.650 --> 00:02:23.170
was against Italy
entering the war.

00:02:23.170 --> 00:02:25.732
They wanted Italy to
maintain their neutrality.

00:02:25.732 --> 00:02:27.940
But you had splinter groups,
more nationalist groups,

00:02:27.940 --> 00:02:31.020
that said, hey, look,
this is Italy's chance

00:02:31.020 --> 00:02:33.690
to claim its right.

00:02:33.690 --> 00:02:37.000
It should join the war on
the side of the Entente.

00:02:37.000 --> 00:02:39.860
And Mussolini was one
of these individuals.

00:02:39.860 --> 00:02:43.540
And because of his
strong pro-war stance,

00:02:43.540 --> 00:02:46.010
he was actually
kicked out of his--

00:02:46.010 --> 00:02:50.510
he was head of a
socialist paper in 1914.

00:02:50.510 --> 00:02:56.680
And then he eventually, by 1915,
establishes the Fasci d'Azione

00:02:56.680 --> 00:02:58.750
Rivoluzionaria.

00:02:58.750 --> 00:03:02.220
And by the end of World
War I, as we get into 1919,

00:03:02.220 --> 00:03:06.890
it regroups under the name
Fasci Italiani di Combattimento.

00:03:06.890 --> 00:03:09.730
So this literally translates
as, you could view Fasci

00:03:09.730 --> 00:03:12.770
as a group, or league,
or revolutionary league

00:03:12.770 --> 00:03:14.610
of Italians of Combatants.

00:03:14.610 --> 00:03:18.667
Or the Combatant Italian
Revolutionary Group--

00:03:18.667 --> 00:03:20.250
I guess is one way
to think about it--

00:03:20.250 --> 00:03:24.580
or the Group of
Italian Combatants,

00:03:24.580 --> 00:03:26.480
is another way to
think about it.

00:03:26.480 --> 00:03:29.640
And their ideology--
and their ideology

00:03:29.640 --> 00:03:32.940
wasn't well established
right when they set up.

00:03:32.940 --> 00:03:34.980
It was just really
around this idea

00:03:34.980 --> 00:03:37.470
of being super
pro-nationalist-- but it

00:03:37.470 --> 00:03:42.179
began to develop over the course
of the '20s and the 1930s.

00:03:42.179 --> 00:03:44.470
The core idea, and I've
already said it multiple times,

00:03:44.470 --> 00:03:46.790
is an extreme nationalism.

00:03:49.750 --> 00:03:52.530
And when we talk about extreme
nationalism, or nationalism

00:03:52.530 --> 00:03:55.950
in general, it's talking
about the interests

00:03:55.950 --> 00:03:59.760
of one nation, of one
group, above all others.

00:03:59.760 --> 00:04:03.110
About putting the state
above all other things.

00:04:03.110 --> 00:04:07.100
Oftentimes, fascism is
viewed as a right-wing group.

00:04:07.100 --> 00:04:10.590
But in its purest form, it's
neither left- or right-wing.

00:04:10.590 --> 00:04:12.180
At the left end of
the spectrum, you

00:04:12.180 --> 00:04:15.360
could imagine
communist or socialism.

00:04:15.360 --> 00:04:17.100
I'll write communism,
which you could

00:04:17.100 --> 00:04:19.720
view as an extreme
form of socialism.

00:04:19.720 --> 00:04:21.050
Communism.

00:04:21.050 --> 00:04:23.160
And at the extreme
right, you could

00:04:23.160 --> 00:04:26.660
imagine just
complete free-market.

00:04:26.660 --> 00:04:28.590
Complete, unfettered,
free-market.

00:04:28.590 --> 00:04:31.110
Ultra small government.

00:04:31.110 --> 00:04:33.610
And fascists and
extreme nationalists,

00:04:33.610 --> 00:04:36.080
they didn't view themselves
as either end of the spectrum.

00:04:36.080 --> 00:04:38.080
They kind of viewed
themselves as a separate way

00:04:38.080 --> 00:04:40.460
where everything
was subordinate.

00:04:40.460 --> 00:04:44.140
The economy itself was
subordinate to the state.

00:04:44.140 --> 00:04:47.130
Now with that said, they
tended to align themselves

00:04:47.130 --> 00:04:49.010
more with folks on the right.

00:04:49.010 --> 00:04:50.810
So even though they
weren't completely

00:04:50.810 --> 00:04:52.440
free-market
capitalists, they were

00:04:52.440 --> 00:04:56.030
staunchly anti-communist
and anti-socialist,

00:04:56.030 --> 00:04:59.595
which caused them to form
alliances a little bit more

00:04:59.595 --> 00:05:00.220
with the right.

00:05:00.220 --> 00:05:01.845
But from their point
of view, it wasn't

00:05:01.845 --> 00:05:04.130
one of these extreme
right-wing ideologies

00:05:04.130 --> 00:05:06.860
that the government should be
subordinate to the economy,

00:05:06.860 --> 00:05:09.480
that the government should
be as small as possible.

00:05:09.480 --> 00:05:13.760
It was much more that
the economy was there

00:05:13.760 --> 00:05:17.050
to serve national interests.

00:05:17.050 --> 00:05:21.970
Some of the other ideologies
that the fascists began to hold

00:05:21.970 --> 00:05:26.330
is this idea that force was a
legitimate part of politics.

00:05:26.330 --> 00:05:29.420
So force in politics.

00:05:29.420 --> 00:05:33.300
And you would see this when
Benito Mussolini's fascists,

00:05:33.300 --> 00:05:35.052
through the use of
the Black Shirts,

00:05:35.052 --> 00:05:36.760
which was their
paramilitary group, which

00:05:36.760 --> 00:05:39.930
allowed them to eventually
take political control

00:05:39.930 --> 00:05:41.650
and enforce political control.

00:05:41.650 --> 00:05:44.170
And we later see it with
other groups like the Nazis.

00:05:44.170 --> 00:05:47.310
Who are also tended to be
associated with fascism.

00:05:47.310 --> 00:05:49.740
And their storm troopers
and their storm battalions,

00:05:49.740 --> 00:05:52.970
their paramilitary forces,
that are used to, essentially,

00:05:52.970 --> 00:05:55.560
take political control.

00:05:55.560 --> 00:05:57.330
The other aspect of
them-- and, as you

00:05:57.330 --> 00:05:59.170
could imagine, when we're
talking about either Mussolini

00:05:59.170 --> 00:06:00.930
or the Nazis-- is that
they weren't really

00:06:00.930 --> 00:06:03.070
fans of democracy.

00:06:03.070 --> 00:06:04.842
Not only did they
think that everything

00:06:04.842 --> 00:06:06.300
should be subordinate
to the state,

00:06:06.300 --> 00:06:09.140
but that the state should
have absolute control.

00:06:09.140 --> 00:06:10.536
So it's not about democracy.

00:06:10.536 --> 00:06:12.410
It's about having a
strong leader at the top.

00:06:12.410 --> 00:06:14.100
A strong one party at the top.

00:06:14.100 --> 00:06:17.050
And in the case of Mussolini
it was the fascists.

00:06:17.050 --> 00:06:19.440
In the case of Hitler it
ends up being the Nazis.

00:06:19.440 --> 00:06:21.890
So totalitarian.

00:06:21.890 --> 00:06:23.830
Completely totalitarian.

00:06:23.830 --> 00:06:26.260
And then, they
also-- and these all

00:06:26.260 --> 00:06:30.360
gel together-- this idea of
aggressive foreign policy.

00:06:30.360 --> 00:06:32.190
And this aggressive
foreign policy

00:06:32.190 --> 00:06:37.400
is really rooted in this
belief of cultural superiority.

00:06:37.400 --> 00:06:39.840
And, if you take the
case of the Nazis,

00:06:39.840 --> 00:06:42.730
this belief in extreme
racial superiority,

00:06:42.730 --> 00:06:44.380
cultural superiority.

00:06:44.380 --> 00:06:46.070
And I'm making a
slight distinction

00:06:46.070 --> 00:06:48.004
there because in
Mussolini's eyes,

00:06:48.004 --> 00:06:49.420
he was actually
quite disparaging.

00:06:49.420 --> 00:06:52.700
Even though Hitler
looked to Mussolini

00:06:52.700 --> 00:06:55.180
as something of a role model
when Mussolini took power

00:06:55.180 --> 00:06:59.350
in 1922, it inspired
Hitler's Beer Hall Putsch.

00:06:59.350 --> 00:07:01.630
Mussolini did not
think much of Hitler

00:07:01.630 --> 00:07:05.190
through much of the 1920s
and even early 1930s.

00:07:05.190 --> 00:07:09.180
He thought Hitler's
ideas of racial purity

00:07:09.180 --> 00:07:10.710
were really an illusion.

00:07:10.710 --> 00:07:13.260
That there was no
racially pure race.

00:07:13.260 --> 00:07:16.400
He didn't really appreciate
Hitler calling the Italians

00:07:16.400 --> 00:07:17.950
a mongrel race.

00:07:17.950 --> 00:07:20.840
But Mussolini himself did
think that the Italians

00:07:20.840 --> 00:07:22.140
were culturally superior.

00:07:22.140 --> 00:07:23.860
And that would be
their justification

00:07:23.860 --> 00:07:25.480
for an aggressive
foreign policy.

00:07:25.480 --> 00:07:32.120
For them taking over
other territory in Europe

00:07:32.120 --> 00:07:34.160
and in Africa.

00:07:34.160 --> 00:07:36.210
And as we'll see,
because they shared

00:07:36.210 --> 00:07:38.790
so much in common
ideologically, the Nazis

00:07:38.790 --> 00:07:41.260
were, you could kind of
view as a more extreme form.

00:07:41.260 --> 00:07:43.810
And the fascists themselves
were quite extreme.

00:07:43.810 --> 00:07:45.720
But the Nazis were
a more extreme form

00:07:45.720 --> 00:07:48.410
of the same ideology.

00:07:48.410 --> 00:07:51.230
They will, even though in
the '20s and early '30s

00:07:51.230 --> 00:07:54.420
Mussolini is more
eager to align himself

00:07:54.420 --> 00:07:56.370
with some of the other
powers in Europe,

00:07:56.370 --> 00:07:58.350
in particular Great
Britain and France.

00:07:58.350 --> 00:08:01.090
As we go into the
second half of 1930s,

00:08:01.090 --> 00:08:03.630
Mussolini and Hitler
find themselves

00:08:03.630 --> 00:08:04.650
to be kindred spirits.

00:08:04.650 --> 00:08:07.060
They both want to be aggressive
in their foreign policy.

00:08:07.060 --> 00:08:09.840
They both want to
secure other territory.

00:08:09.840 --> 00:08:11.510
They both have
this idea that they

00:08:11.510 --> 00:08:14.540
need space for their
superior populations,

00:08:14.540 --> 00:08:17.140
to their culturally superior,
and in the case of the Nazis,

00:08:17.140 --> 00:08:21.410
racially superior populations
to grow and thrive.

00:08:21.410 --> 00:08:23.380
And so as we enter
into the second half

00:08:23.380 --> 00:08:27.530
of the 1930s and
World War II, you

00:08:27.530 --> 00:08:29.980
have Mussolini and
the fascists become

00:08:29.980 --> 00:08:33.797
close allies of
Hitler and the Nazis.


Nazi aggression and appeasement

WEBVTT
Kind: captions
Language: en

00:00:00.659 --> 00:00:03.200
As we get into the second half of the 1930s,

00:00:03.200 --> 00:00:07.129
we see an increasingly aggressive Nazi Germany.

00:00:07.129 --> 00:00:10.694
In 1935, they publicly announce

00:00:10.694 --> 00:00:14.233
their intent to rearm their military.

00:00:14.233 --> 00:00:17.350
The reason why this is significant is not that they were

00:00:17.350 --> 00:00:19.130
all of a sudden building their military.

00:00:19.130 --> 00:00:20.740
They, in fact, were doing this as soon as

00:00:20.740 --> 00:00:23.761
they had taken power, in 1933.

00:00:23.761 --> 00:00:25.170
But now, they felt confident enough

00:00:25.170 --> 00:00:26.901
to publicly state their intention --

00:00:26.901 --> 00:00:29.725
which is another way of publicly stating

00:00:29.725 --> 00:00:32.300
that they [could n't] care less about the Treaty of Versailles,

00:00:32.300 --> 00:00:34.210
which had said that Germany was limited to

00:00:34.210 --> 00:00:36.800
a 100,000-soldier military.

00:00:36.800 --> 00:00:40.089
Then, we get into 1936.

00:00:40.089 --> 00:00:42.829
1936, you might remember --

00:00:42.829 --> 00:00:45.640
another term of the Treaty of Versailles was that

00:00:45.640 --> 00:00:48.949
Germany was not allowed to occupy the Rhineland --

00:00:48.949 --> 00:00:51.230
this area in yellow right over here.

00:00:51.230 --> 00:00:54.620
And then that was actually reaffirmed in 1925

00:00:54.620 --> 00:00:57.418
by the Treaties of Locarno, where Germany, itself,

00:00:57.418 --> 00:01:00.260
agreed to not occupy the Rhineland.

00:01:00.260 --> 00:01:04.720
But by 1936, Hitler decides to ignore all of those,

00:01:04.720 --> 00:01:08.900
and occupies the Rhineland.

00:01:08.900 --> 00:01:10.450
But once again the allies --

00:01:10.450 --> 00:01:13.750
The French are not so happy about this.

00:01:13.750 --> 00:01:16.030
The UK, in particular, once again,

00:01:16.030 --> 00:01:18.019
[was] not super happy about this.

00:01:18.019 --> 00:01:19.840
But they decided this is not reason

00:01:19.840 --> 00:01:22.369
to potentially start another war over.

00:01:22.369 --> 00:01:24.780
So they really don't push back on Germany.

00:01:24.780 --> 00:01:29.918
Then, we get into 1938,

00:01:29.918 --> 00:01:33.831
and German aggression really goes into full gear.

00:01:33.831 --> 00:01:41.300
In March of 1938, you have a coup d'état,

00:01:41.300 --> 00:01:45.240
orchestrated by the Nazis in Austria,

00:01:45.240 --> 00:01:49.170
that really overthrows the Austrian government

00:01:49.170 --> 00:01:53.710
and allows the Germans to unify the two countries.

00:01:53.710 --> 00:01:57.170
So, you have the Germans come into Austria --

00:01:57.170 --> 00:01:59.950
really a bloodless takeover.

00:01:59.950 --> 00:02:03.159
And there was already popular support

00:02:03.159 --> 00:02:04.755
for the Nazis in Austria.

00:02:04.755 --> 00:02:07.101
There was a Nazi party in Austria.

00:02:07.101 --> 00:02:08.965
There had been popular sentiment

00:02:08.965 --> 00:02:11.170
for many years, amongst many Austrians,

00:02:11.170 --> 00:02:13.934
to possibly be unified with the Germans.

00:02:13.934 --> 00:02:15.356
Austria [was and] is, fundamentally,

00:02:15.356 --> 00:02:17.636
a German-speaking nation.

00:02:17.636 --> 00:02:20.320
And so in March, this actually happens.

00:02:20.320 --> 00:02:25.380
This 'Anschluss' -- or unification.

00:02:25.380 --> 00:02:27.238
And, if you remember, that was also another

00:02:27.238 --> 00:02:30.340
forbidden term of the Treaty of Versailles.

00:02:30.340 --> 00:02:32.050
So now, the Germans are pretty much ignoring

00:02:32.050 --> 00:02:35.060
the Treaty of Versailles and the Treaty of St. Germain,

00:02:35.060 --> 00:02:37.220
which was the equivalent of the Treaty of Versailles --

00:02:37.220 --> 00:02:39.100
but with the Austrians.

00:02:39.100 --> 00:02:43.491
So, you have the unification of Germany and Austria.

00:02:43.491 --> 00:02:47.430
Then, as we get into late 1938 --

00:02:47.430 --> 00:02:49.600
in September in particular --

00:02:49.600 --> 00:02:55.040
Hitler and the Nazis are interested in bringing

00:02:55.040 --> 00:02:56.940
the German-speaking populations

00:02:56.940 --> 00:03:00.620
of Czechoslovakia under German control.

00:03:00.620 --> 00:03:03.085
And this region, right over here in magenta, this is where

00:03:03.085 --> 00:03:07.110
you have large populations of German speakers.

00:03:07.110 --> 00:03:09.279
These regions are collectively referred to

00:03:09.279 --> 00:03:15.259
as the 'Sudetenland.'

00:03:15.259 --> 00:03:18.700
And really, just continuing the policy of not wanting

00:03:18.700 --> 00:03:21.260
to rock the boat with Germany,

00:03:21.260 --> 00:03:24.970
you have France, Great Britain, and Italy agreeing --

00:03:24.970 --> 00:03:28.160
And Italy was an ally of the Germans.

00:03:28.160 --> 00:03:30.100
But France and Great Britain, in particular,

00:03:30.100 --> 00:03:32.540
are not interested in rocking the boat with the Germans.

00:03:32.540 --> 00:03:34.655
And so, in September of 1938,

00:03:34.655 --> 00:03:38.600
they sign the Munich Agreement,

00:03:38.600 --> 00:03:40.558
which did not actually --

00:03:40.558 --> 00:03:42.640
where they actually did not consult

00:03:42.640 --> 00:03:44.400
the Czechoslovakian government --

00:03:44.400 --> 00:03:45.819
where they allowed Germany

00:03:45.819 --> 00:03:48.567
to take over this region right over here --

00:03:48.567 --> 00:03:50.276
the Sudetenland.

00:03:50.276 --> 00:03:52.319
And that, frankly, with the Germans taking over

00:03:52.319 --> 00:03:57.092
this significant part of the population of Czechoslovakia,

00:03:57.092 --> 00:03:58.625
a significant part of

00:03:58.625 --> 00:04:01.792
the industrial capacity of Czechoslovakia,

00:04:01.792 --> 00:04:07.426
this eventually leads to early 1939,

00:04:07.426 --> 00:04:09.221
where all of what we would now consider

00:04:09.221 --> 00:04:13.970
the Czech Republic -- this area right over here,

00:04:13.970 --> 00:04:17.620
all [of] this -- becomes a protectorate of Germany.

00:04:17.620 --> 00:04:22.840
So, they call it the 'Protectorate of Bohemia and Moravia.'

00:04:22.840 --> 00:04:29.958
So, Bohemia and Moravia go to Germany.

00:04:29.958 --> 00:04:33.660
And, so this is 1939.

00:04:33.660 --> 00:04:37.365
So, [by] 1939, [we have seen this pattern repeat itself

00:04:37.365 --> 00:04:39.089
during the previous] four years --

00:04:39.089 --> 00:04:42.230
Nazi Germany ignoring the Treaty of Versailles,

00:04:42.230 --> 00:04:45.990
by rearming, by occupying the Rhineland,

00:04:45.990 --> 00:04:48.400
by unifying with Austria.

00:04:48.400 --> 00:04:50.720
Now, they're expanding their territory.

00:04:50.720 --> 00:04:54.040
They are actively allowed to take over

00:04:54.040 --> 00:04:56.760
the German-speaking areas of Czechoslovakia,

00:04:56.760 --> 00:04:58.195
under the Munich agreement.

00:04:58.195 --> 00:04:59.621
And eventually, they're able to take over

00:04:59.621 --> 00:05:01.165
Bohemia and Moravia --

00:05:01.165 --> 00:05:05.760
all of what we would currently call the 'Czech Republic.'

00:05:05.760 --> 00:05:08.240
And this general pattern of German aggression,

00:05:08.240 --> 00:05:11.740
[allowed] by the other powers in Europe

00:05:11.740 --> 00:05:12.940
essentially allowing it to happen --

00:05:12.940 --> 00:05:15.860
and, in particular, Great Britain allowing it to happen --

00:05:15.860 --> 00:05:20.163
has been referred to as a 'policy of appeasement.'

00:05:20.163 --> 00:05:21.680
Obviously, the word 'appeasement' means

00:05:21.680 --> 00:05:23.389
there is someone who is angry about something,

00:05:23.389 --> 00:05:24.990
and you just don't want to make them any angrier --

00:05:24.990 --> 00:05:27.160
you just let them do whatever they want --

00:05:27.160 --> 00:05:29.776
this is, essentially, what was happening over here.

00:05:29.776 --> 00:05:31.750
And in hindsight, it might be easy to say,

00:05:31.750 --> 00:05:33.740
"Hey, look!. They were allowing Germany to take over

00:05:33.740 --> 00:05:36.150
more and more -- to become more aggressive,

00:05:36.150 --> 00:05:37.780
which made [Germany] more and more confident.

00:05:37.780 --> 00:05:41.080
And this would eventually lead to World War II."

00:05:41.080 --> 00:05:44.720
But at the time, you do have to remember [that[

00:05:44.720 --> 00:05:46.560
everyone still had a very strong memory

00:05:46.560 --> 00:05:48.560
of what had happened in World War I.

00:05:48.560 --> 00:05:49.780
And no one was interested

00:05:49.780 --> 00:05:52.091
in starting another [pan-European] war.

00:05:52.091 --> 00:05:54.300
And so, even [though] in hindsight,

00:05:54.300 --> 00:05:58.050
it's easy to say that the British --

00:05:58.050 --> 00:05:59.558
in particular Neville Chamberlain,

00:05:59.558 --> 00:06:03.134
who was the Prime Minister from 1937 on --

00:06:03.134 --> 00:06:05.790
were weak and allowed German[y] --

00:06:05.790 --> 00:06:10.510
Hitler -- to gain confidence, which eventually led to

00:06:10.510 --> 00:06:15.298
the Nazi invasion of Poland in the fall of 1939.

00:06:15.298 --> 00:06:19.400
But it's easy to say that in hindsight.

00:06:19.400 --> 00:06:22.419
But what we see, as we get into 1939,

00:06:22.419 --> 00:06:24.600
is an aggressive Germany, a Germany

00:06:24.600 --> 00:06:27.740
that's not being checked by the other powers of Europe.

00:06:27.740 --> 00:06:31.919
And this is what eventually leads to September of 1939,

00:06:31.919 --> 00:06:36.190
where, actually, the Germans and the Soviets agree

00:06:36.190 --> 00:06:39.960
to partition Poland into their own spheres of influence,

00:06:39.960 --> 00:06:43.330
which allows Germany to invade Poland

00:06:43.330 --> 00:06:46.210
in early September [of] 1939 --

00:06:46.210 --> 00:06:47.590
which is, you could kind of say,

00:06:47.590 --> 00:06:49.588
'the straw that broke the camel's back,'

00:06:49.588 --> 00:06:51.382
and is the beginning of --

00:06:51.382 --> 00:06:52.770
So, Poland invasion.

00:06:52.770 --> 00:06:54.160
The invasion of Poland.

00:06:54.160 --> 00:06:58.159
-- which is the beginning of World War II.


Night of the Long Knives

WEBVTT
Kind: captions
Language: en

00:00:00.342 --> 00:00:04.307
We have now seen the Nazis come to power in 1933 -

00:00:04.307 --> 00:00:08.532
and by mid 1933 they are the only allowed party in Germany.

00:00:08.532 --> 00:00:11.667
And Hitler is fundamentally the dictator of Germany.

00:00:11.667 --> 00:00:14.872
But they aren't happy with just that consolidated power,

00:00:14.872 --> 00:00:17.149
they want to ensure that they stay in power.

00:00:17.149 --> 00:00:21.609
And so as we get into 1934 they continue to consolidate their power

00:00:21.609 --> 00:00:27.000
and now more directly start eliminating their opponents.

00:00:27.000 --> 00:00:30.002
And when I say eliminating, they are actually directly killing these individuals.

00:00:30.002 --> 00:00:34.333
And there is an entire Nazi power apparatus that is at play,

00:00:34.333 --> 00:00:38.803
but the three figures here are the ones that are most notable other than Hitler.

00:00:38.803 --> 00:00:42.479
This is Joseph Goebbels who is the head of Nazi Propaganda,

00:00:42.479 --> 00:00:47.803
Hermann Göring, who is the head of the Nazi's secret police, the Gestapo,

00:00:47.803 --> 00:00:51.341
which later goes under the control of the SS, under Heinrich Himmler.

00:00:51.341 --> 00:00:57.480
He is a major player in the rearmament of Germany for war footing.

00:00:57.480 --> 00:01:01.647
He eventually helds the Luftwaffe which is the German airforce during the World War II.

00:01:01.647 --> 00:01:06.476
We have Heinrich Himmler who is the head of Schutzstaffel,

00:01:06.476 --> 00:01:13.070
more famously known as the SS, which is the paramilitary group of the Nazi party,

00:01:13.070 --> 00:01:16.474
used to intimidate and eliminate (as we will see) their opponents

00:01:16.474 --> 00:01:20.737
and they are also responsible for the execution of the actual

00:01:20.737 --> 00:01:24.470
the planning and the execution - of the actual holocaust.

00:01:24.470 --> 00:01:30.342
And so as we get into 1934 Hitler is eager to eliminate more of his opponents -

00:01:30.342 --> 00:01:33.599
and we are not just talking about opponents outside of the Nazi party,

00:01:33.599 --> 00:01:36.472
we are also talking about rivals within the Nazi party.

00:01:36.472 --> 00:01:40.146
And the most notable of these was Ernst Röhm

00:01:40.146 --> 00:01:44.139
who as you see at this picture was clearly a Nazi.

00:01:44.139 --> 00:01:48.603
He was head of the Storm Battalion or the SA, which was the paramilitary group

00:01:48.603 --> 00:01:52.474
that the SS splintered out of and it was far more

00:01:52.474 --> 00:01:55.008
independent than Hitler would have liked and it was not

00:01:55.008 --> 00:01:56.667
popular amongst the German people

00:01:56.667 --> 00:02:04.056
because of its violence - and Hitler and his lieutenants viewed Röhm as a potential rival to Hitler's authority

00:02:04.056 --> 00:02:10.145
within the Nazi party. And so in 1934, June 30th in particular

00:02:10.145 --> 00:02:13.405
- or we could say June 30th to July 2nd -

00:02:13.405 --> 00:02:15.804
you have what's called the Night of the Long Knives

00:02:15.804 --> 00:02:18.894
and it really should be called the Nights of the Long Knives

00:02:18.894 --> 00:02:23.481
but the Night of the Long Knives,

00:02:23.481 --> 00:02:32.563
where under the pretext of a supposed a coup d'état or a putsch on the part of Ernst Röhm

00:02:32.563 --> 00:02:37.888
The SS and the Gestapo start rounding up Röhm,

00:02:37.888 --> 00:02:41.736
his allies and any perceived enemies of Hitler.

00:02:41.736 --> 00:02:45.736
Start rounding them up and eliminating them and shooting them...

00:02:45.736 --> 00:02:50.224
And Ernst Röhm is arrested and when he refuses to kill himself in his jail cell

00:02:50.224 --> 00:02:52.306
he is shot at point-blank range.

00:02:52.306 --> 00:02:58.309
Gregor Strasser, who is a former rival of Hitler within the Nazi party, he is eliminated.

00:02:58.309 --> 00:03:05.004
Kurt von Schleicher who is a previous chancellor
of Germany, perceived as a rival to Hitler

00:03:05.004 --> 00:03:07.002
- he and his wife are gunned down.

00:03:07.002 --> 00:03:14.335
Gustav Ritter von Kahr who is in no way anymore a rival to Hitler

00:03:14.335 --> 00:03:18.670
but he was one of the major actors for putting down the Beer Hall Putsch -

00:03:18.670 --> 00:03:20.139
the fail the Beer Hall Putch of 1923.

00:03:20.139 --> 00:03:26.002
He is hacked - he is hacked to get dead.

00:03:26.002 --> 00:03:28.337
And these are just four of the more notable folks.

00:03:28.337 --> 00:03:34.603
On those few nights over 85 major officials in Germany were eliminated.

00:03:34.603 --> 00:03:40.070
And as we will see this is just the beginning of the consolidation of Nazi power

00:03:40.070 --> 00:03:44.070
and now they are doing it through extra legal means.


Standard and Itemized Tax Deductions

WEBVTT
Kind: captions
Language: en

00:00:00.680 --> 00:00:03.270
- [Instructor] Person A here made $100,000

00:00:03.270 --> 00:00:04.640
in the year that we care about,

00:00:04.640 --> 00:00:06.920
and he's getting ready to pay his taxes,

00:00:06.920 --> 00:00:08.580
and he's got some deductions.

00:00:08.580 --> 00:00:11.270
He made a $2,000 donation to charity

00:00:11.270 --> 00:00:14.610
and a $5,000 donation to state taxes,

00:00:14.610 --> 00:00:18.220
or not a donation, (chuckles)
he paid $5,000 in state taxes.

00:00:18.220 --> 00:00:20.400
So his total deductions right over here,

00:00:20.400 --> 00:00:23.310
and we would call these
his itemized deductions,

00:00:23.310 --> 00:00:24.700
'cause he has literally put

00:00:24.700 --> 00:00:26.440
all of the items that he's deducting,

00:00:26.440 --> 00:00:28.520
so his itemized,

00:00:28.520 --> 00:00:31.400
itemized deductions

00:00:31.400 --> 00:00:34.310
are going to be $7,000.

00:00:34.310 --> 00:00:37.840
Now, before he just decides
to subtract that $7,000

00:00:37.840 --> 00:00:40.200
from his income to get
his new taxable income,

00:00:40.200 --> 00:00:43.070
he should compare that against
the standard deduction.

00:00:43.070 --> 00:00:44.270
No matter what you do here,

00:00:44.270 --> 00:00:47.280
the IRS will give you
just a freebie deduction.

00:00:47.280 --> 00:00:48.600
And if you're a single person,

00:00:48.600 --> 00:00:49.920
and this is, obviously,

00:00:49.920 --> 00:00:52.290
depending on what year you're filing in,

00:00:52.290 --> 00:00:53.950
but at the time of this video,

00:00:53.950 --> 00:00:55.550
the standard deduction,

00:00:55.550 --> 00:01:00.550
the standard deduction is
$6,100 for a single person.

00:01:02.000 --> 00:01:03.590
So in this person's situation,

00:01:03.590 --> 00:01:05.020
his itemized deductions

00:01:05.020 --> 00:01:07.520
were larger than his standard deductions,

00:01:07.520 --> 00:01:10.380
so this is what he is going to take.

00:01:10.380 --> 00:01:11.760
He can't take both of these,

00:01:11.760 --> 00:01:14.190
so he can't deduct 13,100.

00:01:14.190 --> 00:01:17.600
He would wanna pick the
larger of these two things.

00:01:17.600 --> 00:01:22.600
So his taxable income will
be $100,000 minus $7,000.

00:01:23.660 --> 00:01:26.530
So his taxable income

00:01:26.530 --> 00:01:29.684
is going to be 93,

00:01:29.684 --> 00:01:32.020
$93,000.

00:01:32.020 --> 00:01:34.440
This is what he's going to pay taxes on.

00:01:34.440 --> 00:01:37.170
Now let's think about
Couple B right over here.

00:01:37.170 --> 00:01:39.520
They, as a couple, made $100,000.

00:01:39.520 --> 00:01:42.340
They're married, they're filing jointly.

00:01:42.340 --> 00:01:45.330
And they've made a $4,000
donation to charity.

00:01:45.330 --> 00:01:48.090
They've paid $5,000 in state taxes.

00:01:48.090 --> 00:01:50.860
And they've paid $3,000
in mortgage interest.

00:01:50.860 --> 00:01:53.170
And all of these are tax deductions.

00:01:53.170 --> 00:01:56.220
So what are their total
itemized deductions?

00:01:56.220 --> 00:01:59.950
So, itemized deductions.

00:01:59.950 --> 00:02:02.490
Let's see, four plus five is nine,

00:02:02.490 --> 00:02:07.110
plus three is $12,000
in itemized deductions.

00:02:07.110 --> 00:02:08.250
Now, you might say, oh, this is great.

00:02:08.250 --> 00:02:10.930
They can deduct 12,000 from their 100,000.

00:02:10.930 --> 00:02:12.580
But once again, we wanna compare it

00:02:12.580 --> 00:02:14.010
against the standard deduction.

00:02:14.010 --> 00:02:15.980
It's not gonna be the
same standard deduction

00:02:15.980 --> 00:02:18.420
as what we saw for a single person.

00:02:18.420 --> 00:02:20.560
Now, they're married filing jointly.

00:02:20.560 --> 00:02:21.990
It's actually twice as large.

00:02:21.990 --> 00:02:23.730
Their standard deduction,

00:02:23.730 --> 00:02:28.547
their standard deduction
is going to be 12,200.

00:02:29.840 --> 00:02:32.150
So even though they made
all of these donations

00:02:32.150 --> 00:02:33.420
or they paid these taxes

00:02:33.420 --> 00:02:35.150
and they paid this mortgage interest,

00:02:35.150 --> 00:02:36.660
it still didn't become larger

00:02:36.660 --> 00:02:37.830
than their standard deductions,

00:02:37.830 --> 00:02:39.470
so it's still in their best interest

00:02:39.470 --> 00:02:41.840
to just go ahead with
their standard deduction.

00:02:41.840 --> 00:02:44.450
So it really didn't matter,
from a tax point of view,

00:02:44.450 --> 00:02:46.850
whether or not they made these donations.

00:02:46.850 --> 00:02:48.130
'Cause they still didn't get past

00:02:48.130 --> 00:02:50.150
this threshold right over here.

00:02:50.150 --> 00:02:53.030
Once again, you have to pick
the larger of these two.

00:02:53.030 --> 00:02:55.110
You don't get both of these.

00:02:55.110 --> 00:02:57.100
So their taxable income,

00:02:57.100 --> 00:03:00.290
Couple B's taxable
income, in this scenario,

00:03:00.290 --> 00:03:03.970
is going to be 100,000 minus 12,200,

00:03:03.970 --> 00:03:04.803
which is what?

00:03:04.803 --> 00:03:07.420
100,000 minus 12,000 would be 88,000.

00:03:07.420 --> 00:03:12.420
Minus another 200 would be
$87,800 of taxable income.


Bitcoin - The security of transaction block chains

WEBVTT
Kind: captions
Language: en

00:00:00.499 --> 00:00:02.680
What I would like to do
is describe an imaginary,

00:00:02.680 --> 00:00:05.110
or a fictitious,
Bitcoin transaction.

00:00:05.110 --> 00:00:07.750
And then talk about how
somebody might try to game

00:00:07.750 --> 00:00:09.080
or defraud the system.

00:00:09.080 --> 00:00:11.960
And why that's not only
mathematically hard to do,

00:00:11.960 --> 00:00:14.110
but why there's actually
an incentive-- actually

00:00:14.110 --> 00:00:17.020
an economic incentive
in the Bitcoin system

00:00:17.020 --> 00:00:20.640
for different people
to behave honestly.

00:00:20.640 --> 00:00:23.525
So let's suppose that there is
someone out there named Dan,

00:00:23.525 --> 00:00:25.535
and that Dan wants to
order a pizza-- maybe

00:00:25.535 --> 00:00:28.102
a cheese pizza, from
Pete's Pizza Shop.

00:00:28.102 --> 00:00:30.310
And let's say that Pete's
Pizza Shop accepts Bitcoins

00:00:30.310 --> 00:00:37.270
as payment, and that it costs
1 Bitcoin for a pizza pie.

00:00:37.270 --> 00:00:39.300
And imagine that Dan
receive previously--

00:00:39.300 --> 00:00:42.980
let's say he received 5
Bitcoins from his cousin, Carol.

00:00:42.980 --> 00:00:45.170
So maybe Carol, who I'm
going to label by C,

00:00:45.170 --> 00:00:52.040
gave to Dan 5 Bitcoins,
which we can label as a B

00:00:52.040 --> 00:00:54.220
with a circle around it.

00:00:54.220 --> 00:00:56.470
And that he wants to use
1 of these 5 Bitcoins

00:00:56.470 --> 00:00:59.060
to buy a pizza from Pete.

00:00:59.060 --> 00:01:01.109
And so what Dan's
Bitcoin client will do

00:01:01.109 --> 00:01:02.900
is it will create a
transaction record that

00:01:02.900 --> 00:01:05.650
includes information about
how Dan got these Bitcoins.

00:01:05.650 --> 00:01:07.250
In this case, it
includes information

00:01:07.250 --> 00:01:11.750
about this transaction between
Carol, who we've marked by C,

00:01:11.750 --> 00:01:13.460
and Dan for 5 Bitcoins.

00:01:13.460 --> 00:01:15.530
And then it specifies
that Dan wants

00:01:15.530 --> 00:01:18.050
to give one of these
Bitcoins to Pete--

00:01:18.050 --> 00:01:20.860
and we'll label Pete
by a P. And also

00:01:20.860 --> 00:01:23.790
that Dan is going to take
the remaining 4 Bitcoins.

00:01:23.790 --> 00:01:26.821
And that will be basically
change to himself.

00:01:26.821 --> 00:01:28.195
And the way that
Bitcoin is built

00:01:28.195 --> 00:01:31.515
is that you have to
actually specify the change,

00:01:31.515 --> 00:01:34.140
because you need to have a way--
whatever goes into the Bitcoin

00:01:34.140 --> 00:01:36.372
system has to come
out at the other end.

00:01:36.372 --> 00:01:37.830
And so you can't
have a transaction

00:01:37.830 --> 00:01:39.121
where the numbers don't add up.

00:01:39.121 --> 00:01:42.510
And so whatever is remaining
is either change, or part of it

00:01:42.510 --> 00:01:44.540
can be used as a
transaction fee.

00:01:44.540 --> 00:01:45.150
And so on.

00:01:45.150 --> 00:01:47.340
But for this example,
to keep things simple,

00:01:47.340 --> 00:01:49.590
I'll assume that there is
no transaction fee in place.

00:01:49.590 --> 00:01:51.510
The transaction fee is just 0.

00:01:51.510 --> 00:01:54.950
And we'll focus only on the
situation in which everything

00:01:54.950 --> 00:01:58.440
is being accounted for
in the transaction.

00:01:58.440 --> 00:02:00.020
Now, this transaction
record is going

00:02:00.020 --> 00:02:03.030
to be broadcast out to
the entire Bitcoin world.

00:02:03.030 --> 00:02:05.420
And so in particular,
Pete is going

00:02:05.420 --> 00:02:08.590
to receive a copy
of this transaction.

00:02:08.590 --> 00:02:10.430
But in addition to
Pete receiving it,

00:02:10.430 --> 00:02:14.670
so too will the other people
on the Bitcoin system.

00:02:14.670 --> 00:02:16.820
And if you recall, there
are these special nodes,

00:02:16.820 --> 00:02:19.730
the special entities
or people in Bitcoin,

00:02:19.730 --> 00:02:21.110
that are known as
Bitcoin miners.

00:02:21.110 --> 00:02:23.190
And these Bitcoin
miners are going

00:02:23.190 --> 00:02:27.380
to be responsible for making
sure that everything checks out

00:02:27.380 --> 00:02:29.940
in the transaction from
a global perspective.

00:02:29.940 --> 00:02:32.620
What they do is they look at
the full record of transactions.

00:02:32.620 --> 00:02:34.410
And this transaction
record is public.

00:02:34.410 --> 00:02:36.555
It's known as a
transaction block chain,

00:02:36.555 --> 00:02:40.350
and I've put a description of
the transaction block chain

00:02:40.350 --> 00:02:41.442
right here.

00:02:41.442 --> 00:02:43.650
And this transaction block
chain contains the history

00:02:43.650 --> 00:02:45.840
of every single
transaction that's

00:02:45.840 --> 00:02:48.300
ever occurred within
the Bitcoin system

00:02:48.300 --> 00:02:51.100
from the beginning of time--
the time of the first block,

00:02:51.100 --> 00:02:55.700
which is known in Bitcoin
as the genesis block.

00:02:55.700 --> 00:02:59.630
And everyone can verify the
details of any transaction

00:02:59.630 --> 00:03:01.970
if they want to because
that information is public.

00:03:01.970 --> 00:03:04.700
And in particular, what these
Bitcoin miners will look at

00:03:04.700 --> 00:03:08.010
is they'll look at whether
or not Dan previously

00:03:08.010 --> 00:03:10.450
received five Bitcoins
from anybody else.

00:03:10.450 --> 00:03:13.090
In this particular case,
it was his cousin, Carol.

00:03:13.090 --> 00:03:16.940
Whether or not Dan has tried to
spend those Bitcoin previously.

00:03:16.940 --> 00:03:18.590
And so on and so forth.

00:03:18.590 --> 00:03:21.970
And these Bitcoin miners
are all collectively

00:03:21.970 --> 00:03:24.900
trying to take all these recent
transactions that haven't yet

00:03:24.900 --> 00:03:28.040
been recorded, and that includes
not only the transaction

00:03:28.040 --> 00:03:30.750
between Dan and Pete, but
there may be other transactions

00:03:30.750 --> 00:03:33.380
floating out there that
took place on the same time.

00:03:33.380 --> 00:03:35.040
And the Bitcoin
miners will basically

00:03:35.040 --> 00:03:37.674
look at all these different
transactions at once.

00:03:37.674 --> 00:03:39.090
And they're going
to basically try

00:03:39.090 --> 00:03:43.050
to figure out how to form
a transaction block out

00:03:43.050 --> 00:03:44.600
of these transactions.

00:03:44.600 --> 00:03:46.640
And they want to add
this transaction block

00:03:46.640 --> 00:03:50.240
to the end of the current
transaction block chain.

00:03:50.240 --> 00:03:52.820
Now, if you might recall
from previous videos, that

00:03:52.820 --> 00:03:55.750
for a Bitcoin miner
to add a transaction

00:03:55.750 --> 00:03:57.670
block to a transaction
block chain,

00:03:57.670 --> 00:04:01.010
they have to solve what's known
as a proof-of-work puzzle.

00:04:01.010 --> 00:04:03.820
And the Bitcoin system is
designed-- or maybe calibrated

00:04:03.820 --> 00:04:07.390
is a better word-- so that
on average one miner will

00:04:07.390 --> 00:04:10.250
solve a puzzle in
about 10 minutes.

00:04:10.250 --> 00:04:12.040
I think it's actually
worth stressing here

00:04:12.040 --> 00:04:15.747
that it could take a long time
for any one individual miner

00:04:15.747 --> 00:04:16.455
solve the puzzle.

00:04:16.455 --> 00:04:19.410
It could even take maybe
a year, or even two years.

00:04:19.410 --> 00:04:23.860
But because there are so
many of these miners working

00:04:23.860 --> 00:04:26.180
at the same time,
one of them is bound

00:04:26.180 --> 00:04:30.130
to get lucky and solve
the puzzle quickly.

00:04:30.130 --> 00:04:35.530
Now, each of these
proof-of-work puzzles

00:04:35.530 --> 00:04:38.980
that is associated with
a transaction block

00:04:38.980 --> 00:04:42.370
happens to have a difficulty
score associated with it.

00:04:42.370 --> 00:04:45.530
And this difficulty
basically represents how hard

00:04:45.530 --> 00:04:49.020
it was to solve that
proof-of-work puzzle.

00:04:49.020 --> 00:04:50.700
So imagine that there
are some numbers,

00:04:50.700 --> 00:04:55.092
and we'll call
these numbers D sub

00:04:55.092 --> 00:04:57.610
N. For the most recent
difficulty score,

00:04:57.610 --> 00:04:58.910
they'll be D sub N minus 1.

00:04:58.910 --> 00:05:02.050
These are just numbers that
somehow represent how hard it

00:05:02.050 --> 00:05:04.810
was to solve this proof-of-work.

00:05:04.810 --> 00:05:08.430
And when you look at an overall
chain, what the Bitcoin is

00:05:08.430 --> 00:05:11.610
interested in is it's
interested in how hard was

00:05:11.610 --> 00:05:14.160
it to construct
that entire chain.

00:05:14.160 --> 00:05:15.980
And the reason it's
important for someone

00:05:15.980 --> 00:05:18.440
to understand how hard the
entire chain is constructed

00:05:18.440 --> 00:05:21.590
is because this is overall
score for this chain--

00:05:21.590 --> 00:05:23.750
this difficulty
score for the chain

00:05:23.750 --> 00:05:27.760
is what's used by Pete or by
other people who are receiving

00:05:27.760 --> 00:05:31.120
Bitcoins to figure
out whether or not

00:05:31.120 --> 00:05:32.490
they trust that transaction.

00:05:32.490 --> 00:05:35.470
The more work that went into the
overall chain, the more trust

00:05:35.470 --> 00:05:37.900
they'll have in
that transaction.

00:05:37.900 --> 00:05:40.240
And the reason for that is
that the way Bitcoin works

00:05:40.240 --> 00:05:43.455
is that if there was for
more than one transaction

00:05:43.455 --> 00:05:44.830
block chain out
there-- let's say

00:05:44.830 --> 00:05:47.850
there was a bad user out
there, or maybe somebody didn't

00:05:47.850 --> 00:05:49.686
receive a particular
message in time,

00:05:49.686 --> 00:05:51.310
or whatever reason--
if there's somehow

00:05:51.310 --> 00:05:54.210
more than one transaction
block chain out there,

00:05:54.210 --> 00:05:56.590
according to the
Bitcoin protocol,

00:05:56.590 --> 00:05:58.180
everyone is just
supposed to work off

00:05:58.180 --> 00:06:00.350
of the chain that had the
most work put into it.

00:06:00.350 --> 00:06:03.790
So we ignore chains that
have a lot less work

00:06:03.790 --> 00:06:06.590
and only consider the chain that
had the most work put into it.

00:06:06.590 --> 00:06:10.265
And in the Bitcoin system,
that particular chain

00:06:10.265 --> 00:06:14.850
is often referred to as the
longest chain in the system.

00:06:14.850 --> 00:06:18.716
And this is actually a
confusing piece of terminology.

00:06:18.716 --> 00:06:20.090
Because by longest
here, we don't

00:06:20.090 --> 00:06:23.652
mean that this change is
long in any physical sense.

00:06:23.652 --> 00:06:25.110
We really just
mean-- and I'm going

00:06:25.110 --> 00:06:27.754
to put three equal bars
to say what it means.

00:06:27.754 --> 00:06:29.420
By the longest chain,
we mean the change

00:06:29.420 --> 00:06:31.590
that has the most work.

00:06:31.590 --> 00:06:33.300
And the way that
the work is defined

00:06:33.300 --> 00:06:36.925
is that you look at all these
different difficulty scores,

00:06:36.925 --> 00:06:39.510
and these are difficulty
numbers, and you add them up,

00:06:39.510 --> 00:06:42.030
and that gives you a difficulty
score for the entire chain.

00:06:42.030 --> 00:06:44.280
And now we're going to be
interested in the chain that

00:06:44.280 --> 00:06:46.030
had the most work put into it.

00:06:46.030 --> 00:06:48.470
And we call that
the longest chain.

00:06:48.470 --> 00:06:50.510
Now let's imagine
that Dan is dishonest

00:06:50.510 --> 00:06:52.800
and that after he
eats the pizza--

00:06:52.800 --> 00:06:56.225
let's say Pete's convinced and
he gets his Bitcoin from Dan.

00:06:56.225 --> 00:06:56.850
He waits a bit.

00:06:56.850 --> 00:06:58.266
He sees that there
is a long chain

00:06:58.266 --> 00:07:00.430
after that contains
a transaction.

00:07:00.430 --> 00:07:02.590
He sends the pizza over to Dan.

00:07:02.590 --> 00:07:04.060
Dan eats the pizza
and then decides

00:07:04.060 --> 00:07:06.250
that he doesn't want
to behave honestly

00:07:06.250 --> 00:07:08.130
and he wants to
somehow cheat Pete,

00:07:08.130 --> 00:07:11.170
or he wants to
defraud the system.

00:07:11.170 --> 00:07:13.860
And the way that Dan is going
to try to defraud the system

00:07:13.860 --> 00:07:18.260
is by attempting to create
another transaction in which he

00:07:18.260 --> 00:07:22.160
assigns the 5 Bitcoins he got
from Carol to somebody else.

00:07:22.160 --> 00:07:25.740
And it could be-- let's
call this person Fred.

00:07:25.740 --> 00:07:27.470
And let's say Fred
is basically--

00:07:27.470 --> 00:07:29.300
Fred could be Dan's alter ego.

00:07:29.300 --> 00:07:30.649
It could be a friend of Dan's.

00:07:30.649 --> 00:07:33.190
It doesn't matter who Fred is
because we know that Fred isn't

00:07:33.190 --> 00:07:34.790
the rightful owner
of these Bitcoins.

00:07:34.790 --> 00:07:36.240
But what Dan is
going to try to do

00:07:36.240 --> 00:07:38.450
is he's going to
try to take those 5

00:07:38.450 --> 00:07:40.650
Bitcoins that he got from Carol.

00:07:40.650 --> 00:07:43.020
And he's going to now try
to take those 5 Bitcoins

00:07:43.020 --> 00:07:45.014
and assign them over to Fred.

00:07:45.014 --> 00:07:46.430
And we know that
this is something

00:07:46.430 --> 00:07:50.030
that we don't want to allow
because that would mean

00:07:50.030 --> 00:07:53.891
that somehow Dan was able to
spend these 5 Bitcoins twice

00:07:53.891 --> 00:07:54.390
over.

00:07:54.390 --> 00:07:56.840
He's effectively
double-spent those Bitcoins,

00:07:56.840 --> 00:07:59.160
and obviously one of
these transactions

00:07:59.160 --> 00:08:01.540
should be considered
fraudulent, the other one

00:08:01.540 --> 00:08:03.444
should be allowed to go through.

00:08:03.444 --> 00:08:05.610
Now, it's important to keep
in mind that if Dan just

00:08:05.610 --> 00:08:07.770
tried to spend these
same coins again

00:08:07.770 --> 00:08:09.420
without trying to
cover his tracks

00:08:09.420 --> 00:08:12.780
or anything of that nature,
then everybody out there would

00:08:12.780 --> 00:08:14.400
know that Dan is up to no good.

00:08:14.400 --> 00:08:17.870
Because they can see from the
existing longest transaction

00:08:17.870 --> 00:08:19.572
block chain--
namely this existing

00:08:19.572 --> 00:08:21.030
chain from the
beginning-- they can

00:08:21.030 --> 00:08:23.330
see that, hey, Dan
already spent these coins

00:08:23.330 --> 00:08:26.860
before, he shouldn't be allowed
to spend these coins again.

00:08:26.860 --> 00:08:30.260
And so what Dan has to do
is actually-- on his own--

00:08:30.260 --> 00:08:32.622
he has to create a
different transaction block

00:08:32.622 --> 00:08:38.299
chain that contains just this
second bogus transaction in it.

00:08:38.299 --> 00:08:39.980
This would be the
transaction to Fred.

00:08:39.980 --> 00:08:43.809
And that would leave out the
other transaction to Pete

00:08:43.809 --> 00:08:47.100
and hope that everybody else
will start to accept or believe

00:08:47.100 --> 00:08:48.960
this newer chain.

00:08:48.960 --> 00:08:51.150
And remember that since
everyone in Bitcoin

00:08:51.150 --> 00:08:53.750
ultimately goes with the
transaction block chain that

00:08:53.750 --> 00:08:57.340
contains the most work,
namely this longest chain

00:08:57.340 --> 00:09:00.780
that we talked about, Dan
has a fighting chance.

00:09:00.780 --> 00:09:03.800
He has a hope,
potentially, of being

00:09:03.800 --> 00:09:07.670
able to pull off this type
of a fraudulent scheme.

00:09:07.670 --> 00:09:09.840
And the real question
now is, how likely

00:09:09.840 --> 00:09:12.510
is it for Dan to succeed?

00:09:12.510 --> 00:09:14.880
So for Dan to be able
to pull this off,

00:09:14.880 --> 00:09:18.465
he has to start off with
the transaction block

00:09:18.465 --> 00:09:19.715
chain that existed previously.

00:09:19.715 --> 00:09:22.110
And he has to try to add
to that transaction block

00:09:22.110 --> 00:09:23.760
chain a different transaction.

00:09:23.760 --> 00:09:26.970
So rather than having this
previous transaction where

00:09:26.970 --> 00:09:29.600
he gave money to
Pete, he's going

00:09:29.600 --> 00:09:31.870
to try to create
a new transaction

00:09:31.870 --> 00:09:35.040
and add it to the transaction
block chain that contains

00:09:35.040 --> 00:09:40.060
this other fraudulent
transaction between Dan

00:09:40.060 --> 00:09:41.690
and his friend Fred.

00:09:41.690 --> 00:09:42.190
OK.

00:09:42.190 --> 00:09:44.439
So this is going to be the
bad transaction between Dan

00:09:44.439 --> 00:09:47.840
and Fred-- will be
in this new block.

00:09:47.840 --> 00:09:50.690
And in Bitcoin
lingo, this idea is

00:09:50.690 --> 00:09:52.760
known as a fork in the chain.

00:09:52.760 --> 00:09:55.110
And all we mean by fork
is that somehow there

00:09:55.110 --> 00:09:57.320
is more than one
version of history.

00:09:57.320 --> 00:09:59.230
Somebody tried to
rewrite their tracks,

00:09:59.230 --> 00:10:02.160
or to cover their tracks,
and to revise history the way

00:10:02.160 --> 00:10:03.450
we know it.

00:10:03.450 --> 00:10:05.785
And what that really means
is there's now somehow

00:10:05.785 --> 00:10:08.730
more than one version of
what happened out there.

00:10:08.730 --> 00:10:12.940
So in this example, one branch
in this fork is legitimate,

00:10:12.940 --> 00:10:14.680
and the other branch is bogus.

00:10:14.680 --> 00:10:16.660
And the legitimate
branch with the one,

00:10:16.660 --> 00:10:19.300
in our minds, where
Dan paid his friend

00:10:19.300 --> 00:10:21.617
Peter this vendor,
Pete, for a pizza.

00:10:21.617 --> 00:10:23.575
And the bogus one is this
follow on transaction

00:10:23.575 --> 00:10:26.930
where Dan attempted
to pay his friend Fred

00:10:26.930 --> 00:10:28.830
with those same exact Bitcoins.

00:10:28.830 --> 00:10:31.380
But now remember that any
transaction block that's

00:10:31.380 --> 00:10:33.900
added to this
transaction block chain

00:10:33.900 --> 00:10:36.820
has to contain within it
a proof-of-work puzzle--

00:10:36.820 --> 00:10:39.250
or solution, rather,
to a proof-of-work.

00:10:39.250 --> 00:10:42.050
Otherwise, no one
will accept the chain.

00:10:42.050 --> 00:10:44.600
And so if Dan wants
to cheat the system,

00:10:44.600 --> 00:10:49.936
he has to secretly solve a new
proof-of-work puzzle himself.

00:10:49.936 --> 00:10:52.060
But the challenge for Dan
is that he's starting off

00:10:52.060 --> 00:10:54.720
with a bit of a handicap because
there's already this longer

00:10:54.720 --> 00:10:58.260
chain out there that people
have started accepting.

00:10:58.260 --> 00:11:00.960
And keep in mind that because
this chain is out there,

00:11:00.960 --> 00:11:03.550
other nodes may have started
to build on top of this chain.

00:11:03.550 --> 00:11:07.120
Every 10 minutes, somebody's
adding to this change,

00:11:07.120 --> 00:11:07.682
on average.

00:11:07.682 --> 00:11:09.265
And so there's this
longer transaction

00:11:09.265 --> 00:11:10.890
block chain out there.

00:11:10.890 --> 00:11:13.690
And Dan wants to create
his own fake chain.

00:11:13.690 --> 00:11:15.192
And so he has to create a chain.

00:11:15.192 --> 00:11:16.900
In order for that
chain to be believable,

00:11:16.900 --> 00:11:19.060
it has to now be the
longest chain out there.

00:11:19.060 --> 00:11:22.070
And he has to basically do
all these proof-of-works

00:11:22.070 --> 00:11:25.420
to create a chain
that is longer.

00:11:25.420 --> 00:11:28.255
And to come up with this
longer chain on his own,

00:11:28.255 --> 00:11:30.380
Dan has to outrun the
existing proof-of-work chain.

00:11:30.380 --> 00:11:32.770
And that means he has to
solve not just typically

00:11:32.770 --> 00:11:34.270
one proof-of-work
puzzle, but he may

00:11:34.270 --> 00:11:37.310
need to solve several
proof-of-work puzzles to create

00:11:37.310 --> 00:11:41.100
another chain that he hopes will
be longer than the chain that's

00:11:41.100 --> 00:11:41.670
out there.

00:11:41.670 --> 00:11:43.480
And if he can get
the longest chain,

00:11:43.480 --> 00:11:45.937
he can get people to start
using that chain instead.

00:11:45.937 --> 00:11:47.770
And that the chain that
he might want people

00:11:47.770 --> 00:11:51.176
to use because it contains
this fake transaction.

00:11:51.176 --> 00:11:52.800
But it removes the
previous transaction

00:11:52.800 --> 00:11:54.600
where he gave money to Pete.

00:11:54.600 --> 00:11:56.310
And to solve a
proof-of-work, Dan

00:11:56.310 --> 00:11:58.700
has to basically take
whatever computing

00:11:58.700 --> 00:12:01.050
power he has access to.

00:12:01.050 --> 00:12:04.610
And he has to start
working on solving

00:12:04.610 --> 00:12:06.372
the proof-of-work puzzle.

00:12:06.372 --> 00:12:08.830
And there are no known shortcuts
for solving these puzzles.

00:12:08.830 --> 00:12:11.580
If you recall from any of
the proof-of-work videos,

00:12:11.580 --> 00:12:13.690
to succeed in a
proof-of-work is kind

00:12:13.690 --> 00:12:15.690
of like winning the lottery.

00:12:15.690 --> 00:12:18.150
There are ways to do it.

00:12:18.150 --> 00:12:21.060
But it really depends on how
much computing power you have.

00:12:21.060 --> 00:12:22.860
The more computing
power you have access

00:12:22.860 --> 00:12:25.787
to, the more lottery
tickets you have.

00:12:25.787 --> 00:12:27.620
And if somebody has
even one lottery ticket,

00:12:27.620 --> 00:12:29.950
they do have a chance
to win the lottery.

00:12:29.950 --> 00:12:33.070
But they are far less likely
to succeed compared to somebody

00:12:33.070 --> 00:12:35.486
who has a lot of
lottery tickets in hand.

00:12:35.486 --> 00:12:37.610
And even if you succeed
once in winning the lottery

00:12:37.610 --> 00:12:40.830
with a small number of tickets,
the likelihood of repeating

00:12:40.830 --> 00:12:44.200
that feat over and over
again, several times in a row,

00:12:44.200 --> 00:12:45.630
becomes much smaller.

00:12:45.630 --> 00:12:47.060
But that's exactly
Dan has to do.

00:12:47.060 --> 00:12:50.170
He has to basically win this
lottery multiple times until he

00:12:50.170 --> 00:12:52.350
has a bigger chain.

00:12:52.350 --> 00:12:54.360
And so the key metric
here-- the key thing

00:12:54.360 --> 00:12:59.120
you have to look for is how much
computing power Dan has versus

00:12:59.120 --> 00:13:02.780
how much computing power all
the honest nodes in the system

00:13:02.780 --> 00:13:04.690
have together.

00:13:04.690 --> 00:13:07.760
And if it the case that all
the honest nodes-- we'll

00:13:07.760 --> 00:13:11.960
call this the honest
computing power.

00:13:11.960 --> 00:13:13.560
And when I say honest
computing power,

00:13:13.560 --> 00:13:17.110
I mean the total computing
power for all the nodes

00:13:17.110 --> 00:13:17.800
who are honest.

00:13:17.800 --> 00:13:20.700
All the Bitcoin mining nodes
who are honest in the network.

00:13:20.700 --> 00:13:25.160
If that total computing power
that they have access to

00:13:25.160 --> 00:13:28.710
is greater than the
power that Dan has access

00:13:28.710 --> 00:13:32.244
to-- so Dan's
computing power-- then

00:13:32.244 --> 00:13:34.160
the Bitcoin system will
be safe, because it'll

00:13:34.160 --> 00:13:37.010
be hard for Dan to
be able to create

00:13:37.010 --> 00:13:38.720
this fraudulent
transaction chain

00:13:38.720 --> 00:13:41.081
because he won't be able to
outrun the honest people.

00:13:41.081 --> 00:13:43.330
The honest people will win
the lottery more frequently

00:13:43.330 --> 00:13:45.030
and they'll create
a longer chain.

00:13:45.030 --> 00:13:49.222
And Dan's attempt is going to
be very much an uphill battle.

00:13:49.222 --> 00:13:51.680
Now, it's theoretically possible
that Dan could have access

00:13:51.680 --> 00:13:52.846
to a lot of computing power.

00:13:52.846 --> 00:13:55.580
Maybe he's very wealthy or
he has a lot of resources.

00:13:55.580 --> 00:13:57.650
But he'll really need a
lot to be able to that.

00:13:57.650 --> 00:14:01.550
More than everyone else
who's legitimate combined.

00:14:01.550 --> 00:14:04.005
So that's one aspect of
why the transaction block

00:14:04.005 --> 00:14:04.740
chain is secure.

00:14:04.740 --> 00:14:08.040
Because it's unlikely for
any one individual to have

00:14:08.040 --> 00:14:11.380
access to just that
much computing power.

00:14:11.380 --> 00:14:13.470
And here I should point
out that there is also

00:14:13.470 --> 00:14:16.190
another aspect to the
security of Bitcoin.

00:14:16.190 --> 00:14:18.800
If Dan has access to that
kind of computing power

00:14:18.800 --> 00:14:21.040
to solve these
proof-of-work puzzles,

00:14:21.040 --> 00:14:24.880
then rather than trying to fight
this uphill battle of forking

00:14:24.880 --> 00:14:27.730
the transaction block chain,
and creating fake transactions,

00:14:27.730 --> 00:14:30.490
and so on, Dan is
probably much better

00:14:30.490 --> 00:14:33.380
off just using that
computing power

00:14:33.380 --> 00:14:37.290
he has for legitimate
Bitcoin mining himself.

00:14:37.290 --> 00:14:39.360
You might remember
that Bitcoin miners who

00:14:39.360 --> 00:14:43.910
solve proof-of-work puzzles get
both a reward for succeeding--

00:14:43.910 --> 00:14:45.670
they get some
number of Bitcoins--

00:14:45.670 --> 00:14:47.810
and they also get
a transaction fee

00:14:47.810 --> 00:14:51.420
for all the transactions in
the block that they validated.

00:14:51.420 --> 00:14:53.660
So there's this economic
incentive for Dan

00:14:53.660 --> 00:14:54.989
to behave honestly.

00:14:54.989 --> 00:14:56.780
So maybe I should just
recapping in closing

00:14:56.780 --> 00:14:59.760
the video that the security
of Bitcoin transactions

00:14:59.760 --> 00:15:03.380
comes from, first of all,
this mathematical barrier that

00:15:03.380 --> 00:15:05.890
makes it hard for Dan to
fork the transaction block

00:15:05.890 --> 00:15:10.450
chain in a dishonest way, as
well as an economic incentive

00:15:10.450 --> 00:15:15.310
for Dan to just act honestly
and mine Bitcoins for himself.


Bitcoin: What is it?

WEBVTT
Kind: captions
Language: en

00:00:00.177 --> 00:00:02.510
But what I wanted to do in
this video is talk about what

00:00:02.510 --> 00:00:04.560
a bitcoin is in
more general terms

00:00:04.560 --> 00:00:06.850
and what differentiating
characteristics

00:00:06.850 --> 00:00:09.970
they have compared
to other approaches.

00:00:09.970 --> 00:00:14.670
So for starters, bitcoin is just
an electronic payment system.

00:00:14.670 --> 00:00:16.550
By electronic payment
system, I mean

00:00:16.550 --> 00:00:19.940
it's just a vehicle, a conduit,
by which two parties can

00:00:19.940 --> 00:00:22.322
transact over the internet.

00:00:22.322 --> 00:00:23.780
I call these parties
Alice and Bob.

00:00:23.780 --> 00:00:25.960
And let's say Alice
for whatever reason

00:00:25.960 --> 00:00:28.560
wants to give money to
Bob over the internet.

00:00:28.560 --> 00:00:30.570
And this may be because
she owes Bob money,

00:00:30.570 --> 00:00:32.220
or maybe Bob is a
merchant and Alice

00:00:32.220 --> 00:00:33.960
is buying something from Bob.

00:00:33.960 --> 00:00:37.030
Or maybe Bob is
a not-for-profit,

00:00:37.030 --> 00:00:38.820
and Alice is making
a donation to Bob.

00:00:38.820 --> 00:00:40.236
So there could be
many reasons why

00:00:40.236 --> 00:00:44.775
Alice is trying to pay Bob over
the internet in some capacity.

00:00:44.775 --> 00:00:47.620
Now, if Bob is willing
to accept bitcoins, which

00:00:47.620 --> 00:00:49.810
are a form of
electronic payments,

00:00:49.810 --> 00:00:54.300
then Alice can go ahead and
send Bob some value in bitcoins.

00:00:54.300 --> 00:00:56.170
And really, a
bitcoin transaction

00:00:56.170 --> 00:01:00.380
between Alice and Bob amounts
to a specially constructed

00:01:00.380 --> 00:01:02.800
sequence of numbers that
Alice will basically

00:01:02.800 --> 00:01:04.459
send over to Bob.

00:01:04.459 --> 00:01:06.770
And this will be done
entirely over the internet.

00:01:06.770 --> 00:01:09.830
These numbers will have certain
mathematical properties.

00:01:09.830 --> 00:01:12.350
They make it hard for someone
to really defraud the system

00:01:12.350 --> 00:01:16.874
or to conduct some type of
nefarious action on the system.

00:01:16.874 --> 00:01:18.290
And the way that
Alice is actually

00:01:18.290 --> 00:01:20.480
going to conduct this
transaction in practice

00:01:20.480 --> 00:01:23.750
is either by installing a
special piece of software,

00:01:23.750 --> 00:01:26.210
which we call a
bitcoin client, or she

00:01:26.210 --> 00:01:28.830
can work with a
third-party service that

00:01:28.830 --> 00:01:30.460
can handle these
mechanics for her.

00:01:30.460 --> 00:01:33.170
But in either case, either
the client or the service

00:01:33.170 --> 00:01:35.440
is going to generate
these numbers for Alice.

00:01:35.440 --> 00:01:37.730
And on the flip side,
Bob will also typically

00:01:37.730 --> 00:01:39.880
either have a piece
of software installed

00:01:39.880 --> 00:01:41.890
or he'll use a
third-party service

00:01:41.890 --> 00:01:43.657
that will take these
numbers and allow

00:01:43.657 --> 00:01:45.490
him to do something
else with those numbers.

00:01:45.490 --> 00:01:48.429
For example, Bob can in turn
buy something on his own

00:01:48.429 --> 00:01:50.470
with those numbers, or he
can trade those numbers

00:01:50.470 --> 00:01:55.530
in for real money and
so on and so forth.

00:01:55.530 --> 00:01:58.090
Now, one of the first
questions you might have--

00:01:58.090 --> 00:02:00.240
and I kind of alluded
to this earlier--

00:02:00.240 --> 00:02:03.369
is why would Bob even
want to accept bitcoins

00:02:03.369 --> 00:02:04.160
in the first place?

00:02:04.160 --> 00:02:07.050
After all, a bitcoin is
just a bunch of numbers.

00:02:07.050 --> 00:02:10.780
What intrinsic value
would it conceivably have?

00:02:10.780 --> 00:02:13.260
And it turns out,
quite surprisingly,

00:02:13.260 --> 00:02:16.100
that bitcoins actually
have real-world value.

00:02:16.100 --> 00:02:18.680
There are more and more
merchants popping up

00:02:18.680 --> 00:02:21.410
each day who accept
bitcoins for transactions.

00:02:21.410 --> 00:02:23.830
There are also
bitcoin exchanges,

00:02:23.830 --> 00:02:25.860
places where you
can go and exchange

00:02:25.860 --> 00:02:27.730
bitcoins for more
mainstream currencies.

00:02:27.730 --> 00:02:32.080
And some of exchanges include--
the major one is one called Mt.

00:02:32.080 --> 00:02:33.190
Gox.

00:02:33.190 --> 00:02:33.835
And at Mt.

00:02:33.835 --> 00:02:37.770
Gox you could exchange a bitcoin
for a euro or yen or dollar

00:02:37.770 --> 00:02:39.520
and so on and so forth.

00:02:39.520 --> 00:02:41.410
Now the current
price of a bitcoin,

00:02:41.410 --> 00:02:44.370
the current value of a bitcoin
in US dollars as of this video,

00:02:44.370 --> 00:02:47.430
is approximately US$100.

00:02:47.430 --> 00:02:48.710
per bitcoin.

00:02:48.710 --> 00:02:50.060
That number is fluctuating.

00:02:50.060 --> 00:02:51.912
This is a new
currency, and there's

00:02:51.912 --> 00:02:53.120
going to be some fluctuation.

00:02:53.120 --> 00:02:55.350
But as people understand
the currency better,

00:02:55.350 --> 00:02:57.779
the hope is that that
fluctuation will decrease.

00:02:57.779 --> 00:02:59.820
But I think ultimately,
the thing to keep in mind

00:02:59.820 --> 00:03:03.110
is that the value
of a bitcoin is

00:03:03.110 --> 00:03:04.910
going to be derived
from the faith

00:03:04.910 --> 00:03:07.080
that you have in
the value of what

00:03:07.080 --> 00:03:08.725
you can procure
with that bitcoin.

00:03:08.725 --> 00:03:12.190
It's just like you would
for a dollar, a euro or yen.

00:03:12.190 --> 00:03:14.820
The faith that you have
in that currency's value

00:03:14.820 --> 00:03:17.872
is how you value that currency.

00:03:17.872 --> 00:03:19.330
Now another question
you might have

00:03:19.330 --> 00:03:21.480
is why do people even
bother with bitcoins

00:03:21.480 --> 00:03:22.580
in the first place.

00:03:22.580 --> 00:03:24.880
Aren't there other
more standard ways?

00:03:24.880 --> 00:03:26.644
Why couldn't Alice
and Bob use Paypal?

00:03:26.644 --> 00:03:28.935
Why couldn't they use a credit
card number to transact?

00:03:28.935 --> 00:03:33.100
Why couldn't Alice just sent
Bob an electronic check?

00:03:33.100 --> 00:03:35.550
Why not use one of these
other approaches that

00:03:35.550 --> 00:03:37.937
are more well understood,
that are more mainstream,

00:03:37.937 --> 00:03:39.020
that are more established?

00:03:39.020 --> 00:03:41.952
Why on earth would you possibly
want to mess with a good thing?

00:03:41.952 --> 00:03:44.410
So it turns out that there are
a few properties of bitcoins

00:03:44.410 --> 00:03:45.460
that are worth noting.

00:03:45.460 --> 00:03:47.950
For starters, there's privacy.

00:03:47.950 --> 00:03:50.510
It turns out that within
the bitcoin ecosystem,

00:03:50.510 --> 00:03:53.170
within the bitcoin
network, people

00:03:53.170 --> 00:03:57.089
can transact without divulging
who they are in the real world.

00:03:57.089 --> 00:03:59.130
From the perspective of
bitcoin, Alice's identity

00:03:59.130 --> 00:04:00.969
is just going to be a
sequence of numbers.

00:04:00.969 --> 00:04:02.760
And that sequence of
numbers is effectively

00:04:02.760 --> 00:04:06.480
going to function like
a pseudonym for Alice.

00:04:06.480 --> 00:04:08.360
And that sequence of
numbers has nothing

00:04:08.360 --> 00:04:10.010
to do with your
real-world identity.

00:04:10.010 --> 00:04:12.222
Nobody needs to know this
is Alice transacting.

00:04:12.222 --> 00:04:14.180
All they need to worry
about is their pseudonym

00:04:14.180 --> 00:04:15.590
within the system.

00:04:15.590 --> 00:04:17.880
And this is kind of
but not quite like what

00:04:17.880 --> 00:04:20.220
you would get if you bought
something using cash.

00:04:20.220 --> 00:04:23.380
In that capacity, when you
buy something using cash,

00:04:23.380 --> 00:04:27.180
then you don't have to provide
any details or proof regarding

00:04:27.180 --> 00:04:29.130
who you are in the real world.

00:04:29.130 --> 00:04:30.890
And that's different
from, let's say,

00:04:30.890 --> 00:04:33.377
using a credit
card, where you have

00:04:33.377 --> 00:04:35.710
to provide your name and your
billing address and so on.

00:04:35.710 --> 00:04:38.760
Or let's say providing an
electronic check, where

00:04:38.760 --> 00:04:40.470
you need to tie that
electronic check,

00:04:40.470 --> 00:04:43.710
typically your bank
account details.

00:04:43.710 --> 00:04:45.240
Now, I do want to
also mention here

00:04:45.240 --> 00:04:50.010
that sometimes when you have a
cash list or a transaction that

00:04:50.010 --> 00:04:52.560
uses cash, there is
now the possibility

00:04:52.560 --> 00:04:54.600
that people might try to
use these transactions

00:04:54.600 --> 00:04:58.230
for malicious purposes to buy
illicit goods and services.

00:04:58.230 --> 00:04:59.950
That definitely is
a risk that occurs

00:04:59.950 --> 00:05:02.621
when you provide
anonymity and privacy.

00:05:02.621 --> 00:05:04.370
But there are certainly
legitimate reasons

00:05:04.370 --> 00:05:07.740
why somebody might want to
conduct a transaction privately

00:05:07.740 --> 00:05:11.920
and not have the whole world
know what they're transacting.

00:05:11.920 --> 00:05:14.260
Another property of
bitcoin is that it's open.

00:05:14.260 --> 00:05:17.432
Literally anyone
can get involved.

00:05:17.432 --> 00:05:19.390
Literally anyone who was
an internet connection

00:05:19.390 --> 00:05:21.195
can make a bitcoin transaction.

00:05:21.195 --> 00:05:23.445
And all you need to do to
get started is, as I alluded

00:05:23.445 --> 00:05:25.970
to earlier, is download
this special bitcoin client.

00:05:25.970 --> 00:05:28.490
And the bitcoin client,
or for that matter

00:05:28.490 --> 00:05:30.310
you can use a service like Mt.

00:05:30.310 --> 00:05:32.670
Gox which will effectively
do the same work

00:05:32.670 --> 00:05:34.230
as a client for you.

00:05:34.230 --> 00:05:35.940
But the short of
it is that anyone

00:05:35.940 --> 00:05:37.640
who has a bitcoin
client or who has

00:05:37.640 --> 00:05:39.370
an account with an
exchange like Mt.

00:05:39.370 --> 00:05:42.650
Gox can engage in
bitcoin transactions.

00:05:42.650 --> 00:05:45.040
That transaction, the details
of it, the mechanics of it

00:05:45.040 --> 00:05:46.620
will be transparent to the user.

00:05:46.620 --> 00:05:49.030
All the user has to worry
about-- all Alice needs

00:05:49.030 --> 00:05:51.130
to worry about-- is
how much money she has

00:05:51.130 --> 00:05:53.060
and whether she can
give that money to Bob.

00:05:53.060 --> 00:05:54.820
The actual software
underneath will

00:05:54.820 --> 00:05:56.600
take care of all the
underlying mechanics

00:05:56.600 --> 00:05:59.780
of making that transaction work.

00:05:59.780 --> 00:06:00.750
Now, this is different.

00:06:00.750 --> 00:06:02.541
When you think about
a traditional currency

00:06:02.541 --> 00:06:05.070
like a dollar, if I want to
transact something online,

00:06:05.070 --> 00:06:08.160
typically I need a bank
account, I need a credit card,

00:06:08.160 --> 00:06:09.200
and so on and so forth.

00:06:09.200 --> 00:06:11.770
Then we often take it for
granted that there are people

00:06:11.770 --> 00:06:13.817
out there who may
not have access

00:06:13.817 --> 00:06:15.900
to a credit card, who may
not have a bank account.

00:06:15.900 --> 00:06:18.900
For example, in the United
States alone it turns out--

00:06:18.900 --> 00:06:21.900
and I just looked this up--
the number of households

00:06:21.900 --> 00:06:24.160
without a bank
account, I read it,

00:06:24.160 --> 00:06:26.542
is somewhere north of about 8%.

00:06:26.542 --> 00:06:27.250
It's pretty high.

00:06:27.250 --> 00:06:28.110
There are a lot of
people out there

00:06:28.110 --> 00:06:30.360
who wouldn't be able to
conduct a traditional internet

00:06:30.360 --> 00:06:33.980
transaction, but who can conduct
a transaction using bitcoin.

00:06:33.980 --> 00:06:36.120
And by the way, there
are people using bitcoin

00:06:36.120 --> 00:06:37.110
all over the world.

00:06:37.110 --> 00:06:40.399
And literally it doesn't matter
where you are in the world,

00:06:40.399 --> 00:06:42.190
as long as you have an
internet connection,

00:06:42.190 --> 00:06:45.057
you can start
transacting bitcoins.

00:06:45.057 --> 00:06:47.390
Now, another property of
bitcoin that's worth mentioning

00:06:47.390 --> 00:06:49.140
is that it's decentralized.

00:06:49.140 --> 00:06:51.540
There's no bank or
centralized entity

00:06:51.540 --> 00:06:56.400
that can really control what's
happening in the bitcoin

00:06:56.400 --> 00:06:57.360
ecosystem.

00:06:57.360 --> 00:07:00.400
It's all done in this
kind of ad hoc fashion.

00:07:00.400 --> 00:07:03.050
And what that means is that
when you do a transact--

00:07:03.050 --> 00:07:06.170
or when Alice transacts
with Bob over the internet,

00:07:06.170 --> 00:07:09.970
that transaction doesn't have
to go through a third party.

00:07:09.970 --> 00:07:13.069
There's no bank that gets in
the way of that transaction.

00:07:13.069 --> 00:07:14.860
And that can have
certain benefits as well.

00:07:14.860 --> 00:07:18.080
For example, that means that
no one entity can directly

00:07:18.080 --> 00:07:21.970
control the money
supply of bitcoins.

00:07:21.970 --> 00:07:25.890
That also means that no one
entity can see your assets.

00:07:25.890 --> 00:07:28.010
Or for that matter,
no one entity

00:07:28.010 --> 00:07:30.447
can reverse a transaction,
which is definitely

00:07:30.447 --> 00:07:31.780
desirable for certain merchants.

00:07:31.780 --> 00:07:34.250
Some merchants might
not be able to conduct

00:07:34.250 --> 00:07:37.250
business online because
of fraud concerns.

00:07:37.250 --> 00:07:40.280
And if you have a system where
the transactions cannot be

00:07:40.280 --> 00:07:44.360
charged back easily, then from
the merchant's perspective,

00:07:44.360 --> 00:07:47.210
they may be able to inhibit
fraud and thereby that might

00:07:47.210 --> 00:07:50.292
enable their business
entirely online.

00:07:50.292 --> 00:07:52.250
Now I want to point out
that this last property

00:07:52.250 --> 00:07:56.010
of decentralization
definitely causes concern

00:07:56.010 --> 00:07:59.400
among some people or not
in bitcoin after all.

00:07:59.400 --> 00:08:02.270
When you think about it, a
central authority like a bank

00:08:02.270 --> 00:08:04.090
does perform an
important function

00:08:04.090 --> 00:08:05.900
in the context of a
traditional currency.

00:08:05.900 --> 00:08:08.570
For example, banks might
validate currencies.

00:08:08.570 --> 00:08:11.940
They might validate
transactions against fraud.

00:08:11.940 --> 00:08:13.940
Now, in bitcoin, this
validation is basically

00:08:13.940 --> 00:08:18.050
done in a decentralized
way by the other parties,

00:08:18.050 --> 00:08:21.050
the other nodes, in
the bitcoin network.

00:08:21.050 --> 00:08:23.220
Now, the goal of the remaining
videos in this series

00:08:23.220 --> 00:08:26.850
is to walk through the
underlying mechanics of bitcoin

00:08:26.850 --> 00:08:29.330
transactions and really
how they're validated,

00:08:29.330 --> 00:08:31.540
even though the system
is decentralized.

00:08:31.540 --> 00:08:34.190
And there are some
pretty amazing techniques

00:08:34.190 --> 00:08:36.600
that are used to
make all this work.

00:08:36.600 --> 00:08:38.100
So I suspect that
at this point, you

00:08:38.100 --> 00:08:39.850
may have a ton of
questions about bitcoin,

00:08:39.850 --> 00:08:41.659
and that's entirely
to be expected.

00:08:41.659 --> 00:08:43.355
Bitcoin is a very
complex protocol.

00:08:43.355 --> 00:08:45.339
It has many moving parts.

00:08:45.339 --> 00:08:46.880
And I think it's
critical when you're

00:08:46.880 --> 00:08:48.720
trying to understand
something as complex

00:08:48.720 --> 00:08:51.270
and wrap your head around
something as sophisticated

00:08:51.270 --> 00:08:54.600
as bitcoin, it's important to
get exposed to all the parts

00:08:54.600 --> 00:08:56.590
first so that you
can ultimately get

00:08:56.590 --> 00:08:58.440
a flavor for how
they fit together.

00:08:58.440 --> 00:09:00.720
And hopefully the other
videos in this series

00:09:00.720 --> 00:09:03.430
will help you to understand
these different parts

00:09:03.430 --> 00:09:05.675
and along the way address
many of the questions

00:09:05.675 --> 00:09:07.860
that you might have.


Bitcoin - The money supply

WEBVTT
Kind: captions
Language: en

00:00:00.790 --> 00:00:04.620
In the last video, I talked
about how Bitcoin transactions

00:00:04.620 --> 00:00:07.950
are really incorporated
into a global and a publicly

00:00:07.950 --> 00:00:11.631
accessible ledger of sorts that
we call the transaction block

00:00:11.631 --> 00:00:12.130
chain.

00:00:12.130 --> 00:00:14.060
And this work is
actually carried out

00:00:14.060 --> 00:00:17.100
by nodes in the
Bitcoin network that

00:00:17.100 --> 00:00:19.300
are known as Bitcoin miners.

00:00:19.300 --> 00:00:21.100
And as a reward for
all that effort,

00:00:21.100 --> 00:00:24.870
especially since some of the
computational heavy lifting

00:00:24.870 --> 00:00:27.050
is done by these
Bitcoin miners, they're

00:00:27.050 --> 00:00:30.230
basically awarded a
certain number of Bitcoins

00:00:30.230 --> 00:00:31.500
for their efforts.

00:00:31.500 --> 00:00:33.250
And this happens by
the miners effectively

00:00:33.250 --> 00:00:37.000
constructing what's called
a coinbase transaction,

00:00:37.000 --> 00:00:39.820
and then basically assigning
themselves Bitcoins

00:00:39.820 --> 00:00:41.175
within that transaction.

00:00:41.175 --> 00:00:42.550
So in a sense,
then-- and this is

00:00:42.550 --> 00:00:45.280
kind of intriguing--
Bitcoins are effectively

00:00:45.280 --> 00:00:48.414
generated almost out of thin
air during this process.

00:00:48.414 --> 00:00:50.330
And of course, if you
see something like that,

00:00:50.330 --> 00:00:52.250
that might raise in
your mind the question

00:00:52.250 --> 00:00:55.720
of whether there is ever an
upper limit to the Bitcoin

00:00:55.720 --> 00:00:56.320
money supply.

00:00:56.320 --> 00:00:58.570
And fortunately, the
answer-- or maybe not

00:00:58.570 --> 00:01:00.850
so fortunately, depending
on your viewpoint--

00:01:00.850 --> 00:01:03.274
the answer to that
question is actually yes.

00:01:03.274 --> 00:01:04.690
And the Bitcoin
system is actually

00:01:04.690 --> 00:01:11.950
designed so that there can be
at most 21 million Bitcoins ever

00:01:11.950 --> 00:01:12.450
generated.

00:01:12.450 --> 00:01:17.090
OK, so that's the maximum
number of Bitcoins

00:01:17.090 --> 00:01:18.950
that can ever come
up in the system.

00:01:18.950 --> 00:01:20.797
Beyond that point,
no more new Bitcoins

00:01:20.797 --> 00:01:22.255
will ever be accepted
or generated,

00:01:22.255 --> 00:01:24.310
or allowed to be generated.

00:01:24.310 --> 00:01:28.145
And so as a result, nodes at
that point-- from that point

00:01:28.145 --> 00:01:30.940
onward, once 21 million
Bitcoins have been generated--

00:01:30.940 --> 00:01:34.240
nodes will no longer get
a reward for augmenting

00:01:34.240 --> 00:01:36.100
the transaction block chain.

00:01:36.100 --> 00:01:38.490
The Bitcoin miners
who do all this effort

00:01:38.490 --> 00:01:40.480
are not going to
get a guaranteed

00:01:40.480 --> 00:01:42.435
award for doing that effort.

00:01:42.435 --> 00:01:44.435
And keep in mind that,
because every transaction

00:01:44.435 --> 00:01:47.910
in the Bitcoin system is public,
and the nodes in the system

00:01:47.910 --> 00:01:51.290
actually know how many
coins have been generated,

00:01:51.290 --> 00:01:53.800
it's possible to really
enforce these limits

00:01:53.800 --> 00:01:57.075
on the total number
of Bitcoins created.

00:01:57.075 --> 00:01:58.450
Now there are
actually two points

00:01:58.450 --> 00:02:00.408
I want to make regarding
this particular limit.

00:02:00.408 --> 00:02:03.569
So first of all, even
after it's reached,

00:02:03.569 --> 00:02:05.110
we're still going
to need nodes to do

00:02:05.110 --> 00:02:07.350
what Bitcoin mining
nodes do today.

00:02:07.350 --> 00:02:10.530
So that involves things like
incorporating transactions

00:02:10.530 --> 00:02:13.390
into transaction blocks, and
incorporating these transaction

00:02:13.390 --> 00:02:17.620
blocks into transaction block
chains, and so on and so forth.

00:02:17.620 --> 00:02:20.380
But if you think about it for
a moment, once the 21 million

00:02:20.380 --> 00:02:22.190
coin limit is
reached, these nodes

00:02:22.190 --> 00:02:25.520
don't get that automatic
reward of Bitcoins

00:02:25.520 --> 00:02:27.369
for performing
this extra effort.

00:02:27.369 --> 00:02:28.910
And now you might
be wondering, well,

00:02:28.910 --> 00:02:31.110
what incentive is
there for these nodes

00:02:31.110 --> 00:02:33.635
to engage in this
additional effort?

00:02:33.635 --> 00:02:35.510
I mean, why are they
doing this sort of thing

00:02:35.510 --> 00:02:38.780
if they're not going to
get Bitcoins as a guarantee

00:02:38.780 --> 00:02:40.200
for doing that work?

00:02:40.200 --> 00:02:42.640
And really at this
point, the hope

00:02:42.640 --> 00:02:45.410
is that, when we reach the
21 million Bitcoin limit--

00:02:45.410 --> 00:02:48.310
or as we get closer and
closer to it-- that actually

00:02:48.310 --> 00:02:52.180
transaction fees will play a
more prominent role in a node's

00:02:52.180 --> 00:02:55.930
decision to be a
Bitcoin mining node.

00:02:55.930 --> 00:02:59.007
And in particular,
the idea here is

00:02:59.007 --> 00:03:00.590
that we hope the
transaction fees will

00:03:00.590 --> 00:03:04.150
be enough of an incentive,
and more and more people

00:03:04.150 --> 00:03:05.877
will-- in general,
I think, hopefully,

00:03:05.877 --> 00:03:07.460
by this point-- will
be using Bitcoin.

00:03:07.460 --> 00:03:12.172
And so as a result, I think
there is an expectation--

00:03:12.172 --> 00:03:13.630
or it's not
unreasonable to think--

00:03:13.630 --> 00:03:16.210
that as more and more
people use Bitcoins,

00:03:16.210 --> 00:03:17.940
there will be more
and more transactions,

00:03:17.940 --> 00:03:19.690
and as a result, more
and more opportunity

00:03:19.690 --> 00:03:22.100
to make money off
of transaction fees.

00:03:22.100 --> 00:03:24.544
And it turns out that in the
context of Bitcoin mining,

00:03:24.544 --> 00:03:26.960
a lot of the heavy lifting is
in this proof-of-work piece,

00:03:26.960 --> 00:03:29.480
not in being able to incorporate
all these transactions

00:03:29.480 --> 00:03:31.015
into a transaction block.

00:03:31.015 --> 00:03:33.850
So even if there's a lot of
transactions in the transaction

00:03:33.850 --> 00:03:37.252
block, it's not that much
more effort for the miners

00:03:37.252 --> 00:03:39.210
to really incorporate
those extra transactions.

00:03:39.210 --> 00:03:42.450
But if they're getting all
these extra transaction fees,

00:03:42.450 --> 00:03:45.230
then that might be an
incentive for them.

00:03:45.230 --> 00:03:48.100
It's also worth noting that
transaction fees are actually

00:03:48.100 --> 00:03:51.810
set by the payer in Bitcoin.

00:03:51.810 --> 00:03:53.700
The payer, then,
is going to have

00:03:53.700 --> 00:03:57.440
the onus of setting
the fee appropriately,

00:03:57.440 --> 00:04:00.210
so that the nodes in
the Bitcoin network

00:04:00.210 --> 00:04:03.310
are incentivized
to add that payer's

00:04:03.310 --> 00:04:07.900
transactions to their
transaction blocks.

00:04:07.900 --> 00:04:09.700
So hopefully that
makes some sense.

00:04:09.700 --> 00:04:12.710
The second point I want to
make, regarding this limit

00:04:12.710 --> 00:04:14.870
of 21 million Bitcoins,
is that really Bitcoin

00:04:14.870 --> 00:04:17.939
does allow for fractional coins.

00:04:17.939 --> 00:04:19.730
And I haven't really
talked much about that

00:04:19.730 --> 00:04:20.605
in this video series.

00:04:20.605 --> 00:04:24.540
I've really implicitly talked
only about the idea of coins

00:04:24.540 --> 00:04:26.680
being these whole entities,
like Alice transferring

00:04:26.680 --> 00:04:30.195
10 coins to Bob, or 25
coins to Bob, and so on.

00:04:30.195 --> 00:04:31.570
But it turns out
you can actually

00:04:31.570 --> 00:04:34.670
have coins that are fractional.

00:04:34.670 --> 00:04:39.620
And in fact, the smallest
possible unit in Bitcoin--

00:04:39.620 --> 00:04:48.940
it's a very small number--
it's 0.00000001 Bitcoins.

00:04:48.940 --> 00:04:52.730
And this is 1/100-million
of a Bitcoin.

00:04:52.730 --> 00:04:54.670
And this actual--
this unit, by the way,

00:04:54.670 --> 00:04:59.720
just as an FYI-- is
known as a Satoshi.

00:04:59.720 --> 00:05:04.510
And this name actually comes
from the name Satoshi Nakamoto.

00:05:04.510 --> 00:05:07.485
And Satoshi Nakamoto
is the pseudonym

00:05:07.485 --> 00:05:09.330
of the inventor of Bitcoin.

00:05:09.330 --> 00:05:12.320
Nobody actually is sure that
there is somebody actually

00:05:12.320 --> 00:05:14.775
named Satoshi Nakamoto, but
as far as anybody can tell,

00:05:14.775 --> 00:05:16.400
the only person who's
ever taken credit

00:05:16.400 --> 00:05:21.120
for the invention of Bitcoin
is this Satoshi Nakamoto name.

00:05:21.120 --> 00:05:23.140
And it's unlikely
there's actually

00:05:23.140 --> 00:05:25.150
a person behind that
name, but it's more likely

00:05:25.150 --> 00:05:28.594
maybe some type of a group,
or something of that nature.

00:05:28.594 --> 00:05:30.260
Now, aside from that,
there are actually

00:05:30.260 --> 00:05:32.310
a couple of other
additional controls

00:05:32.310 --> 00:05:35.660
that I want to mention, that are
built into Bitcoin for keeping

00:05:35.660 --> 00:05:38.930
the growth of that
money supply in check.

00:05:38.930 --> 00:05:43.120
So first of all, the reward
provided to Bitcoin miners

00:05:43.120 --> 00:05:47.350
actually decreases over time.

00:05:47.350 --> 00:05:49.440
And if you were
aware-- when Bitcoin

00:05:49.440 --> 00:05:54.450
began, which was around
January of 2009-- at that time,

00:05:54.450 --> 00:05:58.340
the reward for a Bitcoin
miner to do their effort

00:05:58.340 --> 00:06:01.420
was 50 Bitcoins.

00:06:01.420 --> 00:06:04.640
Now, the way that the reward
structure is set up is that

00:06:04.640 --> 00:06:09.010
every 210,000 blocks-- so when
you get to a 210,000-block

00:06:09.010 --> 00:06:13.470
period, every time 210,000
new blocks are generated--

00:06:13.470 --> 00:06:18.520
the reward size actually
gets cut in half.

00:06:18.520 --> 00:06:21.800
And so what that means is
that once 210,000 blocks are

00:06:21.800 --> 00:06:24.560
generated, the reward goes from
50 Bitcoins to 25 Bitcoins,

00:06:24.560 --> 00:06:29.450
and from 25 to 12 and 1/2,
and so on and so forth.

00:06:29.450 --> 00:06:34.550
Now, it does take
approximately 4 years

00:06:34.550 --> 00:06:38.010
to generate 210,000 blocks,
and I'll talk a little bit

00:06:38.010 --> 00:06:41.120
later about where this 4
years numbers come from.

00:06:41.120 --> 00:06:43.850
But as of right now, I'm
recording this video--

00:06:43.850 --> 00:06:48.410
it's May 2013-- the current
reward is actually no longer 50

00:06:48.410 --> 00:06:48.910
Bitcoins.

00:06:48.910 --> 00:06:51.260
The current reward
now is actually

00:06:51.260 --> 00:06:55.500
25 Bitcoins per
mining operation,

00:06:55.500 --> 00:06:58.430
and it's going to go down
half in approximately 4 years.

00:06:58.430 --> 00:07:00.860
And that's just going
to keep happening,

00:07:00.860 --> 00:07:07.450
until-- the estimate is
around the year 2140.

00:07:07.450 --> 00:07:14.730
So in the year 2140, we will
expect that the entire Bitcoin

00:07:14.730 --> 00:07:16.299
supply will have been generated.

00:07:16.299 --> 00:07:18.090
So we're not going to--
it's unlikely we'll

00:07:18.090 --> 00:07:20.590
be generating
Bitcoins after 2140.

00:07:20.590 --> 00:07:24.789
2140 is the point at
which all Bitcoins

00:07:24.789 --> 00:07:25.830
will have been generated.

00:07:31.370 --> 00:07:35.100
Now, the last way to limit
the generation of Bitcoins

00:07:35.100 --> 00:07:37.780
is to actually
calibrate the difficulty

00:07:37.780 --> 00:07:41.309
of solving that proof-of-work
protocol at a global level.

00:07:41.309 --> 00:07:43.725
And so I also want to point
out that another functionality

00:07:43.725 --> 00:07:45.460
that Bitcoin has
built into it is

00:07:45.460 --> 00:07:52.740
that for every 2016
blocks that are generated,

00:07:52.740 --> 00:07:54.910
the network basically
estimates the time that it

00:07:54.910 --> 00:07:56.640
took to generate those blocks.

00:07:56.640 --> 00:07:58.670
It looks at how long
did it take to generate

00:07:58.670 --> 00:08:00.252
the first of these blocks,
and how long did it

00:08:00.252 --> 00:08:02.001
take to generate the
last of these blocks,

00:08:02.001 --> 00:08:04.400
and it measures
that amount of time.

00:08:04.400 --> 00:08:07.660
And if that amount
of time is-- let's

00:08:07.660 --> 00:08:15.600
say it's something that's
significantly bigger than 2

00:08:15.600 --> 00:08:16.740
weeks.

00:08:16.740 --> 00:08:18.860
So if it's significantly
bigger than 2 weeks,

00:08:18.860 --> 00:08:22.304
then the proof-of-work
protocol will be simplified.

00:08:22.304 --> 00:08:24.220
But we're going to
calibrate it so it's easier

00:08:24.220 --> 00:08:25.950
to generate blocks.

00:08:25.950 --> 00:08:29.480
On the flip side, let's say it
took a lot less than 2 weeks

00:08:29.480 --> 00:08:33.260
to generate these 2016 blocks.

00:08:33.260 --> 00:08:35.929
In that case, the proof of
work will be again calibrated

00:08:35.929 --> 00:08:37.980
to be made more difficult.

00:08:37.980 --> 00:08:40.120
And the goal is that
we want it to be

00:08:40.120 --> 00:08:42.700
the case that, of
2016 blocks, we

00:08:42.700 --> 00:08:46.600
want it to be the case that it
takes about 2 weeks to generate

00:08:46.600 --> 00:08:53.280
these blocks-- about 14 days
to generate 2016 blocks.

00:08:53.280 --> 00:08:56.460
And to get a better sense
for why that number is

00:08:56.460 --> 00:08:59.470
the way it is, you could
see that-- let's say

00:08:59.470 --> 00:09:05.345
it takes about 2 weeks
to generate 2016 blocks.

00:09:05.345 --> 00:09:08.810
What that actually will imply is
that it takes about 10 minutes

00:09:08.810 --> 00:09:11.110
before the proof of
work is actually solved,

00:09:11.110 --> 00:09:15.685
and a new transaction is--
or a new transaction block,

00:09:15.685 --> 00:09:18.100
rather-- is folded into the
overall transaction block

00:09:18.100 --> 00:09:18.770
chain.

00:09:18.770 --> 00:09:21.650
And you can actually
work out that if you--

00:09:21.650 --> 00:09:24.740
if it took 10 minutes to
validate, or to come up

00:09:24.740 --> 00:09:27.930
with one new block in the
system at a global level,

00:09:27.930 --> 00:09:32.130
and you multiply that by 6
to get the number of blocks

00:09:32.130 --> 00:09:34.620
generated per hour-- so
you'd get 6 blocks per hour,

00:09:34.620 --> 00:09:37.910
or really 6 new proofs of work
per hour, which in turn would

00:09:37.910 --> 00:09:40.460
lead to 6 new transaction
blocks per hour--

00:09:40.460 --> 00:09:44.520
you multiply that
by 24 hours per day.

00:09:44.520 --> 00:09:47.090
And then you multiply
that by 14 days,

00:09:47.090 --> 00:09:49.950
and you'll actually find that
when you multiply these things

00:09:49.950 --> 00:09:55.270
together, you will
get the number 2016.

00:09:55.270 --> 00:09:57.900
And so you can get a sense for
where this number comes from.

00:09:57.900 --> 00:10:00.920
And I want to make one last,
final clarifying remark

00:10:00.920 --> 00:10:03.200
regarding this proof of work.

00:10:03.200 --> 00:10:05.813
Since solving the
proof of work actually

00:10:05.813 --> 00:10:08.750
requires a Bitcoin
mining node to come up

00:10:08.750 --> 00:10:10.500
with the proof string--
which it currently

00:10:10.500 --> 00:10:12.880
does through some type
of exhaustive search--

00:10:12.880 --> 00:10:15.590
as you increase the number
of Bitcoin mining nodes

00:10:15.590 --> 00:10:18.790
on the network, then really,
all else being equal,

00:10:18.790 --> 00:10:22.289
the proof of work
will be solved faster.

00:10:22.289 --> 00:10:24.205
But I don't mean faster
for a particular node.

00:10:24.205 --> 00:10:26.510
I mean faster at the level
of the entire network.

00:10:26.510 --> 00:10:28.490
In other words,
it'll take less time

00:10:28.490 --> 00:10:31.207
before at least one node
comes up with a solution,

00:10:31.207 --> 00:10:33.540
because these nodes are all
working on that same problem

00:10:33.540 --> 00:10:34.579
concurrently.

00:10:34.579 --> 00:10:36.120
And actually, on
that note, I do also

00:10:36.120 --> 00:10:39.180
want to mention quickly maybe
a more subtle point, which

00:10:39.180 --> 00:10:42.610
is that-- even though the
different Bitcoin mining nodes

00:10:42.610 --> 00:10:47.740
are all validating either the
exact same set of transactions,

00:10:47.740 --> 00:10:50.190
or maybe a largely overlapping
set of transactions--

00:10:50.190 --> 00:10:53.170
they actually are
all solving entirely

00:10:53.170 --> 00:10:54.580
different
proof-of-work protocols

00:10:54.580 --> 00:10:56.163
when they're doing
this sort of thing.

00:10:56.163 --> 00:10:58.500
And the reason for that is
that each node, remember,

00:10:58.500 --> 00:11:02.630
inserts its own coinbase,
or generational transaction,

00:11:02.630 --> 00:11:06.750
into the block that it's working
on to award itself coins.

00:11:06.750 --> 00:11:09.340
And this generational
or coinbase transaction

00:11:09.340 --> 00:11:11.460
is actually unique to each node.

00:11:11.460 --> 00:11:14.710
So as a result, the challenge
string for which, let's say,

00:11:14.710 --> 00:11:17.659
each Bitcoin mining node is
seeking a corresponding proof

00:11:17.659 --> 00:11:19.950
of work-- well, that challenge
string will be different

00:11:19.950 --> 00:11:23.860
for each Bitcoin-- each
Bitcoin mining node, rather.

00:11:23.860 --> 00:11:25.235
And so essentially,
what you have

00:11:25.235 --> 00:11:27.151
is that, because you
have a cryptographic hash

00:11:27.151 --> 00:11:28.970
function that's being
used in the process,

00:11:28.970 --> 00:11:30.950
just this one
difference-- the fact

00:11:30.950 --> 00:11:33.190
that just this one piece is
different-- that actually

00:11:33.190 --> 00:11:36.390
completely randomizes the
proof-of-work problem that

00:11:36.390 --> 00:11:37.440
results.

00:11:37.440 --> 00:11:40.870
And that makes it likely that
across the entire network,

00:11:40.870 --> 00:11:43.480
the solutions are likely
to be widely distributed,

00:11:43.480 --> 00:11:45.680
and we can expect that
if we have enough nodes,

00:11:45.680 --> 00:11:49.259
one node will come up with a
solution in about 10 minutes.

00:11:49.259 --> 00:11:50.550
At least one of the nodes will.

00:11:50.550 --> 00:11:51.930
They won't all do
it, but at least one

00:11:51.930 --> 00:11:54.100
will, and once one node
comes up with a solution,

00:11:54.100 --> 00:11:56.390
everyone else can proceed
from that point onward

00:11:56.390 --> 00:11:58.060
with the new chain.

00:11:58.060 --> 00:12:00.580
So as you can see,
the Bitcoin protocol

00:12:00.580 --> 00:12:03.080
takes a number of
measures-- implements

00:12:03.080 --> 00:12:05.790
a number of mechanisms--
to both limit

00:12:05.790 --> 00:12:08.330
the total number of
Bitcoins, as well

00:12:08.330 --> 00:12:11.880
as the rate at which these
Bitcoins are ultimately

00:12:11.880 --> 00:12:13.430
generated.