Video - Bitcoin 101 - Bitcoin Vs. Credit Cards - How Bitcoin Could Take Over a Trillion Dollar Market

This is the 4th episode in our Big 5 blackboard series -- where we look at five features where bitcoin's inherent features could take over 5 different trillion dollar markets. This video gives you a quick history on the evil aspects of credit cards, then looks at the SEISMIC changes offered by Bitcoin. Merchants especially will benefit from this video.


Hello, this is James D'Angelo welcome to the Bitcoin 101 Blackboard Series. Today we're going to talk about another one of our Big -- Big Five, okay. And these Big Five are all trillion dollar markets that Bitcoin is poised to take over in its entirety. And it's important to remember that Bitcoin's not a company, right? It's just a thing, okay. And this thing that it is is a protocol. So, Bitcoin's not a company but Bitcoin is a protocol. Okay, and this is what trips people out like how can a protocol be taken over the world. Well, we've never seen this before. Okay so, Bitcoin, if it takes over any one of these Big Five and it seems likely it might take over all Five it's going to be everywhere you look, okay. Everything you do is commanded by how you move with financial transactions, okay. So, Bitcoin is a protocol much the way that HTTP for the internet is a protocol. The P stands for protocol or TCP, IP where both P stands for protocol. And those protocols which govern the entire internet world are similar in the sense that Bitcoin is a protocol. It really should be called peer to peer digital currency protocol. But Bitcoin with its corporate sounding name is not a company, it's a protocol.

And what we're looking at today is the features that are built into this protocol and keep in mind that this protocol is updated often. So, it's new ideas come along, you can add new ideas to it, right. So, we're talking about the Big Five right now, right? We've already done our video on gold. And we're going to do one on micropayments, but today we're really looking at the big bad boy of all time, right. We're looking at Bitcoin versus spell it out, credit cards okay. And credit cards are a trillion trillion-dollar industry just the amount they charge and off of the little payments that you make, right it is billions each year. The interest they charged, everything to do with credit cards is big -- big money. Okay, even in a bad year they're making more than McDonald's.

So, Bitcoin versus Credit Cards. Now, the key here is to understand that since the 70s when credit cards really came, the 1970's credit cards exploded. Okay, and they really exploded with the movement of one company Citibank's branch. Right, Citibank had a branch, the credit card division right. Citibank credit card moved from New York City. All right, because New York City had too many regulations on credit cards and too many regulations on interest rates. So. they moved from New York City, they went from New York City to Sioux Falls, South Dakota. All right. And this is when everything went bonkers, Dakota -- South Dakota. Okay, so le's insert that there. At that point Sioux Falls, South Dakota or South Dakota in general had just reneged all their legislations. All their rules to do with interest rate they erased them all. And that created this movement and it was one of the most phenomenal moves of all time. And it's no short order. We saw the explosion of credit cards. And, in fact, in those early days everyone in the mail was receiving credit cards, you didn’t even have to apply, right. So, people receiving mail it didn't matter what you were. If you were a drug addict you got a credit card in the mail that you could go out and use.

Now, if you're going to give loans to drug addicts. If you're going to give loans to people who are not going to pay back well clearly, you're going to have to charge very high interest rates. And that was what they were able to do. So, credit cards were working on the order of 20 to 30% often interest. But it wasn't uncommon interest rates. It wasn't uncommon to see an 80% interest rate. In fact, I think, even in 2000s you could still get a certain company charging 80% interest. And what was even more evil, right. And this is definitely downright evil. Say you had a -- let's start a new page, right. Say you had borrowed $30,000 on credit cards, right. And say you had paid back overtime $ 29,900 of those dollars, okay. So, you paid back that much. They were still charging you as long as you owed even $1 they were charging you the full interest rate on 30,000. Okay.

And this is because credit cards moved into South Dakota, the Wild West for interest rates where anything could happen. In fact, you might have bought this under certain terms of interest, right. Certain terms of interest and then in the middle of a credit card just decided to raise them. They could do that, okay. There was not -- no nowhere else in the world you could act like this. So, credit cards of course, credit cards got a bad name right. Credit cards got a bad name. But to be fair, we have to talk about the flipside of that. And when we look at credit cards as a tool for finance credit cards are awesome. There is just no joke, credit cards are awesome. And most people have one and most people enjoy their credit card, right. They do hate the fees and they are upset by the way things happen. But credit cards are awesome. If you travel, right, if you travel you will pack your passport first thing in your pocket. But the very next thing in your pocket in fact, might even be the first thing for some people right. You can get your passport given to you in one day. If you're in Uganda or Kenya and you lose it. But your credit card will allow you to survive in that country until you get your passport.

So, if you travel the first thing you're packing might be your credit card, okay. So, this is a big plus. If you're doing business, right? If you're doing business over the internet I mean give me a break. You need some way to receive credit card payments, okay. So, even PayPal which is doing business over the internet provides a way to receive credit card payments. So, internet business which is growing all the time needs credit card. And if you're traveling you need credit cards, right? These are just, it's hard to imagine life without it. So, you're traveling, what do you going to do. Carry gold with you, okay. Carry you know a belt full of money. If you get mugged and they take your money but you're done. If you get mugged and they take your credit card they may not get anything, okay. But you can go to the ATM right away grab your money. In one little thin strip of plastic you basically have everything you need to travel. You have your hotel, your food everything you're going to do, okay. So, credit cards are awesome. They are portable power. Similar to gold in some ways, right. Portable power.

Now, there's big issues with credit cards. And what we're going to talk about today is how credit cards affect the people who receive the payments from the credit card. So, we'll talk a little bit about you, the user of the credit card going out to buy things. But the most important difference that Bitcoin can offer is going to be how merchants, right. So, how do merchants -- how do merchants look at credit cards? And where the seismic changes right? You're not going to switch to a new system unless there's seismic changes, all right. So, what are the seismic changes offered by Bitcoin? Now they have to be seismic right. If you're going to go from this amazing and credit cards are built-in. Every store you go to, not every store but most of the stores you go to have their little point of sale. Their POS device that receives your credit card. Calls the credit card company. Gives the payment immediately to the merchant. So, the merchant gets some real benefit out of that, right? They've got this built-in system that any customer can come in and use right away.

And there's some real advantages to receiving your cash digitally, okay. So, if you're Starbucks and you have a million stores around the country. You're not the owner going to be able to watch every transaction. Make sure they're not pocketing a little bit of money. Giving away a free coffee here and there. Credit card payments are awesome because it's much harder for the person to take the credit card payment, okay. And immediately they come into your systems accounting. So, there's some real advantages right. So, if you're a merchant. You're very happy to have this. You already have your built-in system, your POS, your point of sale and you get this kind of free accounting that -- that's part of your credit cards system, okay. So, those are the those are some pretty sweet advantages. And you can do business on the internet very well right. So, internet business. So, this is some big pluses. You're really going to, once again, we have to talk about how you're going to provide these seismic changes from these evil companies that are charging such high percentage rates to people, right. The thumb breakers and loan sharks of the modern day.

So, what is it that Bitcoin begins to offer. Now, we're going to start to look at that list, okay. And if you're a merchant you're going to start to see some of this right away. One of the first things, with number one, there's no application. Okay. If you're in store and you want to use credit cards. Well, it's an ordeal all right you have to fill out all these applications. But then there's all these fees and you even have to rent that little point of sale machine that cost you money. Okay, so there's cost there and oftentimes that's rented. It's an ordeal to get involved with credit cards. It's not like you can open your store today or even run a garage sale and immediately be taking these payments. Now, Square is beginning to offer some of that but they have some of the negative stuff that we're talking about. And we'll be getting to some of that, okay.

So, number two. Bitcoin offers no fees or in comparison nearly no fees, okay. So, if you use a service to help you out you can pay 1% and get a service like BitPay which has been really big now. It's starting to move around the world. They've got thousands of merchants, right. And BitPay will charge 1% or even less, right. So, if these companies are starting to compete because Bitcoin is so inexpensive to transfer. It's near free to transfer right. BitPay will probably end up knocking that 1% and if not they probably already have knocking it down to somewhere closer to 0%. For a company to help you manage your transactions. So, send you your ledger to -- to provide some insurance right. You're BigPay, you've got Coinbase who is trying to enter in there and they're saying free transactions up to your first million. And now you have Coinkite, which I don't know that much about but they're really making some ways right now. Because they're offering sort of these traditional point of sale options. So, Coinkite you can get your little card like card sliding machine where you slide your card down and you get the keys over here. It looks just like the thing you have in your store right now. And Coinkite is even coming up with sort of this card, right. So that someone can have a Coinkite card that will have a Bitcoin type payment going on, okay.

And again, this is the key, no fees. And we're going to elaborate on that. On this next page because it's such a big deal. I repeat, no fees. Okay if you're a store. And let's just talk about a Mom & Pop Store because that's who's watching this video right now going what the hell, all right. Here is your pie. Okay this isn't your apple pie. This is your economics pie. If you're running your Mom & Pop Store we have a pretty good idea what you're spending. Because most store spend about the same right. They could spend somewhere around 40% in rent, okay. And then somewhere down here you've got another big piece of pie for utilities. Okay so, let's call it 10%. I don’t know if 10% and the line goes down here, okay. Well, let's do that way. 10 % on utilities, okay. But you need some employees. So, let's say 20% on employees, all right. You can already see where this is going. Employees right then you have maybe some legal work. You have some other sort of ancillary services for another 10%, right. So, here's 40. Here's 10 and that's 50. There's 70. There's 80 you still got 20% in here. Now, most people know that if you're running a Mom & Pop Store. And you're making 20% profit, you're doing better than almost every Mom & Pop Store. And by the time a Mom & Pop Store gets everything done. They're usually looking at if they're lucky. 10% is profit or 10% they can start to put in their own. So, Mom can put 5% in her pocket. Dad can put 5% in his pocket.

So, credit cards which charge fees. So, if you're doing a credit card-based business. Credit cards come in and they take anywhere from 2% to 5% okay. And that 2% to 5% comes out of your 10% profit. So, in reality, a credit card from a Mom & Pop is going to take one-half of profits. One half of profits, okay. So, if you've got 10 tables in your little Mom & Pop restaurant right 10 tables, one, two, three, four, five, six, seven, eight, nine, ten, right. And you've got your 10 tables all with you know selling your lattes or whatever as you're selling your pizzas. Your credit card is taking the profits off of half, okay. That is why when you go into a lot of Mom & Pop stores. They'll say we don't take credit cards, right. They can't take credit cards. It just, it murders them okay. Credit cards are very dear to small businesses. And that is why in the closest restaurant to me. Okay there's this place called Radii Thai food on the corner. They've still got the ATM right next -- right next to their cash register. They don't accept credit cards. If you don't have cash. You just turn around and get it right there. You pay the ATM fee so they don't have to pay the credit card fees, okay. So. no fees is a very very big deal. No fees with Bitcoin. Now, that's starting to be seismic but let's continue.

So, the founder of Bitcoin. The guy who invented this. This genius protocol which is all it is. That's now running he doesn't have any stake and he doesn't have anything right. It's just running without him. The founder Satoshi Nakamoto if you read his original paper which is a white paper. Which is basically just a technical article talking about Bitcoin. And what he's developing it for you'd almost get the feeling that's Satoshi Nakamoto cared about one thing more than anything else. Okay, and that one thing is Chargebacks. Okay and three, with Bitcoin there no Chargebacks ever.

Now what the hell are Chargebacks? Okay what are Chargebacks? Well, that's pretty easy and it's fairly common. Say, I've got a toaster, okay? And I sell it on eBay to someone else. I make the money, he sends me through a Visa card for example. And he has received the toaster. Well, after five days he calls up eBay and says look this toaster doesn't work at all. And it's not at all what I ordered. I want my money back. Even though eBay and the credit card have given you your money. So, even though you've had the money in your account. So, your money in your account they take it back. Okay, and credit cards, PayPal, eBay this is a big issue, okay. So, any Mom & Pop Store who's dealing with credit cards has to work in fear. And who knows what the period is because it seems like credit cards can do it whenever the hell they want, even ten years later. But certainly, in the first few weeks all right. You've made your sale. You did your amazing little sculpture right. It took you a year. You've sold it by credit card. And a person destroys it. And now makes a claim with the credit card company that they want their money back and they can get it, okay.

So, these Chargebacks may not be dangerous to you the consumer right. So, if you're buying things that could be convenient, right. You could scam someone but you can also get your money back if the item is not what you suggested. But if you're a store owner. If your Mom & Pop right. If your Mom & Pop you live in fear of Chargebacks. Mom and Pop's live in fear. And it seems apparently Satoshi Nakamoto whatever the hell he was selling lived in fear of Chargebacks. Because if you look at his intro and if you look throughout the paper. When he's talking about Bitcoin he's not amazed by how this thing's going to take over the world and provided deflationary currency which might end up saving the world and the environment and who knows what else. All these beautiful sunshine things that everyone's associating now with Bitcoin. He talks about Chargebacks. It seems to me like he had his little electric guitar, right, he mailed it out made some money and then he ended up without the guitar and the money. So, he decided to get that person back by coding. So, no Chargebacks. If you're merchant that is like singing the world's best song.

Let's move forward with seismic. Remember these better be seismic. And right now, no fees, no Chargebacks is pretty seismic. No applications. So, you can get going instantly. So; along with no applications. Is the idea that it's instant? So, you can get a Bitcoin account in seconds. You know, I'll bet you the fastest Bitcoin account can be done in maybe under a second right instant account, right. Okay, and we'll talk in other videos. How to form accounts? How to secure your wallet? We're going to do this big video on paper wall too. If you're really amassing a lot of wealth how to really hold onto it better than any other way. All right, but instant accounts are phenomenal. You've started a business on your garage sale or so you want to start selling something right away. You're walking down the street, you decide to sell your shoes to the next guy. He doesn't have cash. You both set up a Bitcoin account right away. Boom you sell your shoes, okay. Instant account and there's no -- there's no prerequisites right. So, that's another big deal. There's no ID, right. You don't have to give out your ID. There's no age limit. Nothing else that you would associate. No prior credit history, okay. So, instant accounts. What's -- it's big deals, okay. So, no fees, right.

The difference between no fees for a Mom & Pop stores maybe sending your kid to school. All right so again we're talking 50%. There's no fraud, okay. No fraud so some comes in with a credit card. They buy something and again you'll get the chargebacks because the person wasn't the rightful owner of the credit card. That doesn't happen with Bitcoin. No fraud whatsoever. And keep in mind that you pay for fraud in a number of ways, right. If you're the owner you pay with Chargebacks but you also pay with all these fees, right. One of the reasons credit cards have to maintain these monster fees. Why do credit cards have monster fees? Why monster fees? Well credit cards pay 40% of their money I've heard some enormous number on fraud fighting fraud. Credit cards pay massive amounts to fight fraud. Credit card fraud is everywhere, right. Their entire networks and some get shutdown all the time of people in foreign countries with thousands of credit card numbers for the country you're living in and so if you're in Italy or somebody in US all your credit card numbers. And they're just selling those to everybody else and purchases and so much manipulation can be done, right.

And that brings up another big issue. If you have so much credit card number, right. If you have the number and then you've got that little security code. What is it? Three digits. nine three one. And then you have the date of expiration, right. Date of expiration. You know, you're pretty good to go on most sites, right. You can already start doing that purchase. Now, if you've got a billing address you're even better right. So, if you know all this about someone with a credit card. You can start to pull off fraud okay. Now we're going to wind up because I'm running out of battery power in my computer. So, no fraud. With Bitcoin, you never give out your private key. These digital signatures are this whole new insane invention which wasn't Satoshi Nakamoto's invention. It's an amazing invention using digital signatures and you're never sending out your information that unlocks the key.

Digital signatures are the most bizarre thing in the world. But they're better than regular signatures. And you don't send them out. You never type your pin in. You let the computer type in a code of your PIN right. That you use that just one time. That's married to your transaction. Again, Bitcoin you get all those things. You also get instant international access. So, if you're working on a farm in Uganda and you want to start selling stuff, your songs or whatever. You set up a Bitcoin account. Money starts coming in onto your phone from U.S., Russia wherever. So, these are some of the major major values of using Bitcoins over credit card. These things are going to appear. So, digital currency will take over this market. The question is, will it be Bitcoin or it will be litecoin or will it be some other. It seems right now Bitcoin's going to be the one to do this.

So, hopefully I've given you a quick rundown on how Bitcoin could end up taking over the credit card industry. These are some of the seismic changes that allow an industry to change. I mean no fees alone is going to scream to merchants, okay. But you're talking so many other little features that make life so much more easy. Satoshi Nakamoto originally set this up for Chargebacks and internet. But this is likely going to move right into point of sale. Coinkite is offering a solution with instant buy times using their own network service. Coinbase is coming up with something similar. BitPay is coming up with something similar as the three companies you have to absolutely have to watch an investigative you're going to install one of these systems into your store. But again. you can do it for free as well. You can do it by yourself, okay. These companies will help you avoid the volatility of Bitcoin by giving you immediately your U.S. currency. So, if someone buys it in Bitcoin. They'll give you dollars very quickly. So, you don't have to worry if the price is going to go down. Bitcoins price doesn't go down that much. So, you might want to love to start keeping some in Bitcoin. But anyways, I hope all this information helps. Remember to like, subscribe, comment, thumbs up, smile. Do whatever you do. Take it easy.


Written by James DeAngelo on November 5, 2013.