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

This is the 1st episode in our Big 5 blackboard series - where we look at five features (likely more in the future) where bitcoin's inherent features could take over five different trillion dollar markets. The video starts with the misconception many people have with the idea of intrinsic value. It turns out that bitcoin is laden with amazing values, all 'inherently' intrinsic.


Hey, this is James D'Angelo and welcome to the Bitcoin 101 Blackboard Series. Today we are going to talk about intrinsic value. In fact, we're going to look at five intrinsic values of Bitcoin that are so big and so important that if anyone of them was all that Bitcoin provided. Bitcoins still could end up taking over the world. We're talking about five markets that Bitcoin enters that are trillion-dollar markets, right. And today we're going to look at the intrinsic values of Bitcoin that compare favorably very, very favorably with gold. Now, a lot of you have probably heard intrinsic value mentioned when you're talking about Bitcoin, right. It's got no intrinsic value and that's mostly because the people were talking are but right they don't even understand what intrinsic value means.

Intrinsic doesn't mean the only value of say this pen right here is if you can burn it when you're cold that's not it's intrinsic value. It's intrinsic value is a value that's inherent to the device or object itself. So, if you're in the desert and you're dying of thirst water's got a lot of intrinsic value, but if you're drowning in the ocean suddenly it doesn't have the same intrinsic value. So intrinsic value can change of certain objects. And it's a tough thing to define, but again it's not what you can burn when you're cold because sometimes you don't want that thing to burn, right. You actually want to write with it. Intrinsic values are in Bitcoin, right. It's not just some little address that you have online, right. There's some features that are put into it and the whole network that everybody working together to check some and check and verify and protect and secure the network have allowed Bitcoin to have developed some very powerful features and what we're looking at today is the first one. How Bitcoin compares to gold, okay.

So Bitcoin, in the left corner we got Bitcoin versus and checking in much heavier, much shinier versus Gold okay. Now, let's not pretend, right, you know, no Bitcoin are looks like gold then goes, you know, what a cheesy thing, right. Gold is great. Gold, let's even write in like a goldish color, okay. Gold has been great, is great for a long time, right. If you're buying and trading gold, you know, you've seen the gold graph, you know, there is that big peak, what is it 70s and now it's climbed back up and played in that area but gold's been down for a while, you know, as a speculative interest Gold is somewhat unpredictable, right. Certainly, if the dollar crashes and all the governments go to pot maybe gold will retain some of that early flavor of its value. But Gold is great, okay. And it was great right from the beginning. Why? Because the old system of barter, so you had a couple of cows or a lot of cows and you wanted to go to market and buy an egg. Right, what are you going to do? You know, slop off just the knee of your cow and bring that to market, right, your cow's going to die, get infected, right. If you want small amounts of things, if you want to trade in less than one of the items you have, right. Gold all of a sudden makes this available. If you walk to market with your cows and don't find what you want then you got to walk back. Gold was portable power, right, it was very tiny. It's amazing to think of it now but it was actually the smallness and low weight of gold that provided some of its greatest features, all right. So it was easily portable, right and it was easily divisible. It was easily and still is with all these things. Easily recognizable, right. It wasn't like, you were looking at a chocolate cake and you didn't know what was inside it. Gold's an element right, only one thing on earth looks like gold. A fool's gold but gold to anyone who really knows gold has that distinct density that distinct look, right, easily recognizable, right, and it's very scarce.

Okay, so you'll often hear that you could take all the gold in the world and put it in a, you know, in a brownstone in a fairly large house and that would be it. All the gold in the world would fit in there. Okay. So, it's very scarce. And one last thing that you'll hear about gold is, it's not varied but it's pretty good in terms of fungibility. Now, this is one of those words that you're going to learn if you know Bitcoin. What is fungibility means? It means that an individual unit of the item, in this case, gold is pretty much equal to another item of gold. It is not entirely true we got 14, 15 karat gold but it's in terms of so many other things like if you have cows you have an enormous difference, right, in quality. Eggs, you could have eggs that bad, right. You could have tiny eggs, big eggs, eggs with disease, right. Gold is more fungible than eggs or cows, okay. And so fungibility is actually something that gets mentioned a lot in terms of gold.

So looking at these five qualities, you know, we have to think how our little contest is going to play out? How does Bitcoin do versus gold? Okay, and we'll look at the first one which is actually, there is an interesting story that's happened recently. There was this Italian couple that was caught in the Alps, right, in the Dolomites, okay. And they were driving into Switzerland and the security at the border looked at the car and it looked wrong, it looked like it was riding way too low and they got the couple out of the car, the car was still way too low, they had their kids with them as well. And the car was so low and they actually pulled open some of the compartments near the chairs and they found all this gold, right. The couple was immediately arrested for laundering.

So we like to think of gold as being very easily portable but gold still -- a good amount of gold weighs a lot. So, gold does have weight, right, gold has weight. And that weight, you know, it helps in recognizing it though you can now use tungsten, right, and we'll talk about that in a second. Gold has weight and that's not always a big advantage, right. Bitcoin in contrast weighs nothing. So, if you're going to cross a border and you're worried about bringing your funds with you, well, Bitcoin has this very unique and we'll talk about this in a whole video but you can actually hold the Bitcoins in your brain, Brain Wallet, right. And this isn't like you can hold your email address but your email still resided Gmail or Hotmail, right. This is the only place that these Bitcoin reside in the world or in your memory. Okay. And it seems sci fi but this is just how crazy this new thing is. This invention of Bitcoin is so phenomenal that it's going to change the way we think and look at everything. So if you're a thief right, you run into the bank you get all the money and you could store it in your head and then run out and when the cops find you, you've got nothing. Well, you have everything or you could send it right, you could send it to an anonymous address which is another way to cross a border. You send it to an anonymous address, you pick that up later right.

So Bitcoin can be stored in a Brain Wallet. It can be stored in a Paper Wallet so a tiny piece of paper that might not even look like anything to anybody, right. And then it can be stored online and what are called Hot Wallets, right. And it can be stored in Cold Wallets, right. You have Hot and Cold Wallets, right, very different. Cold Wallet is something you'd actually carry around, that's not online. All right, gold's weight which used to be awesome right when you were trying to deal with cows has become a problem okay. And for this Italian couple who is now in jail for laundering, it was an enormous problem and if you are a refugee running right it's a big problem you're very nervous about carrying your gold where if you have Bitcoin wallet, it's a different story. Okay.

And what's interesting here is because Bitcoin is so light and how light is it? Well, it weighs zero right, it weighs zero. That means it's got some added features which gold will never have, right. Because it weighs nothing right, and it's really just an address, you know, the actual coin just a, it's an abstraction. Right, you don't actually send some of Bitcoin, you actually send them a link to the coin or whatever it is. Since it weighs zero it can be sent, transferred everywhere immediately at the speed of light. So you can move Bitcoins at the speed of light. At speed of light and if they figure out how to move electrons fast in the speed of light Bitcoins will be able to move that fast whereas gold has issues with transport. So gold has transport issues. Okay, that's a big deal.

So now, if we go back to our original screens, see how we're doing with some of these features, right, "portable". Well, we'd have to say that Bitcoin is a pretty good job there so we'd have to give this one to the old B with the double lines, right. So, let's look at "divisible" okay. Gold is great, right. You can sell the tiniest amount of it, you can make, it's so fine and so thin that you can probably get almost any value you want. So, gold does very well in terms of divisibility, right. So, you can get it almost to visibility. So you can make it pretty thin, all that. Bitcoin right now, each Bitcoin can be divided up into 100 million units. So, most people think oh, you buy one Bitcoin you have a bitcoin. No, you can buy one 1000 of a Bitcoin and some people call those things Millibits, right and some people call in Ringos, right. So you can buy a Ringo right. You can buy 10 Ringos, you can buy 10 Millibits right and you can own and exchange.

And right now it's the price of Bitcoins going up it's more and more likely that people are going to start using these more often. Okay, so we're going to see a lot more of these. So, Bitcoin can be divided in a 100 million, will that become a problem? Yeah, maybe as the price goes way up suddenly these will begin to have real value. But it's only a problem in so much as it would require a change in the protocol, right. So, you could switch from a 100 million to each Bitcoin could be divided up into a 100 trillion, right. It's not even pretend that I know how to write 100 trillion. The numbers you could divide in a 100 trillion. Now, this is not super easy, right. You would need to fork the blockchain and that's something we'll talk about in another video and that's not very easy right. So, some of the security of Bitcoin actually defends you from being able to make some of these changes. It's doable and especially because the Bitcoin communities and all for one right, everybody who's involved in the Bitcoin community actually wishes its success because it's deflationary and they profit off of it, right.

But -- so divisibility you kind of have to say well, we're kind of about equal but you know Bitcoins is pretty damn good, right. Most people don't understand how divisible it is. Let go back to our original page here. So divisible, I don't know. I would say and call a tie. Okay, "recognizable". Okay. This is unfortunately for gold been a big issue lately. There was this big case in New York recently where actual gold bars so that, you know, they had this gold bars that looked gold, right. They looked like gold, smelled like gold, right, and more importantly as who was it? Aristotle or Archimedes, whoever figured out the original density and how to determine the weight of a crown and all that. It had the weight and density of gold, right. So there is gold bars in New York and this guy was selling them for $16,000 a piece. And when they were actually drilled into so they drilled into the gold they found tungsten. And tungsten it's not worth less but tungsten is not worth what gold. So these things were counterfeits.

And, you know, so recognizability of gold has been great throughout history, you could bite it, right, if you read Pippi Longstocking, she will bite a little gold and handed to the next person but it's become a problem. So, gold does have an issue with counterfeit ability and as result you see lots of services that have cropped up to try an authenticated so you'll now get your gold bar, right, and it will have this coupon attached to it, right, like some old sticker, right. And this will say I certify that. But that's counterfeit right. So, it's really tough, you know, once the game of counterfeiting starts, right, you can counterfeit the tag and you can counterfeit the gold and then it just keeps going and this has a major expense. This has a major expense on the trust. Right, on the trust of the currency. So gold has taken a little bit of a beating with this little bit right here.

Bitcoin, you know, is 100% non-counterfeit able, all right. And a lot of people say well what about Litecoin, I 'll just buy Litecoin and throw that into the Bitcoin system. It doesn't work right. Bitcoin works on its own right. You can't go into Facebook and all of a sudden be sending hotmails, right. It's -- Facebook is what they called a closed garden right. When you're in Facebook you're in Facebook and YouTube's been trying to keep it that way as well. You can't link out to the outside you can't send emails from YouTube, right. They want to close or gone, Bitcoin is the same, right. Once you were in the Bitcoin system you're in the Bitcoin system. Now, if you want to deal with these alternative currencies and we'll talk about that in anoother video, Litecoin. Well, then you entered the Litecoin system, right, but they're not related so you can't just jump in the Bitcoin system and then toss in all these old coins and mess with the system, right. Bitcoin got its very serious walls and at this point it appears to be 100% non-counterfeit able and 100% recognizable. Right, so if you get sent to Bitcoin you know it's a Bitcoin you don't have to do any authentication process that's already done before you receive it.

So let's go back to our beginning window and sorry gold but, you know, recognizability here goes to Bitcoin. And what you'll see is that digital, you know, any time something goes digital right and if you go digital it's hard to go back, right. So once photos started going digital right, film people were done right, film was over. Okay once you go digital things there are so many advantages to the convenience. You know, everyone's got a phone now if you can make currency digital and if it's in the phone what's hard to stick your gold in your phone especially if you get a big gold bar, right, you're going to end up smashing your phone. So again, the move to digital is usually one way right. It happens and you don't come back. You know, there is people like I don't want to use film, I like using records, right, let them, you know, you can still use your old currencies but as we know digital is a very powerful force for music, email, travel agencies, so many things right and once you go you don't come back.

All right, so let's look at this. This is a big deal here. This is a very big deal, very scarce so big that it gets a page all to itself. Gold is scarce, right. And you can fit all the gold in the world in a house, a pretty big house. Okay, and yes, there is gold floating around in ocean water but no one's figured out how to economically pull it out of the ocean water right. So -- and there is gold floating around in asteroids. And there is more gold under the ground. All right. And some of it we know about but it's just too expensive to go and dig right. As gold prices go up people dig farther and the prices drop they close down their mining and get out of there, right. You're not running into situations where you can run down to the river and just panhandle and get a panhandle, stick your pen and end up with gold. So, gold is scarce right, it's an element. And that's -- it's got a lot going for it because it got an element, right.

In 2013 where we're at right now, no one can really make gold from something else. You can't take ten and make gold, right. The Alchemists. The alchemist have all are just a romantic, Alchemist don't exist. Okay. So, gold is scarce but it does have some problems it is in the ocean water. Right, it is in Asteroids. There is more gold underground. There is a possibility that chemists or physicists or someone is going to figure out how to do alchemy especially as we look at different ways to use energy and deal with as we get smaller and smaller into our understanding of what elements are, right. So, if you're gold bug you're afraid of these things. These things are realities and what happens if anyone figures out how to pull it out of the ocean or if an asteroid land, you know, with an enormous amount of gold, say, a house size or doubling, right, the amount we have or if people can pull out or find more or start to convert it. Well, then the amount of gold inflates and inflates means the strength of gold goes down. Okay.

How does that compare to Bitcoin? Well, Bitcoin is very strong on this category, right. The original founder set a hard limit of Bitcoins at just under 21 million. And there will never be more, there will probably be less because people can lose them. You can lose your passcode, right. You got your Brain Wallet, you're crossing the border someone shoots you it's gone, gone forever. No one's going to recover them. So 21 million no more ever and this is a big deal, right. This is pushing us for the first time to understand what perfect deflation is and we have a whole video on this, right. We have a whole video talking about how insane this idea because most people don't understand deflation. We all understand inflation. Every year we go to the market our prices are going up so peaches went up, milk goes up, rice goes up, right, car prices go, everything's going up by a pillow and price is going up. Under perfect deflation every year, every day prices should go down. Prices down.

And this is great for our currency, right. It's actually an old school idea we're used to the modern idea where the government just print to manages your currency, right. Gold and Bitcoin are the only two real competitors for non-state controlled. No one controls Bitcoin or Gold. Why? Because they are scarce. You don't need to control it, right. If you're printing paper dollars well you better control it, you better spend billions of dollars every year to make sure someone else is printing it because if you've got paper money you need a military, paper money needs a military. You need some way to stop people from counterfeiting, okay. So, because they're so scarce and so hard to reproduce, right, they become great currency just by themselves. And diamonds do pretty well but there's the point, lots of diamonds out of the ground right. And so Bitcoin and gold are the big competitors here.

Here again the digital hard limit of 21 million is much better than this kind of amorphous possibilities. So, if we go back to our main page Bitcoin offers digital scarcity, so it wins. Bitcoin wins here. Right. And the last one we're going to touch on quickly because it doesn't seem as big a deal to everything and we'll just draw it right down here. Fungibility again is the ability for one unit of it to be replaced by itself perfectly, right. Well, gold again we have 14 karat, 24 karat, different karat of gold you now have tungsten in the middle, some of it's been degraded in some other way right. It's not perfectly fungible whereas Bitcoin every Bitcoin is worth exactly the same, appears exactly the same, arrives and transfers exactly the same. This is a currency like the U.S dollar, that is 100% fungible, right.

And it's an important characteristic of a currency, right, 100% fungible. And again, Bitcoin wins here. So, this is not good news for gold, right. Gold's doing well right now and Gold's got, you know, at least a trillion dollars of investment right, of market, right, capital or whatever you want to call it. But as Bitcoin grows every day you have to wonder about this digital thing right. You know, 20 years ago no one was talking about digital film taken over the film industry but it's happening, right. No one was talking 30 years ago that all are CDs and vinyl was going to be replaced by computer files. Okay. So, this is a real thing, this is real intrinsic qualities of both gold and Bitcoin and in this category Bitcoin just looks much better. So let's sum this all up. Right.

Bitcoin got intrinsic qualities that are very similar to gold. Now, people say oh, gold in terms of quality, that it's an element and then you can use it for electricity. Well, that really doesn't have much to do with gold's value. Gold's value is basically 5% based on the fact that it's used in electronics, right. It's almost entirely based on the fact that it offers services right, intrinsic in this case is the services, right. And we talked about all the services right. That it's portable, divisible, recognizable, scarce it becomes a great currency because of what it is because of what's inherent to it. So, gold has that as an intrinsic value and it has electrical properties that Bitcoin doesn't have, right. So both of them have strong intrinsic values and if anyone tells you not then you know they don't know what they're doing, tell them to look up intrinsic in the dictionary.

Bitcoin just out for fun has now got ATMs which give you Bitcoin. You're not going to see too many gold ATMs right handing out gold if you plug in dollars. People are just going to break that thing and caught away the gold right. But Bitcoin can do that very safely. It's basically printing your receipt, it'll take you a few minutes for it to arrive on the blockchain and you can stuff those coins into your phone and you can walk away tossing the receipt away right. You can eventually to be you go to the ATM and just pop your phone it'll pop the Bitcoins in without even touching your phone in the machine. You slide your U.S. dollars in, the old school stuff, the analog stuff and boob, you get the digital, right. So digital currency is here and it seems in all cases that it's going to stay and it's doing a very good job at doing those things that made gold great.

That's it. Please like, comment, subscribe, stay tuned to this series where we talk about other trillion-dollar intrinsic features of Bitcoin and hope the information all helps. Take it easy.


Written by James DeAngelo on November 1, 2013.