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Bitcoin, the gold of the 21st century | Ferdinando Ametrano | TEDxLivorno

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    We are at the dawn
    of the digital civilization,
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    we have probably already figured that out
    because our mail has become digital,
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    music and movies have become liquid,
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    and all those things
    that used to sit on our shelves,
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    like encyclopedia, have gone,
    replaced now by Wikipedia.
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    Nowadays we expect, correctly or not,
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    that an entire banking
    and financial system
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    will fit in our smartphones.
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    The Nobel Prize in Economics,
    Milton Friedman, had already predicted it.
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    In 1999 he said: "What we are missing now,
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    and will be certainly created
    in a short while,
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    is a digital currency -
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    mind you, not a digital coin
    linked to an individual;
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    but rather personal cash
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    that can be used anonimously,
    by anyone, online.
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    This prophecy has been fulfilled
    by the creation of Bitcoin,
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    which absolutely is
    pole position in the race.
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    Why?
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    Not so much for being,
    quite obviously, digital:
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    our euros and dollars have been digital
    for quite a long time too.
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    Rather, it's because it is decentralized:
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    there is no organization,
    no government behind it
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    that holds the power to manage it
    and supervise its functionality.
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    And this, albeit a bit scary,
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    it’s a very strong guarantee
    that Bitcoin cannot be manipulated.
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    It's that type of innovation
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    known in the English-speaking world
    as "permissionless innovation".
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    What does that mean?
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    It’s a type of innovation
    that has no centralized safety mechanisms,
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    no entry checks,
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    not even an editorial
    content control system.
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    If you're getting scared
    by this seemingly anarchic plan,
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    there's no need to worry.
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    We've already witnessed
    this type of innovation in action,
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    and it proved to be
    both effective and gentle.
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    The e-mail, for example:
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    it was not invented
    by a consortium of post-offices,
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    the Internet was not invented
    by a telcos consortium,
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    So why should a transactional
    network of value
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    be built by a consortium of banks?
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    I can't really wrap my mind around it.
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    I came across Bitcoin in 2014 -
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    I studied physics,
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    and I worked for more than 20 years
    in the field of investment banks,
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    finance and so on.
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    But I had never asked myself,
    not even once, what money is.
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    The first time I thought about it
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    was when I stumbled upon Bitcoin:
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    up to now, that's the best gift
    that Bitcoin has ever given me.
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    So I'd like to play a game with you,
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    let's try and go over the history
    of currency in only three minutes.
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    Here we go!
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    The earlies form of currency
    we find in history is gold.
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    Why?
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    It might seems weird,
    but gold had two peculiar characteristics:
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    there wasn't much of it, and it shone.
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    Turns out, human beings
    love shining things.
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    Gold was also quite malleable,
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    and it is fairly easy
    to determine its purity.
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    Take a pot, put it on the fire,
    let the gold melt
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    and then wait for it to cool down.
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    If it's still shining
    after this thermal shock,
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    it's definitely gold, trust me:
    any other material would stop shining,
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    But if for every business transaction
    the process needed to be repeated,
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    it would have been difficult.
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    So we asked Julius -
    yes, I mean Julius Caesar -
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    "Look, Julius, how about
    putting your face on the gold coin
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    as a guarantee there's
    that much gold in it?"
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    The first deflationay crisis
    came about with his heir,
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    Augustus Caesar.
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    Even the peasants realized,
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    sestertia did not contain
    the figure amount of gold.
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    But for the medioeval merchant,
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    gold had even another problem:
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    it was really heavy.
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    Gold has a very high density, so it was
    uncomfortable to carry it around.
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    And also risky, for you
    can be robbed by bandits.
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    Almost at the same time in history,
    London-based goldsmiths
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    and those who would later become
    the Italian bankers,
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    they came up with the same idea:
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    they suggested the merchant
    to leave the gold in their vaults
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    in exchange for a certificate
    that first was nominal,
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    and would later become
    a bearer certificate.
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    It was a bank-note
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    with which one goes to her pawn counter
    and redeem her gold back.
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    That's how the banknote was born:
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    a currency that represents
    an amount of value stored elsewhere.
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    But both the Britons and the Italians
    couldn't resist a temptation:
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    after noting that most of the time
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    people did not ask for the gold back.
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    So they had what we might call
    a spark of genius.
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    They thought: "If we print more banknotes
    than there's gold in our vaults,
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    who will notice it?"
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    Do you know what the answer is?
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    No, no one!
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    So the fractional coin appeared:
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    there are more banknotes
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    that the redeemable gold.
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    Jumping forward in history:
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    in 1972, even in a regime
    of fractional currency,
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    the redeemibility of money,
    US dollars in this case, in gold,
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    was still a limiting factor
    for those in charge of monetary policy.
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    But Richard Nixon had enough,
    and he decided that
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    the US dollar couldn't be converted
    in gold anymore.
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    From that point on, we have "Fiat money",
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    and I do mean exactly
    "Fiat Lux et Lux Fuit":
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    a currency whose value
    is purely conventional,
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    its value it’s based on a social contract
    that we all agree on.
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    And if someone does not agree,
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    we can force that person
    by using something know as “legal tender”,
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    which means that fiat money
    must be accepted to pay back a debt.
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    Let me say it, this is a bad coin,
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    actually, we could even say
    that it’s a terrible coin:
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    we don’t need to recall
    the most egregious examples
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    in the history of money.
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    Our dear old friend US dollar,
    already proves it:
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    its performance
    it’s not exactly impeccable.
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    Starting from 1913, the year in which
    the Federal Reserve was funded,
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    the USA dollar has lost
    more than 96% of its purchase power.
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    That means, it’s a bad currency.
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    It's the typical result
    of a monopoly situation.
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    Friedrich von Hayek,
    Nobel Prize in Economics
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    and founder of the Austrian school
    of economic thought,
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    wrote an entire book
    bemoaning the fact that:
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    "We deem essential the government's
    monopoly of the currency.
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    We would accept the monopoly
    over no kind of good,
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    in a market economy.
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    Yet we do accept the monopoly
    of that syntethic product
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    that has half of the power
    in any business transaction:
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    the currency.
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    Like any type of monopoly,
    not only it delivered us a bad product,
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    but it forbid us
    from looking for a better one.”
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    Therefore, Hayek did conclude:
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    "If we ever want to have
    a good currency again,
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    we have to take it away
    from the control of the States.
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    And since we cannot do that using force -
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    he was a good man,
    and I comply with his invitation -
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    we should do it with a clever gimmick,
    something they wouldn’t be able to stop.”
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    Bitcoin is exactly that clever gimmick.
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    Now let’s try to dive deeply
    into what a currency is.
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    Money is, in it's essence,
    a tool for social relationships.
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    I know that this might not be
    the definition you were expecting;
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    but if you think about
    your own experience,
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    we were all born in a gift economy.
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    I hope that none of you had to pay
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    for all the parental care you received:
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    otherwise I would feel
    very sorry for you all,
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    and quite happy for your therapist,
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    who will certainly have
    a lot to work on with you.
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    But this gift economy
    doesn’t only encompass our family,
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    our friends, our neighbours,
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    what we could call “our tribe”.
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    It’s an economy that doesn’t scale,
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    because sooner or later
    we will run into people we don’t know,
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    and that is why we don’t trust them -
    or maybe, sometimes,
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    we don’t trust them
    precisely because we know them,
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    which is more or less the same.
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    But we are inherently social animals,
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    that’s what we are anthropologically,
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    so we want to cooperate
    even with those we do not trust.
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    So, at first, we invented
    the practice of bartering:
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    I give you my eggs, but it just so happens
    you’re going to give me your milk today.
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    Alternatively, in order to barter
    anywhere and anytime,
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    we invented the currency:
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    a syntethic good that allows us
    to cooperate with people we do not trust.
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    I'm not sure about you, but I hope
    for a moment of intellectual upheaval,
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    because I reckon this remark
    as hugely important:
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    a currency is a tool we use to cooperate
    with people we have no trust in.
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    So it's quite clear that, today,
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    in what it’s for the first time
    a digital and global information economy,
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    the need arises
    for a supranational currency,
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    a digital coin, not controlled by states,
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    a global currency,
    a currency of the Internet.
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    The problem is, it is insanely hard
    to create an Internet currency.
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    The biggest problem is known
    as “double expense problem”.
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    Every time that we have a digital artifact
    that represents a value,
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    we've always needed
    a centralized authority
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    in order to prevent its duplication.
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    Digital as it is, it’s easily duplicable.
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    It’s easy to grasp:
    consider your current account balance.
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    If I transfer my current balance account
    to your account -
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    don’t get your hopes up,
    I don’t have that much money -
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    and then I try to transfer it again
    to the gentleman here,
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    my bank, which controls the updates
    of the ledger, is going to tell me:
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    "No Ferdinando, you cannot do that.”
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    How are we going to create
    a valuable digital asset,
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    that is to say an non-duplicable asset?
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    Because – think about
    the painting "Gioconda".
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    Gorgeous, no doubts about that.
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    Its market price is incalculable.
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    But if the painting
    could be duplicated without control,
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    for an unlimited number of perfect copies,
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    it would still be gorgeous,
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    but its market price
    would drop down to zero.
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    That’s what is happening with Bitcoin,
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    and it's limited to 21 milion Bitcoins.
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    Bitcoin, in a way, is as scarce
    as physical gold:
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    gold on the physical level,
    Bitcoin on the digital level.
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    Bitcoin is, or at least is aspires to be,
    the digital counterpart of gold.
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    And now I'm going to hope
    for a second moment of upheaval.
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    I’m pretty sure, you all today
    came here in this theatre
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    believing every digital thing
    can be duplicated.
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    This is the very intuition
    that Bitcoin proves wrong:
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    It’s a digital gold
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    and attached to it,
    inside of the Bitcoin itself,
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    there is a transnational network,
    which is both safe and not-censurable,
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    that can be used
    to transfer this gold globally.
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    I know you are skeptical,
    I can see it in your faces.
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    Let’s play another game, then:
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    imagine that an alien
    was going to land here, okay?
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    You have to explain
    the traditional currencies to him,
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    and I’m going to explain Bitcoin.
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    I will start right away
    by telling the alien:
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    "Look, their currecies
    have no inherent value."
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    At this point you might respond,
    slightly irritated:
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    "The same goes for Bitcoins, Ferdinando!"
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    And I will say, you serious?
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    I’ve just explained to you
    the shortage in the digital world!.
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    But your game is easy:
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    What about the social contract,
    centuries of history of the currency,
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    the legal tender -
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    Alright, 1-1, time for the kickoff,
    let’s start this over.
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    This time I’m going to start
    by pulling your leg,
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    saying that the cash you carry around
    is just a bunch of colored paper.
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    Yeah, right, special paper, special ink:
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    but, let’s be honest, it's just the same
    as the cash in the game of Monopoly.
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    My coin, on the other hand,
    is pure math and encryption.
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    Not only that, I will also tell the alien
    that while I am a kind person,
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    I’m not forcing my Bitcoin on you,
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    you are instead rather coercive.
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    I cannot refuse your euro.
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    The legal tender tells me,
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    if a debtor wants to settle
    his debt with me in euro,
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    I can’t deny him that.
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    I’m goint to let you figure out
    how the alien is going to see all of this.
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    Oh, I almost forgot,
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    maybe I should also tell the alien
    that a gentleman, in Frankurt -
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    a very composed gentlemen,
    the most serious of us all -
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    he can print as much of that colored paper
    as he likes, whenever he likes,
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    and give it to anyone he likes.
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    He was not elected,
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    and he won’t need to take responsability
    for how he carries out his duty.
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    Meanwhile I’ve already
    explained to the alien
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    that Bitcoin’s monetary policy
    is perfectly deterministic,
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    it can’t be influenced.
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    You might say: "Right,
    but no one is using Bitcoin.
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    there are no business transactions
    carried out using Bitcoin."
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    That’s for sure:
    those who bought, in 2010,
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    two pizzas, paying them 10.000 Bitcoin -
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    which at the current rate
    woul be 40 milion dollars -
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    Well, let’s just hope that
    those pizzas were really, really good,
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    because I wouldn’t have been able
    to digest them in any way.
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    Bitcoin is a safe-haven asset,
    so it's stored.
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    Therefore it makes much more sense
    not to compare it to a currency,
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    but to actual gold.
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    Gold has been accepted
    by all civilizations
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    as the earliest form of currency,
    without any type of centralized planning.
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    It was for centuries
    the most successful currency,
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    it set off the development
    of all the monetary systems we know,
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    it was overtaken by forms of currencies
    much more sophisticated
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    without it becoming outdated.
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    What happened over the centuries
    to physical gold,
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    is happening in these ten years,
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    and will probably happen
    in the upcoming decades, to Bitcoin.
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    The Bitcoin's most scary trait
    is the value volatlity:
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    it goes up and down.
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    There isn’t much to fear, to be honest.
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    I mean, every time
    someone talks about Bitcoin
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    you should fasten your seatbelts,
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    because the ride tends to be quite bumpy.
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    But Bitcoin's volatility is physiological.
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    When market mechanisms
    of supply and demand
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    try to assess the value of a certain good,
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    if the product is controversial,
    like digital gold,
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    the process is going to be
    just as mush controversial.
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    We’ve seen it already happen,
    in history, with e-commerce:
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    take a look at the history
    of Amazon’s ratings, its volatility.
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    The worrying part about Bitcoin
    is the so-called "drowdown":
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    highest to lowest point,
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    it managed to lose
    more that 93 percent of its value.
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    So my bottom line is,
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    if you ever plan to invest in Bitcoin,
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    do it with a small percentage
    of your savings,
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    small enough that you would be able
    to reasonably sustain its complete loss.
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    The good news is that
    Bitcoin is not correlated
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    to other investment asset classes,
    to other investment opportunities:
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    It doesn’t move with them,
    it diversifies the risks.
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    So, if put it in an investment portfolio,
    even if it sounds counterintuitive,
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    but it draws dawn
    the risks of that portfolio,
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    expected rate of return being equal,
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    or, given the same risk,
    it increases greatly the expected return.
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    So it is a good idea
    to invest a small amount in Bitcoin,
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    and this gives us a cue
    for some final considerations.
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    Let’s imagine that 2 percent
    of the assets under management -
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    I’m not referring
    to 2 percent of the global wealth,
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    but 2 percent of those assets
    that are professionally managed -
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    let’s imagine that they invest in Bitcoin
    over the next few years.
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    Well, if we do the math,
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    the value of a Bitcoin is going to be
    a hundred thousand dollars.
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    But if Bitcoin is, or proves to be,
    the digital gold -
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    I say if because it’s a bold experiment
    and it might fail, let’s not forget that,
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    but it’s an experiment substantiated
    both culturally and technologically -
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    again, if it proved to be
    the digital gold,
  • 16:41 - 16:44
    well, ladies and gentlemen,
    it would be better than actual gold:
  • 16:44 - 16:49
    extremely light, instantly transferable,
    low transactional costs,
  • 16:49 - 16:53
    no logistic problems,
    non-censurable and unstoppable.
  • 16:54 - 16:59
    Therefore, if Bitcoin was to capitalize
    the same amount as gold today,
  • 16:59 - 17:02
    its value would raise to 400.000 dollars.
  • 17:02 - 17:07
    100.000 dollars, 400.000 dollars -
    I’m not here to sell you Bitcoin,
  • 17:07 - 17:12
    I’m just saying,
    if Bitcoin is digital gold,
  • 17:12 - 17:15
    it's currently greatly underestimated.
  • 17:15 - 17:17
    Someone might object saying that:
  • 17:17 - 17:19
    "I've read that it’s not Bitcoin,
  • 17:19 - 17:22
    It’s the blockchain,
    the technology underlying it,
  • 17:22 - 17:24
    the real deal".
  • 17:24 - 17:28
    When it comes to this,
    I love to paraphrase Confucio, he said:
  • 17:28 - 17:32
    “When a wise man points at the moon,
    the fool looks at the finger”.
  • 17:32 - 17:35
    The moon is Bitcoin,
    the finger is the blockchain.
  • 17:35 - 17:41
    You can’t overlook the relevance
    of the Bitcoin phenomenon.
  • 17:41 - 17:46
    If you have the slightest understanding
    of the role that gold played
  • 17:46 - 17:51
    in the history of civilization,
    finance and currency,
  • 17:51 - 17:53
    the rise of gold's digital counterpart
  • 17:53 - 17:57
    in the digital civilization
    and in the future of finance and currency
  • 17:57 - 17:58
    is going to be explosive.
  • 17:58 - 18:04
    I would like to end with a thought:
    25-27 year ago,
  • 18:05 - 18:12
    I used the e-mail and surfed the web,
    but I'd never imagine
  • 18:12 - 18:15
    that on top of the TCP/IP protocol,
  • 18:16 - 18:19
    the technology underlying
    the web and the e-mail,
  • 18:19 - 18:25
    would be used to organize our weekends
    in digital clubs – Facebook,
  • 18:25 - 18:30
    or buy liquid, digital books and CDs
    from online shops,
  • 18:30 - 18:33
    or we would ask questions
    in natural language
  • 18:33 - 18:36
    to a computer, a digital assistant,
  • 18:36 - 18:38
    expecting a meaningful answer.
  • 18:38 - 18:40
    I can’t tell you, 20 years from now,
  • 18:40 - 18:44
    what we will be able to make
    on the value's TCP/IP protocol,
  • 18:44 - 18:48
    which type of incredible apps
    we will have managed to create:
  • 18:48 - 18:52
    that’s exactly the adventure
    that is waiting for us over the horizon.
  • 18:52 - 18:54
    Thank you.
  • 18:54 - 18:55
    (Applause)
Title:
Bitcoin, the gold of the 21st century | Ferdinando Ametrano | TEDxLivorno
Description:

Imagine for a second that you had to explain to an alien what money is, using Bitcoin as a benchmark for national and supranational currencies.
What would he choose, between cash printed on special paper with special ink and a digital coin built on encryption and math?

This talk was given at a TEDx event using the TED conference format but independently organized by a local community. Learn more at http://ted.com/tedx

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Video Language:
Italian
Team:
TED
Project:
TEDxTalks
Duration:
18:59

English subtitles

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