The Peter McCormack Show – Beginner’s Guide #4: What is Bitcoin with Stefan Levera (WBD185)
Release Date: January 14, 2020

Introduction

In the fourth installment of his Bitcoin Beginner's Guide, host Peter McCormack engages in an insightful conversation with Stefan Levera to demystify the fundamental question: "What is Bitcoin?" This episode serves as a comprehensive overview for newcomers, breaking down complex concepts into understandable segments while highlighting the core principles that make Bitcoin a revolutionary form of money and technology.

Defining Bitcoin

Peter McCormack opens the discussion by acknowledging the multifaceted nature of Bitcoin, noting that it can be perceived as money, gold, or a financial protocol. Stefan Levera emphasizes the importance of understanding Bitcoin as “digital hard money”, highlighting its hard cap of 21 million bitcoins and its dual functionality as a savings and payment technology.

Stefan Levera [06:52]:
"I think the framing I like best is digital hard money. A hard money is a money that's hard to make. It's not an easy thing to make."

He further elaborates that Bitcoin serves as a "payment technology of last resort", ensuring that transactions remain permissionless, censorship-resistant, and trustless, thereby empowering users to transact without reliance on third parties.

The Bitcoin Protocol and Blockchain

The conversation delves into the technical infrastructure of Bitcoin. Stefan explains the concept of the blockchain as a chronological chain of blocks that securely records all transactions. Each block is linked to the previous one through cryptographic hashing, ensuring immutability and preventing alterations to the transaction history.

Stefan Levera [13:25]:
"Transactions in bitcoin are put into a block, and then the blockchain is literally a chain of blocks... it creates this overarching system that's hard to compute, but easy to verify."

He compares the blockchain's security mechanism to solving a Sudoku puzzle, where finding a solution (mining) is challenging, but verifying it is straightforward. This system relies on proof of work, where miners expend energy to add valid blocks to the chain, thereby maintaining the network's integrity.

Security and Open Source

Peter queries the management and security of the Bitcoin protocol. Stefan clarifies that Bitcoin is an open-source protocol, meaning its code is publicly accessible and can be contributed to by anyone. However, changes to the protocol undergo rigorous community review and testing to prevent malicious alterations.

Stefan Levera [21:19]:
"Bitcoin is an open-source protocol. All the discussion happens out in the public... any contributions have to go through review from other members of the Bitcoin community."

This decentralized governance ensures that no single entity can unilaterally alter Bitcoin's core functionalities, reinforcing its trustless nature.

Bitcoin Wallets

A crucial aspect of using Bitcoin involves understanding wallets. Stefan defines a wallet as an application that manages your Bitcoin, analogous to a keychain with multiple addresses serving as individual accounts. Each address is secured by a private key, and the wallet facilitates transactions by signing them with the appropriate keys.

Stefan Levera [24:56]:
"A wallet is where you keep your bitcoin. You can have separate addresses, like separate accounts... the key is like a master password for each address."

He underscores the importance of securing private keys and backing up wallet seeds, warning that loss of these can result in irreversible loss of funds.

Using Bitcoin

The practical usage of Bitcoin involves transactions facilitated by wallets interfacing with the Bitcoin protocol. When sending Bitcoin, users create a transaction that is broadcasted to the network and included in a block upon confirmation. Stefan explains the process of sending Bitcoin via QR codes or address strings and the necessity of waiting for confirmations to ensure transaction validity.

Stefan Levera [33:14]:
"Your bitcoin transaction gets broadcast to the network straight away... on average, every 10 minutes, a new block is found, so if you're lucky, your transaction will get included in the very next block."

This confirmation mechanism, occurring approximately every 10 minutes, ensures the security and immutability of transactions.

Advantages and Disadvantages

Advantages:

1. Permissionless Transactions: Unlike traditional systems like PayPal or banks, Bitcoin allows for direct peer-to-peer transactions without intermediary oversight.

2. Censorship Resistance: Transactions cannot be easily blocked or reversed by third parties, providing users with greater control over their funds.

3. Limited Supply: The 21 million cap ensures scarcity, potentially preserving value over time.

Disadvantages:

1. Complexity and Security Risks: Users must manage their private keys securely. Loss of keys or improper handling can result in permanent loss of funds.

2. Volatility: Bitcoin's value is subject to significant fluctuations, making it a risky investment.

3. Limited Adoption: While growing, Bitcoin is not as universally accepted as traditional currencies, limiting its usability in everyday transactions.

Stefan Levera [43:50]:
"Bitcoin is designed to be a more permissionless system. It's much harder for banks to censor or stop transactions because you're not relying on a central authority."

Bitcoin Community and Values

The Bitcoin community is characterized by shared core values:

1. Scarcity: Adherence to the 21 million cap ensures Bitcoin remains deflationary.

2. Censorship Resistance: Commitment to maintaining a system where transactions cannot be easily blocked or reversed.

3. Privacy: Many users prioritize protecting their financial privacy, utilizing Bitcoin to keep transactions discreet.

4. Technological Conservatism: A cautious approach to protocol changes ensures long-term stability and security.

Stefan Levera [47:13]:
"Bitcoin is a broad church. You don't necessarily have to be an anarchist to use Bitcoin because we think of it more like Bitcoin is just a stronger money, it's a superior money and people will adopt it over time because it's a harder money."

Advice for New Users

Stefan provides practical steps for newcomers:

1. Start Small: Purchase a modest amount of Bitcoin to familiarize yourself with transactions and wallet management.

2. Educate Yourself: Engage with resources such as podcasts, books (e.g., The Little Bitcoin Book, Inventing Bitcoin by Jan Pritzker), and online tutorials.

3. Secure Your Wallet: Use hardware wallets for enhanced security and ensure proper backups of your wallet seeds.

4. Join Community Events: Attend local Bitcoin meetups to gain insights and support from experienced users.

Stefan Levera [54:43]:
"Going to your local bitcoin meetup is probably the best way that you can meet someone in person... they can point you in the right direction and give you some resources."

Navigating the Cryptocurrency Landscape

When discussing other cryptocurrencies like Bitcoin Cash and Ethereum, Stefan warns against the allure of ICO investments and alternative coins that mimic Bitcoin without offering the same decentralization or security.

Stefan Levera [48:51]:
"Some of these alternative coins have a more centralized development process or they might have a benevolent dictator... my suggestion would be just stick to Bitcoin and learn and read about Bitcoin first."

He cautions that many altcoins lack Bitcoin's network effects and security, making them higher-risk investments.

Conclusion

This episode of The Peter McCormack Show serves as an essential primer for those seeking to understand the multifaceted nature of Bitcoin. By breaking down complex concepts into relatable explanations and emphasizing the importance of security and community, Stefan Levera provides listeners with the foundational knowledge needed to embark on their Bitcoin journey confidently. Whether viewed as digital gold, a revolutionary payment system, or a secure method of preserving wealth against inflation, Bitcoin's unique properties continue to attract a diverse and committed user base.

For those eager to delve deeper, Peter recommends exploring additional episodes of the Beginner’s Guide series, engaging with community resources, and gradually expanding one’s understanding through practical experience.

Notable Quotes:

• Stefan Levera [06:52]:
  "I think the framing I like best is digital hard money."

• Stefan Levera [13:25]:
  "The blockchain is literally a chain of blocks... hard to compute, but easy to verify."

• Stefan Levera [21:19]:
  "Bitcoin is an open-source protocol... any contributions have to go through review from other members of the Bitcoin community."

• Stefan Levera [24:56]:
  "A wallet is where you keep your bitcoin. You can have separate addresses, like separate accounts."

• Stefan Levera [43:50]:
  "Bitcoin is designed to be a more permissionless system. It's much harder for banks to censor or stop transactions because you're not relying on a central authority."

• Stefan Levera [47:13]:
  "Bitcoin is a broad church... we think of it more like Bitcoin is just a stronger money, it's a superior money."

• Stefan Levera [54:43]:
  "Going to your local bitcoin meetup is probably the best way that you can meet someone in person."

• Stefan Levera [48:51]:
  "Some of these alternative coins have a more centralized development process... my suggestion would be just stick to Bitcoin and learn and read about Bitcoin first."

This summary encapsulates the core discussions from Beginner’s Guide #4 of The Peter McCormack Show, providing a clear and comprehensive understanding of What is Bitcoin for those new to the cryptocurrency landscape.