♪ ♪ NARRATOR: Cryptocurrencies.

With names like Bitcoin, Ethereum, and Dogecoin, today there are thousands of them.

But what are they and how do they work?

JANE PAULEY: You can't hold it, often you can't spend it.

FINN BRUNTON: We're looking at something that is 20% a working technology and 80% a utopian vision of how society could be.

NARRATOR: Are they a flash in the pan?

ISAIAH JACKSON: The future of crypto is that 99% of projects will be rendered useless.

NARRATOR: Or a new technology that's here to stay?

SHEILA WARREN: It's not going to vanish.

What it's used for has yet to be fully determined.

REPORTER: The art world has been turned upside down again.

BRUNTON: You have built a functional replacement for a lot of what a credit card company or a bank does.

NARRATOR: "Decoding Crypto," right now on "NOVA."

♪ ♪ NARRATOR: Revolution... Game-changer...

I'm a millionaire!

NARRATOR: Experiment doomed to fail... JACKSON: The future of crypto is that 99% of projects will be rendered useless.

REPORTER: The carnage in the crypto world continued today.

It is impossible to understand where this is going.

NARRATOR: There's no question cryptocurrency is having a moment.

Bitcoin is a new kind of money.

NFTs are sweeping the art world.

CLEVE MESIDOR: Cryptocurrency is a trillion-dollar market.

It cannot be ignored.

NARRATOR: What is crypto anyway?

PAULEY: You can't hold it.

Often you can't spend it.

Technologically, it's incredibly interesting.

REPORTER: Cryptocurrency kiosks are appearing nationwide.

NARRATOR: Crypto is a global phenomenon-- adopted by countries, embraced by refugees, and used by millions around the globe.

Most people have heard of Bitcoin-- the most well-known among thousands of cryptocurrencies-- but find it confusing.

JOHN OLIVER: Everything you don't understand about money, combined with everything you don't understand about computers.

NARRATOR: It's talked about all the time by people who claim to be in the know.

I'm getting into crypto, with FTX, you in?

NARRATOR: Investors and speculators have both made and lost great deals of money.

WARREN: But it's not at all just about money.

It has a lot of different applications, many of which have very little to do with financial services.

NARRATOR: Some warn of possible perils.

NEHA NARULA: There's a lot of hucksters out there who are just trying to sell their snake oil.

Fraudsters are buying and selling millions of dollars in illegal digital assets.

NARRATOR: While others claim crypto is a groundbreaking technology with nearly unlimited uses.

The Constitution of the United States is going up on auction.

Sold-- $41 million!

(cheers and applause) Whether it's a movie or it's our housing contracts.

A market for climate action.

NARRATOR: Where did it come from?

BRUNTON: This is one of the most significant technologies to have been created by someone who is still wholly anonymous.

NARRATOR: How does it work?

KEVIN McCOY: It was just like, "Whoa, that's amazing."

NARRATOR: Is it just hype?

LANA SWARTZ: Crypto has been embraced by the mainstream, but not in a way that achieves any of its original goals.

NARRATOR: Or is it revolutionizing money and more?

It's a safe and easy way to get into crypto.

Eh...

I don't think so.

♪ ♪ ♪ ♪ NARRATOR: Real estate investor Vernon J. is trying to use a new kind of money to reinvigorate East New York, Brooklyn.

He thinks crypto could be the key to expanding ownership in neighborhoods like this one.

This may not be what most people think of when they hear "cryptocurrency," but some believe ideas like his represent crypto's true potential.

Hey... Yo.

What's going on brother?

Good.

Yo, this is it?

This is it.

Let's do it!

Let's check it out.

Let's do it.

NARRATOR: Vernon and his business partner, computer programmer Akil Ash, plan to reclaim properties like this vacant lot to build affordable housing owned and managed by people who want to improve the neighborhood.

VERNON: We hope to get community members to be able to invest with us where people from the community can own fractions of the property, can gain access to the income from that property forever.

Each token is worth $100.

NARRATOR: Rather than go to a bank for a loan, Vernon is going to use a new financial technology to mint something called a digital token, which can be bought and sold in a digital marketplace.

VERNON: So these are the EquityCoin investors.

So these are their wallet addresses where they get sent their EquityCoin to.

NARRATOR: Vernon's project, known as EquityCoin, is a risky experiment and success is far from assured.

If it succeeds, the community may benefit.

We'll be able to restore this; it doesn't need... NARRATOR: If it fails, he and his investors could lose real money.

♪ ♪ Today, there are thousands of cryptocurrencies launched by entrepreneurs, coders, even artists.

Among them are passionate advocates who believe their projects are evidence that crypto has the potential to address a wide range of society's problems.

But that potential has yet to be realized.

(pulls window up) BRUNTON: When we look at a technology like cryptocurrency, we're looking at something that is 20% a working technology and 80% a utopian vision of how society could be.

♪ ♪ GRUNDFEST: The technology is several steps ahead of where the regulatory infrastructure is.

♪ ♪ NARRATOR: Cryptocurrencies are sporadically regulated, and depending on who you ask, many, most, or all are doomed to fail.

WARREN: There have been accusations that all crypto is a Ponzi scheme.

What I would say is that there are tokens and projects where the token will ultimately wind up having no value.

I do think, however, there is a period of time in any innovation where you just have to figure it out and you're going to have to throw a lot of things at the wall and see what sticks.

We're in that time right now.

♪ ♪ NARRATOR: Supporters claim crypto is superior to traditional money, but to understand why, it's best to start with a deceptively simple question: what is money, anyway?

♪ ♪ ELLEN FEINGOLD: Money has come in many forms throughout human history.

And while we are all very familiar with coins and banknotes, many other objects have circulated and been used in exchange.

NARRATOR: This is part of the largest historical collection of money in the world.

Located at the Smithsonian Museum in Washington, D.C., "The Value of Money" exhibit features hundreds of objects representing currency from every inhabited continent, spanning more than 3,000 years.

FEINGOLD: They range from seashells, large metal plates, clamshells, large stone disks often known as Rai from the island of Yap.

Really, anything can be used as money as long as a community agrees to use it and decides on a value.

NARRATOR: Money has existed in one form or another for longer than written history.

But the fact it takes so many forms raises another interesting question: how "real" is any of it?

BRUNTON: All money is collective belief, right?

Money that you alone believe is valuable is no more useful to you than a language that only you speak.

Money relies on the ability of large groups of people to arrive at a shared consensus about how much something is worth and that it will be worth that more or less into the future.

NARULA: There are some elements of, you know, is this a good form of money?

Can it be transacted easily?

Can it be transported?

Is it going to be inflated?

But beyond that, it's belief.

It's belief that it will continue to be valuable to people in the future.

SWARTZ: It's sort of a necessary fiction.

It's something that enables us to communicate, to have an economy, to make basic transactions.

NARRATOR: History reminds us that virtually anything can be used as money as long as enough people believe in its value.

Even in America, what functions as money has sometimes been quite fluid.

In fact, for nearly a century, before the wide adoption of the dollar, people put their faith in local currencies.

FEINGOLD: The Constitution gave the federal government the right to coin money, to establish a national mint in 1792.

But it was silent on what should happen with banknotes.

So instead, each of the states issued charters to banks and private businesses, enabling them to design and print their own money at whatever denomination and quantity that they wanted.

And as a result, there were over 8,000 different banks and private entities making their own banknotes, and you can imagine just how wild and diverse that was.

There's no central bank or overarching entity telling you you could put your faith in this and you can trust it.

NARRATOR: Crypto is only the latest new form of money, and as most who've heard of Bitcoin know, it's digital.

But since many of our daily transactions are already electronic and don't involve touching physical currency, it's reasonable to ask: how is this different?

SWARTZ: We've been paying electronically for a very long time.

You know, you swipe a card, one account gets debited, another account gets credited and we kind of don't really think about what happens under the hood.

BRUNTON: But all of that is still doing fundamentally the same thing.

It is telling a third party, someone who has access to a ledger, like your bank, that they would like to move the following units on that ledger from your account to somebody else's account.

NARRATOR: Today, we've come to depend on banks and credit card companies to keep track of where our money is and manage the flow of digital payments.

Cryptocurrencies may seem no different, but there's an important distinction.

They aim to do away with the middlemen, like banks who may decide, fairly or unfairly, who to loan money to, and even governments, who control the money supply.

What if we could remove all of those intermediary players and I could directly give you the amount that I owed to you?

BRUNTON: How can we have a ledger system that exists just between us that doesn't need us to rely on an institution to keep track of it for us?

If you can build a system like this that actually works, you have built a functional replacement for a lot of what a credit card company or a bank does.

♪ ♪ NARRATOR: It's not the kind of problem that would keep the average person up at night.

But for some computer scientists, and privacy advocates, building a new financial technology seemed of paramount importance.

MARK MILLER: "How often or in what system the thought police plugged in "on any individual wire was guesswork.

"It was even conceivable that they watched everybody "all the time.

"You had to live, did live, from habit that became instinct "in the assumption that every sound you made was overheard "and except in darkness, every movement scrutinized."

NARRATOR: Mark Miller was a computer science student in the late 1970s.

In the wake of Watergate and the Vietnam War, trust in the government was low, and Miller was one of many for whom George Orwell's classic dystopian novel seemed prophetic.

MILLER: We were very terrified of the totalitarian future that "1984" had painted and we really took it on as our responsibility to figure out how to build a system that would be a tool of liberation, not a tool of oppression.

NARRATOR: Universities were experimenting with the first networked computers.

What had originally been designed as a Cold War missile defense system was laying the foundation for what would become today's internet.

Though initially, only a handful of computers existed on this national network, it was already clear these interconnected machines were going to radically change communication.

At the same time, networked computers could give governments and others new ways to monitor messages and spy on citizens.

So some researchers were intent on developing a new kind of cryptography that would keep communications secure.

BRUNTON: The history of cryptography for thousands of years is defined by one single problem.

No matter how you make your code, right, the key that you use to encrypt the message needs to be the same key as the other person has to decrypt it.

NEWSREEL ANNOUNCER: Here the important work of decoding messages whose information must be carefully guarded and transcribed with perfect accuracy.

NARULA: Now the problem with that is that if anybody figured out the secret code, well, then you were kind of out of luck.

They can now read all of the messages that you were going to send back and forth.

NARRATOR: This is what happened when the Allies famously cracked the code of the Germans' Enigma machine in World War II and helped turn the tide of the war.

BRUNTON: That was the fundamental limit to your ability to create secret messages for all of human history until the 1970s, when a group of computer scientists make a series of extraordinary breakthroughs.

NARRATOR: The big breakthrough was figuring out how to replace the vulnerable single-key system with a novel two-key approach.

Each side holds a pair of mathematically linked keys-- essentially a string of characters-- one shared publicly, the other kept private.

The sender encrypts the message using the recipient's public key, the message can only be unscrambled using the recipient's private key.

The sender can also use their private key to encode a unique digital signature into the message, proving that they sent it.

The thing that's really cool about this is that I don't need to know your secret key.

No one needs to know your secret key.

It never leaves your device or your piece of paper, your home.

It stays completely secret.

The only thing that leaves is the public key.

And I can't figure out what your secret key is from your public key.

NARRATOR: As long as everyone's private keys stay private, secret messages are essentially uncrackable and signatures can't be forged.

The trick lies in how the keys are linked through a type of math problem using large prime numbers, which is easy to compute in one direction, but nearly impossible to reverse engineer.

NARULA: It's very easy to take a set of factors and see that they multiply to a number.

It's very, very hard to take a large number and figure out what the factors are that divide into it.

It would have required even someone with a supercomputer, you know, hundreds or thousands of years to try to break the cryptography and get access to the information.

MILLER: That is a revolutionary change in the world.

Up to that point, we were all kind of helpless against efforts by those forces that would target us.

And now, suddenly, mathematics had given us this amazing gift, this, this tool that we could now use to communicate secretly in a way that even those large forces cannot corrupt.

NARRATOR: A column in "Scientific American" described the breakthrough, but the actual algorithms remained unpublished in a paper at M.I.T.

Miller feared the approach, known as public key encryption, was so powerful that the government might try to classify it as a military secret.

MILLER: I saw this as a hard fork in the road that was bigger than me.

And I decided I have to do what I can to make sure that this idea is not suppressed.

So I went to the M.I.T.

campus, and I hung around, and talked to people until finally I managed to get my hands on a paper copy.

I went to a variety of copy shops.

Never made too many copies in any one place.

And I mailed it from a variety of mailboxes to home and hobbyist computer magazines and clubs all across the country.

And I also gave copies of the paper to a few select friends of mine, telling them, "If I disappear, make sure this gets out."

I have absolutely no idea, and I will never have any idea whether my actions had any influence at all.

But the cat was out of the bag.

NARRATOR: The paper was eventually published in 1978 and the ideas spread like wildfire.

The government tried to keep these algorithms from the public, but determined to fight against centralized control, programmers put the codes on everything from t-shirts to their own bodies.

BRUNTON: Cryptographers were in the unique position, especially once people started getting tattoos of this string of characters, of being able to say like characters in martial arts movies, that their bodies were classified as deadly weapons.

(whistling) What?

You want a public key?

(crowd laughing, groaning) NARRATOR: Some coders joined forces, working in loose groups to design technologies, including new forms of money, that could free people from centralized control.

BRUNTON: We could call them visionaries, we could call them radicals.

We could also call them weirdos.

Eccentric, technologically sophisticated, very smart, deeply strange people who wanted to change the world through transforming how money worked.

WOMAN: Ah!

A Space Alien!

SWARTZ: They anticipated that there was a coming economy that was going to be built around all of our data, the surveillance of our data that very soon we were all going to be living more and more of our lives communicating through digital technologies.

And a crucial piece of this puzzle that hadn't really ever been fully solved was figuring out how to do money online.

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NARRATOR: For the first time, public key encryption made it possible to securely use credit cards and conduct other private business online.

Without it, online commerce might never have become a reality.

But for activist coding groups, the fact that banks and credit card companies kept a ledger of all transactions opened the door for Big Brother.

The most infamous of these groups was known as the "Cypherpunks."

JACKSON: Their culture was, "Hey, we want to create privacy because we can see where this is going."

They had the foresight to see that any big enterprise, there are going to be big companies and, and regulators who will try to control it.

NARRATOR: The Cypherpunks mostly communicated through a mailing list.

BRUNTON: The hard core of the Cypherpunks looked at digital money as a way to not just guarantee privacy, but as a way that they could potentially destroy existing governments and states completely.

JACKSON: It was basically developers creating tools for freedom.

And one of those tools was digital cash.

NARRATOR: Not just digital transactions, like the banks were providing, but a new kind of money altogether.

Across dozens of new forums, there were a number of attempts to design a system of digital cash.

And then, on Halloween 2008, a new name-- Satoshi Nakamoto-- appeared.

Enter Bitcoin.

Called by its inventor a "peer-to-peer electronic cash system."

Even now, no one knows who Satoshi Nakamoto, the inventor of Bitcoin, is.

But the paper was revolutionary.

BRUNTON: This is one of the most significant technologies in recent human history to have been created by someone who is still wholly anonymous.

McKIE: Who is Satoshi is a question that may never be answered, but in actuality, that sort of mystique is kind of what adds to the allure that made Bitcoin really interesting to begin with, I think.

MESIDOR: When you look at who Satoshi could be, I say it has to be a group of women because men would have taken credit a long time ago.

(laughs) JACKSON: Whoever Satoshi is, it's amazing that they were able to fit all of what they wanted Bitcoin to be in eight pages.

NARRATOR: Satoshi's paper synthesized decades of work by hundreds of cryptographers and computer scientists into an elegant whole.

It showed how to create a digital payment system based on a new currency that eliminated banks...

CROWD: All day, all week, occupy Wall Street!

NARRATOR: ...At the exact moment the 2008 financial crisis shook the public trust that gave them their power.

REPORTER: It was a manic Monday in the financial markets.

(bell ringing) The DOW tumbled more than 500... People were like, "If the world's financial economy is, "you know, like taking a big hit, "how do we make ourselves more antifragile towards these things in the future?"

SWARTZ: What Bitcoin proposed to do, what Satoshi proposed to do, was produce a kind of digital cash that didn't require those intermediaries.

Instead of transactions going through a web of connected computers owned by banks and other intermediaries, it would go through a web of connected computers owned by the people conducting that transaction.

NARRATOR: "Bitcoins" were simply "bits" of computer code in a digital ledger.

Each person would hold their coins in an anonymous digital wallet, identified only by its public key.

The holder of that wallet could only spend those coins by using their private key to sign the transfer and authorize the transaction.

But the real breakthrough was something called "the blockchain"-- a technology that ensured the ledger hadn't been tampered with and that people hadn't spent the same coin more than once-- all without needing a bank or other central authority to keep track.

(clacking, beeping) SWARTZ: The payments would instead be conducted through a decentralized infrastructure of payments that would run on any number of computers.

BRUNTON: There's copies everywhere and all the copies update.

As you make a change, as anyone adds something, as anyone does anything, everyone's copy updates, which means that we all, in a sense, together witness every single thing that's taking place.

NARRATOR: The blockchain records the precise order of transactions-- if someone tries to send two people a coin when they only have one, one transaction is approved, the other denied.

DASH: Well, how do you trust strangers on the internet?

That's a hard problem.

And that's a lot of what blockchains are designed to do is to be able to say, "We're all collectively anonymously "asserting that this copy, "this record of this sort of "database of information is the same, and it's accurate, and hasn't been tampered with."

(beeping) NARRATOR: Satoshi's blockchain proposed an ingenious solution.

Every ten minutes or so, a record of every Bitcoin transaction made anywhere in the world during that period is assembled inside a digital "block".

That block is then run through a cryptographic algorithm called a "hash"-- essentially, a way of converting any piece of information into a short, unique identifier like a label that describes the contents of a box.

But this is no ordinary label.

If anyone changes the contents of the box by even the smallest amount, then the next time it's run through the hash function, the label changes completely, making it clear someone has tampered with what's inside.

BRUNTON: Imagine a machine that you can put information into.

Let us say "Moby Dick," all of "Moby Dick," the entire novel.

You put it into the machine and it gives you back a little code.

That code is the summary, the expression, of all of the data that makes up "Moby Dick."

And now, if you put in "Moby Dick," but you have changed one single word, if you have altered a space, if you have removed a period, the code will be different.

You're going to be able to tell that something has changed.

With such a machine, you could then take, say, a transaction-- me sending you ten dollars-- you can put it into that machine.

You're going to get back a little code that corresponds to all of the data about that transaction.

That code will not be the same if you change anything about that transaction data.

Now, you take that code and you add that into the record of the next transaction, linking them all into a single continuous chain of verification.

NARRATOR: Each block begins with the previous block's hash, creating an ever-growing chain of blocks-- "the blockchain".

Users from across the network take turns hashing blocks and adding them to the chain.

The other computers on the network verify the block is hashed correctly, and update their copies, effectively creating a decentralized ledger that all users agree on.

VIVIAN BRIGHT: That's good, Vernon.

Oh, okay.

I don't need a whole lot of water.

NARRATOR: Today, people are using other decentralized systems modeled on Satoshi's blockchain, to try to move money beyond the control of banks, governments, and other traditional gatekeepers.

BRIGHT: Okay, If I was to give you $1,000, what would happen with my $1,000?

So, if you put $1,000 into, let's say, a $100,000 property, you have one percent ownership in that asset.

Whatever the income is for that asset, you get one percent of that income.

NARRATOR: Community property developer Vernon J. explains equity coin to his Aunt Vivian, who has lived in East New York, Brooklyn, for more than half a century.

We need a light.

And if Vernon, and this new money business is going to be the light, let it be the light.

Let it be the beacon that we need to revitalize our community.

(indistinct chatter) All right, all right.

How's everybody doing tonight?

MAN: Well, thank you.

All right.

NARRATOR: Equity coin has attracted interest online, but Vernon also makes his pitch to the community face-to-face.

When we talk about cryptocurrency, when we talk about blockchain technology, what that does is it actually gives you a chance to remove the intermediaries.

So, those banks that have been declining you, you know, those organizations that say, "Actually, no, this is not going to work," you have the opportunity to create this system where people can invest with you without the intermediary, right... NARRATOR: Because he's dealing with real world properties and needs to hold a deed, collect rent, and pay taxes, the Securities and Exchange Commission regulates Vernon's coins like shares in a traditional company.

But he thinks crypto offers a more direct connection with investors.

What I wanted to do was mix in affordable housing with blockchain technology and create a system where we can actually replace the bank with community.

MAN: Yes.

NARRATOR: If Vernon attracts enough interest, he'll launch his coin, joining thousands of others in a volatile crypto ecosystem where people can get rich, or lose everything.

So this is our time, this is our time.

NARRATOR: But all of this raises a question: if decentralized blockchains eliminate the middlemen, who runs the network?

NARULA: Why do people even participate in this network?

why do they gather these transactions and add them to the end of the blockchain?

And how do we make sure that they're doing that in a secure way?

NARRATOR: Satoshi's answer came in the form of an incentive system called mining that rewarded users who added blocks to the chain by granting them newly minted bitcoins.

These "miners" group transactions from across the network into a block, and run it through a hash function, like the machine that created the label for "Moby Dick."

In order for everyone's ledger to match, only one miner at a time can add a block to the chain.

So how does everyone agree on which miner gets to add the next block?

Satoshi's solution-- have miners race to solve a cryptographic puzzle.

NARULA: A node that wants to add a block to the end of the blockchain actually engages in solving a computationally expensive cryptographic puzzle.

So the sole purpose of this cryptographic puzzle is just to show that I've spent a lot of time and energy trying to solve the puzzle.

That's it.

The idea is that it needs to be expensive by some resource to compute this puzzle.

If it's very cheap or very easy or very quick to compute the puzzle, then it won't do a good job of securing the network and making sure there's only one blockchain, one version of history, which is very important.

NARRATOR: This puzzle-- called "proof of work"-- means miners who spend resources in the form of hardware and electricity get to add a block of new transactions and earn bitcoin.

Start her up, Johnny.

NARRATOR: In the early days, mining was a cottage industry; people built rigs at home, expanding the network and sharing their setups on social media.

MINER: This is a little overview of what we got-- four machines.

MINER 2: I should clear right at 2,800 a month.

NARRATOR: Mining also is how new coins are introduced into the system.

Instead of banks and governments controlling the money supply, it's automatically regulated by the software.

As more coins are mined, the reward decreases, and the proof of work puzzle gets harder to solve and requires more energy.

Giant mining farms exist all over the world, using as much power as some countries.

JACKSON: About 30% of the mining done in the world is in America, and most of that mining is starting to be done in Texas, because they have a lot of energy.

Also, a lot of the mining is done where it is cheaper, places like Iceland, Kazakhstan.

China was huge in mining for a while and then they banned it.

NARRATOR: With about one percent of the world's electricity going to crypto mining, some are pushing to find alternative sources of power.

JACKSON: What's become huge now is hydroelectric energy, using water as a as a way to mine bitcoin.

And also, we're starting to see more of the solar panels, wind energy.

WARREN: Ironically, Bitcoin actually provides a way to think about standing up different kinds of renewable architecture around energy that wouldn't otherwise necessarily have capacity or the ability to be stood up.

NARRATOR: But others don't buy it, particularly when considering the entirety of the Bitcoin mining enterprise spread around the world.

DASH: There is a tendency to point to, in some cases valid, but mostly not, renewables as part of the energy consumption of Bitcoin.

There are people that sort of wave away the seriousness, the gravity of that damage, that harm that they're causing.

And I find it immoral.

BRUNTON: We see the construction of a vast machine that might be one of the most purely wasteful machines ever built, a system that, that burns processor power, and coal and generates nothing but heat and the solutions to deliberately meaningless problems.

NARRATOR: But early on, things were very different.

Mining was easy, and Bitcoin essentially worthless.

SWARTZ: In the early days, there were websites that had Bitcoin faucets, which were basically just a site you would go to, click on it, you know, create a wallet and it would enable you to just get free Bitcoins.

♪ ♪ NARRATOR: Satoshi didn't seem interested in making money, and in 2011 sent a final email before disappearing for good.

Other early adopters saw the promise of the technology, and tried to generate belief in its value.

SWARTZ: Once Bitcoin was developed enough to be a kind of largely functioning piece of software, it had to actually be used in order to become money, so one person on the Bitcoin message board said, "I will pay someone to-- with Bitcoin-- to order me two pizzas with lots of toppings."

(keyboard keys lightly clacking) And someone else, on the other side of the country, ordered that pizza, sent it to him, and got paid in Bitcoin.

JACKSON: He essentially paid about 40 bucks for two pizzas.

And those 10,000 Bitcoin are well over, I believe, $200 million now.

But that transaction had to happen in order to show that, "Hey, people do want to pay with this."

Bitcoin is now up to $111!

NARRATOR: But as more users joined the network and the price increased, something changed.

The hottest investment, on or off Wall Street, are these cryptocurrencies.

They are soaring!

They began to see it less as money, that is as a transactional tool that you would actually use.

They started to see it instead as a kind of asset.

NARRATOR: Despite wild fluctuations, Bitcoin's value increased over time-- and other coins emerged on their own blockchains.

While most chased profits, one early Bitcoin user saw a different kind of potential, and helped invent what would become one of crypto's most famous uses.

KEVIN McCOY: I'm an artist, and have been an artist for a long, long time, but I wasn't always.

I studied philosophy and literature, and that was my main kind of interest.

NARRATOR: In the early 2000s, Kevin and Jennifer McCoy were successful digital artists-- their works shown by prestigious galleries.

But unauthorized copies were appearing all over the internet.

They realized there was no such thing as a "digital original" that they could actually own and control.

McCOY: In a digital environment, of course, it's always a copy and it proliferates, you know, everywhere.

And, you know, and so there is no original.

NARRATOR: But Bitcoin gave Kevin an idea.

McCOY: That system created for the first time, an idea of digital scarcity.

All of a sudden, the everyday norm that you had about digital technology, that it's infinitely reproducible, that it's, everything is just copy and paste, that didn't apply in this case.

If I send you my Bitcoins, I don't have them anymore and you have them.

That's scarcity; it's not everywhere.

It's only somewhere.

And so I had this realization that if it was possible via Bitcoin to create uniqueness around currency, then there had to be a way that you could create uniqueness around a digital artwork.

But I didn't know how.

I'm really excited about this last pairing... NARRATOR: Kevin attended a conference where each artist was paired with a tech partner and given 24 hours to develop a new idea they'd present to an audience.

What we want to talk to you about today is this idea we have of monetized graphics.

And how we can put digital artworks in chains.

So almost immediately after I was paired up with Kevin McCoy, he and I sat down and started sketching out ideas for how could you make an assertion on a blockchain to say that a certain digital work was an original, unique item.

♪ ♪ NARRATOR: After an all-night coding session, Anil Dash and Kevin announced that they had registered a video on a blockchain.

DASH (voiceover): It was a segment of a video work that Kevin and Jennifer McCoy had created together, and I actually found it mesmerizing.

McCOY (voiceover): And this was our on-stage example of taking this file and creating a blockchain-based record of that.

We've created a system that will establish verification and provenance over digital files, digital artworks.

That provenance is a chain of ownership... NARRATOR: Anil and Kevin created a record of ownership that would live on the blockchain.

Whoever held the key to access it, owned the digital original.

DASH (voiceover): We did pull it together in a couple of hours.

So given that it was something we sort of did over the course of an evening and into a late night, it was a pretty good first version.

Do you got 20 bucks?

DASH (voiceover): And we sort of said we'd negotiate a price for it.

(on-screen): Can I pay you in U.S. dollars?

Sure, that's cool with me.

I have four dollars.

(laughter) Jesus!

Really?

NARRATOR: It was the first transaction of something that would eventually come to be called a non-fungible token, or NFT.

♪ ♪ Today, NFTs can act as a digital proof of ownership for things far beyond art-- from tickets to a concert, to membership in a club, operating like keys that unlock benefits to the owner.

You can imagine rolling it out into a more platform-oriented thing... NARRATOR: But back then, Kevin's notion that it was possible to own a digital original didn't immediately catch on.

McCOY: You know that it's new, you know that it's a novel thing.

You know that it's... you can feel that it's important.

And nobody cared.

(bell chiming) NARRATOR: Kevin's idea may not have taken off, but he wasn't the only one hoping blockchains could go beyond Bitcoin.

In 2015, a 21-year-old coder named Vitalik Buterin launched Ethereum-- a new blockchain designed to decentralize much more than just money.

VITALIK BUTERIN: Ethereum community is, uh, I think unique in the crypto space for its diversity, like it's not just one community, it's, you know-- there's a lot of different sub-communities.

There is something in it for everyone.

NARRATOR: Today, Ethereum is the largest blockchain in the world, running ten times more transactions than Bitcoin.

Like Bitcoin, the blockchain incentivizes users by rewarding miners with a currency-- in this case, Ether.

But the range of what Ethereum can do goes beyond a simple monetary transaction.

KARTIK (on microphone): We want to have a quick interview with a person who needs no introduction.

So without further ado, let's welcome Vitalik Buterin.

(applause) ♪ ♪ NARRATOR: Ethereum lets users create their own programmable tokens, using "smart contracts"-- instructions in the form of computer code that execute rules on the blockchain.

Instead of just adding or subtracting money from a ledger, these "smart contracts" make it possible for anyone to mint a token and embed it with nearly any functionality, from tracking music royalties to encoding money with last will and testament directives, doing for the blockchain what the iPhone's App Store did for the cell phone.

Today, conferences like this one in Amsterdam attract thousands of coders and entrepreneurs.

MASSIMILIANO GERARDI: So the young people are excited now about blockchain and all the possibilities that blockchain can give.

And I haven't seen this kind of excitement since the time of internet was born.

NARRATOR: Because anyone on the internet can see and inspect the ledger, proponents claim blockchains like Ethereum can make transactions more transparent, and, because they eliminate the middle-man, more efficient.

There's an idealistic quality to many of the hopes surrounding the technology.

GUNDEEP BHAMRA: Everything which we want to preserve for eternity can and should be on the blockchain, whether it's a movie or it's our housing contracts or the way we... interact with, let's say, Uber, or rent, rent a car.

So right now, when you have a paper will, there could be a lot of drama, a lot of debates between family members when you pass away.

But at least if you actually do that on chain, on the blockchain, actually, you can actually get a say, and you know that it's going to be guaranteed to go to those people when you pass.

MARCUS: We are enabling individuals and organizations to access a market for climate action in an efficient, low cost manner.

And by bringing these existing certificates onto a blockchain, we unlock much greater efficiency, lower transaction fees, and much faster settlement times.

NARRATOR: Most projects like these are still in their early stages and not yet viable, but one of Ethereum's most popular uses helped Kevin's original idea for putting artwork on the blockchain take off.

SNOOP: ♪ 2021, Snoop D-O-dub ♪ NEWS ANCHOR: Now to the latest trend that's sweeping the internet, the skyrocketing prices for digital art sold as NFTs.

NEWS ANCHOR 2: NFT sales now topping a half a trillion dollars... NARRATOR: Today, NFTs-- or non-fungible tokens-- seem to be everywhere.

Nyan cat is, of course, a meme of a cat with a Pop-Tart body prancing through space with rainbows flying out of its butt.

NARRATOR: Most of them are registered on Ethereum, where they exist as smart contract tokens on the blockchain.

It's been surreal to go from this personal collaboration with somebody and a transaction that was about collecting their art to the last few years, as it became this big hype cycle.

REPORTER: The art world has been turned upside down again.

NARRATOR: NFTs for nearly anything imaginable sell through online marketplaces, but even traditional auction houses have gotten in the game.

Some of the most coveted-- and expensive-- are essentially digital brands that people desire.

DASH: Part of what's so compelling to a lot of people that collect NFTs, especially when they're part of a large edition of them, is that each individual work is digitally identified as being unique.

And, you know, that has meaning to people.

To the fans and enthusiasts, they kind of feel like they're collecting baseball cards.

The big one is called Bored Apes, which have kind of become almost a cultural brand on its own.

This is your ape?

That's mine, yeah.

Well, we're debuting it.

That's really cool.

It's like, I want something that like kind of reminds me of me... SWARTZ: It would be really strange to see a celebrity like Paris Hilton go on a late-night talk show and talk about a penny stock that they are investing in and recommending that others do the same.

But NFTs have become a acceptable topic for late-night conversation.

♪ ♪ NARRATOR: The frenzy around new blockchain applications doesn't end with NFTs.

Blockchains are even being used to create new platforms for cooperation.

Called Decentralized Autonomous Organizations, or DAOs for short.

One was even involved in an attempt to buy an original copy of the U.S. Constitution at an auction in New York City.

And the idea here was a group of people came together and they decided they wanted to pool some funds and purchase a copy of the Constitution.

NARRATOR: A digital collective formed on a chat group, and created a token on the Ethereum blockchain that allowed members to contribute money to the project-- and have a vote on how it was run.

This started about a week ago.

I just got some friends in a group chat texting one another, they found out the Constitution of the United States is going up on auction.

And we said we need to raise a lot of money, and can we do it?

As soon as the money starts piling in, we just got shocked that people actually, like, have their faith in us, and we're like, "Okay, now we have to deliver."

NARRATOR: Over the course of seven days, nearly 20,000 members joined the DAO, raising more than $40 million, well beyond the document's pre-auction estimate.

And now, let's begin the auction.

Lot 1787, the Constitution of the United States of America.

We'll start the bidding here at $10 million, At $10 million, $11 million, $12 million, at $13 million, now $14 million... NARRATOR: Ironically, in the end, the group's transparency was a liability.

AUCTIONEER: At $41 million, sold!

$41 million, paddle 411.

(crowd groans) NARRATOR: It was outbid by a hedge fund C.E.O.

who could see how much money they had raised.

WARREN: But I think what's fascinating about DAOs is they really are providing these micro experiments in how do we organize and govern ourselves and our activities.

What we've just accomplished in the last four days was (bleep) insanity.

It was amazing.

And we have to be proud of ourselves for rallying together to do something that no one has done in history before.

And now we get to plot our next move.

What do we want the future to look like?

What do we want to build next?

What do we want to do?

♪ ♪ NARRATOR: As thousands of experiments like ConstitutionDAO take place, blockchain use is skyrocketing, as are the environmental costs.

So Ethereum engineers have been working to implement a replacement for Satoshi's energy-intensive "proof of work" mechanism.

It's called "proof of stake."

DANNY RYAN: When we move from proof of work to proof of stake, the energy consumption of the Ethereum platform will be reduced by 99.95% and not to grow again.

(beeping) NARRATOR: Instead of spending costly energy to solve a computational problem-- and earn the right to add a block to the chain-- in proof of stake, the system randomly assigns the right to add a block to those who already own coins.

The more coins a user owns, the more likely they are to be chosen.

In this way, proof of stake makes it possible to secure the blockchain without burning huge amounts of energy.

Other blockchains already use proof of stake, but it's never been tried at the scale of Ethereum's network.

And what amounts to a giant software update could put the system at risk.

DASH: The classic metaphor we use in tech is it's like trying to change the engines in a plane while it's in flight.

The reason it's hard is because millions of people and way more millions of lines of code are relying on the system as it functions today.

All right we're one minute out, guys.

NARRATOR: Still, in spring 2022, after six years of work, a test suggests the upgrade might soon be ready.

(cheers and applause) ♪ ♪ Huge questions remain about the transition, and whether it will end up trading one problem for another.

It's more environmentally responsible, but perhaps less fair, since the wealthiest users will be able to stake more coins add more blocks, and earn even more coins.

But in the meantime, as crypto technology continues to evolve, the question no one can answer yet is will it be able to live up to its decentralized promise?

RYAN: Ideally, these blockchain platforms can help disintermediate the power that exists, locked up in a handful of corporations and kind of put that back into communities, back into individual users, and... and maybe shift the trajectory from here to maybe over here.

♪ ♪ (keyboard clacking) NARRATOR: Back in Brooklyn, that's the hope of Vernon and his programmer Aakil, who are finally ready to launch Equitycoin on the Ethereum blockchain.

VERNON: We're going to allow for the sale of 10,700 tokens at $100 per token.

So it's $1.07 million that we're going to be raising.

♪ ♪ NARRATOR: By selling tokens, he hopes to raise enough money to purchase the properties, and investors hope they'll get a return.

Vernon believes that trust will grow as people see how their interests are coded right into the token's contract.

VERNON: Smart contracts take the rules and regulations of a normal contract and embed them into an automated system so that both parties can adhere to those rules and regulations without trusting each other.

It's a trustless way of doing business.

NARRATOR: Vernon hopes for a decentralized future, where crypto removes the gatekeepers and levels the playing field.

NEWS ANCHOR: JP Morgan rolling out the first cryptocurrency backed by a U.S. bank.

NARRATOR: But the original promise of crypto may be in doubt... Fortune favors the brave.

NARRATOR: ...As big business increasingly gets in on the action.

WOMAN: Get started with crypto on Venmo.

NARRATOR: Today, nearly all crypto financial transactions go through centralized exchanges that enable users to buy and sell.

WOMAN: Binance-- exchange the world.

NARRATOR: They can decide which users can hold accounts, and can freeze funds at the touch of a button.

This has drawn the interest of financial regulators.

A battle is brewing in Washington over how to regulate the cryptocurrency industry.

We have tremendous amounts of financial regulation, and some of it is there for a very good reason.

It's to protect consumers.

But preserving the ability for competition and for people to innovate is also very important, making sure that we don't unintentionally regulate into a world of a few very large, powerful intermediaries.

I think that's very important as well.

The struggle to decentralize, I think, is never ultimately won.

Every time you win it, at one level, you create a, a system, in which you can lose it at the next level up.

There's a real concern that the future of crypto will look a lot like the present of the internet, just kind of a re-entrenchment, of the same old forms of exploitation, just on new terms.

NARRATOR: One way or the other, many believe blockchain is here to stay.

WARREN: You don't un-ring that bell, it's not going to vanish.

What it's used for is something that has yet to be fully determined.

(phone chimes) DON (on phone): Vern, Great Rising!

Don, what's going on, brother?

NARRATOR: At last, Vernon gathers his team to launch Equitycoin and start raising money from the public.

Let's do it.

Let's do it.

Let's go!

BRUNTON: I look at cryptocurrencies as being the very, very early days of a better technology.

I think, in the language of tech, we are using the alpha rollout-- the earliest, jankiest, least-figured-out version of something.

T-minus three, two, and one.

Boom.

ASH: We just launched our investment packages, everybody.

VERNON: Boom.

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