All language subtitles for defi video 2 en

One issue that
comes up a lot is,

where does the
value actually come

from in terms of
the cryptocurrency?

For example, Bitcoin.

Many people believe
that the value is zero.

The idea is that bitcoin
doesn't pay any dividends,

it's got no cash flows.

It's not backed by anything.

It's a computer program.

How can it have value?

I think that it's really
important to distinguish

between tangible value
and intangible value.

Let me explore this.

The story that I like
to tell my students is

the story of the
Iraqi Swiss dinar.

Maybe you don't know
this particular tale,

and I will explore it for you.

The Iraqi dinar was
the currency of

Iraq until the first
Gulf War in 1990.

Now, it turns out that Iraq
and Saddam Hussein had

outsourced the
printing of the dinar.

It's called the Iraqi
Swiss dinar because

the printing plates were
manufactured in Switzerland,

and the actual production or

the printing of the currency
was done in the UK.

In 1991, at the end of the war,

Iraq was split into two pieces.

In the South, Saddam
Hussein controlled Iraq,

in the North the Kurds.

Then a number of sanctions
were imposed on Iraq.

One issue with the sanction

was that it was
impossible for the UK

to export the freshly
printed dinars to Iraq.

Saddam Hussein had to
scramble and develop

his own printing facility

in Iraq to print a new currency.

That actually happened. The idea

was that an edict

went out from the
Central Bank of Iraq,

and citizens were
given three weeks

to exchange the old dinars,

which I'll call the
Iraqi Swiss dinar,

for the new dinar which

I will sometimes called
the Saddam dinar.

This was pretty important,

that citizens had to
transfer to go to the bank

to exchange for the new dinar

because if they didn't
do this in three weeks,

the old dinar would
not be legal tender.

It would be worthless.
Some people

basically did this in the South,

but this didn't
apply to the North.

The North was
basically separate.

There was no Central
Bank of Iraq

that had any influence there.

Basically, what happened
was the Kurds in

the North just decided to

continue using the
Iraqi Swiss dinar.

To be clear, that dinar,

it's got no value,

according to the
Central Bank of Iraq.

But it was used as
if it did had value.

Now, this is
especially interesting

that Saddam Hussein
in the South,

was desperate for money to
pay for various things,

and they decided to inflate.

They kept on printing
the new dinars.

At some point, the
exchange rate was 300 of

the Saddam dinars for one of

the old unbacked
Iraqi Swiss dinars.

The point I'm making here is
that it is possible to have

value even though the currency

isn't necessarily
backed by anything.

This is a recent example,

but it's not the only
example in history.

The Iraqi Swiss dinar
continued to be

used and it had value,

even though technically,

it was unbacked by the
Central Bank of Iraq.

There's many other
examples in history.

Perhaps the most famous
one are stone currency

from the Island of Yap
in the South Pacific.

Indeed, these failed on

the portability that I

mentioned in terms of the
characteristic of currency.

But again, these stones really

didn't have any
fundamental value.

But they were used and that
economy thrived in its time.

The message here is that
we need to recognize

the difference between
tangible and intangible value.

Gold, as I mentioned,

a gold coin has got
tangible value.

The US currency,
even though it's not

backed by gold since 1971,

it's got some value in that
the government can tax

you and you need to
pay in US dollars.

It's got tangible value because

it's legal tender and
must be accepted.

It's got tangible
value because if you

violate not accepting the
dollar or something like that,

then you could be incarcerated.

But it's also important to
think about intangible value.

Indeed, our economy today is

built upon intangible value.

We used to be a
manufacturing economy,

we're no longer a manufacturing
economy in the US.

Much of the value that's
created is intangible.

Given that we're
more than willing

to assign value
to companies that

have no IP research
and development,

patents, specialized software,

trademarks, customer lists.

People are willing
to assign value

there for these intangibles,

and I think it makes
it easier to make

the case that intangible value

is very important for
crypto space in general.

Let me come to today,

decentralized finance
is going to enable

efficient peer to
peer transactions

without the centralized
institution.

We will deal with an idea

throughout the four courses

of tokenization of
almost anything.

This goes well beyond
Bitcoin and Ethereum.

Hint the possibility of an
efficient barter mechanism.

Again, remember this,

that one of the themes
in this course is that

decentralized finance
actually opens

up the possibility of
returning to barter,

but in a much more
efficient way.

Next, we'll talk

about some of the problems
with decentralized finance.