Monero (XMR) has achieved a high level of popularity due to its privacy oriented features these blockchains, which form the underlying technology behind digital currencies are public Ledger’s of participants activities that show all the transactions on the network. However, Monero differs and a handful of ways manero’s blockchain is intentionally configured to be opaque. It makes transaction details like the identity of the sender and recipients and the amount of every transaction Anonymous by disguising. The addresses used by participants Monero supports a mining process where individuals get rewarded by joining mining pools, or they can mine individually Monero can be mined on your traditional computer and does not require any specific mining Hardware to do so Monero alleviates privacy concerns by integrating ring signatures and stealth addresses ring signatures enables a sending participant to conceal his identity from other participants in a group ring signatures are anonymous
Miss digital signatures from one member of the group but they don’t reveal which member sign the transaction to generate a ring signature. The Monero platform uses a combination of a sender’s account keys and clubs it with public keys on the blockchain which makes it unique as well as private this enables the ability to hide the identity of the sender as it is computationally impossible to ascertain which of the group members Keys was used to produce the complex signature. So how is Monero different from Bitcoin? I’m works on a protocol that attempts to Shield the participants identity using pseudo name addresses. These pseudo names are randomly generated combinations of alphabets and numbers. However that approach offers limited privacy as both the Bitcoin address and the transactions are registered on the blockchain. Even the synonymous addresses are not fully private a few transactions carried on by a participant over a time span can be linked to the same address allowing the possibility of public government family and friends to become a
Or of in address owners Trends and hence his identity. It allows identifying Bitcoin units that may have been linked to certain events like fraud gambling or theft which paves the way for blocking suspending your closing accounts that are holding such units compared to Monero with its non-traceable transaction history offers participants a much safer Network where they do not run the risk of having their held units be refused or blacklisted by others. Another advantage of Monero compared to bitcoin is it’s fun. Ability, this means that two units of a currency can mutually be substituted and there is no difference between the two while to one dollar bills are equal in value. There are not fungible as each carries a unique serial number in contrast to pieces of one ounce of gold of the same grade are fungible. Now there have been some challenges with Monero while these privacy advantages have fueled the rapid adoption of mineiro the non traceability and privacy features of an arrow allow them to be used for different.
Reputable purposes and a questionable marketplaces including those like drugs and gambling markets on the dark web Etc. The bottom line is Monero is the 13th largest cryptocurrency by market capitalization and it is not going anywhere anytime soon. If you guys would like to learn more about Monero. I will leave some links in the description.
Liquidated it could be sold off to the market and you also get a penalty penalty fee and in some cases for example during black Thursday. You might have your entire position liquidated you might lose lose everything. So it’s very important to pay attention to these prices. If you want to participate in this very Risky Business of yield farming, you need to follow the rates constantly almost like it’s a full-time job tit paying attention to the interest rates on supplying and borrowing. And of course paying very close attention, very close detail to the price of the crypto currencies that are used as collateral because as I mentioned if it crashes then the whole system or your pole position can be liquidated. So on top of all of these risks that we went over another major risk is that when you’re interacting with these platforms you are using a hot wallet in this case. I was using meta Mass. This is a hot wallet that is
Line, so if your funds are not protected if you’re not practicing the best security your funds can be hacked and there are people that need this a very lucrative business by interacting with compounds and yield farming using tens hundreds of thousands of dollars. So having that much money on a wall like this is also a risk. I hope you found value in this video go down below and subscribe to the channel. Thank you for listening and I’ll see you next time.
So you’ve heard of Bitcoin and Etherium maybe even some altcoins like – or Litecoin that have you heard of stable coins like USDT or also known as tether in this video. We’re going to discuss stable coins in particular tether. So if you want to tether 101 course, this is going to be your number one resource.
What’s up, everybody? My name is Artie with coinCaso. The number one crypto currency exchange platform. For users in this video. We’re going to talk about tether and US backed stablecoins. I’m going to try to explain this in plain English for everybody to understand traditional cryptocurrencies are digital currencies that their value is based on supply and demand on a decentralized network stable coins while still consider a cryptocurrency. However are backed by Fiat currencies like Dollar pound Euro and Yen the stablecoin that we’re going to discuss today is called tether also known as USDT was first released by a company called tether Limited in October 2014 the concept of a stable coin and tethers view on this is that every tether coin is physically backed by one u.s. Dollar tether is actually built on the Bitcoin blockchain. So every transaction that has ever been made can be found on that ledger now how is this possible you might ask? Let’s look at the structure.
There are actually two ways to Peg a currency to another currency a crypto. Currency uses an algorithmic Peg. So for example, let’s make up a token. The Bitcoin is awesome token. It is supposed to represent one Bitcoin the more people buy it the price should theoretically go up but if it was algorithmically pegged to the Bitcoin, basically what would happen is as the price goes up the number of coins would actually be reduced to drop the price back down to what Bitcoin is worth on the other hand if selling started to occur and the price started to decrease more coins would be created causing the price to go back up and leveling out with Bitcoin. Now this would happen thousands of times per second to keep the coin as closely as possible to bitcoin with tether. However, it is backed by a fiat currency. So the more trading that occurs and the more that the price goes He’s up tether limited actually has to get more currency in their portfolio to keep the price even with the US dollar now, if you’re wondering why were these stable coins even created? Why do we need a cryptocurrency that mimics the US dollar they were actually created to shelter people from the volatility of cryptocurrencies.
For example, if you want to buy and sell Bitcoin to make some profit but on one day it’s worth $10,000 and the next week. It’s worth 6,000. We recently saw you can alleviate that Pain by buying into Bitcoin using USDT or tether and training while it moves to make money and instead of holding on to bitcoin. You can exchange it back into USDT and wait for your next trading opportunity. It basically makes crypto currency trading much faster instead of waiting for a Fiat Bank transaction to process USDT to bitcoin or etherium can be done instantly because it is a cryptocurrency. See, this is great for people that profit from crypto currency Arbitrage allowing them to make split-second transactions from buying and selling cryptocurrencies across multiple exchange platforms. Like you can do on coinCaso the cool thing about our dashboard is we show a live ticker of the prices of different cryptocurrencies across different exchange platforms. So if you have an opportunity and you see a big price difference between two exchange platforms, you can quickly buy and sell and Off the top that is arbitrage.
Unfortunately, there are several issues in regards to stable coins firstly is that it’s very hard to audit these companies to actually find out if they have on hand the money to cover the equivalent coins in circulation. For example, in 2017. Many people were selling Tethered to cash out the company. However was having trouble executing every single transaction. Thus raising a little yellow flag saying, hey does this Company actually have the amount of and see to back all the tether in circulation. The other issue with stable coins. Is that the company that started it has to have the cash on hand for client withdrawals. Now if you know anything about large quantities of money, it’s better to invest them and make a percentage on that money instead of holding it letting it sit there create dust because then it’s not doing anything for you. And the last issue that I can see with stable coins is its usefulness in the long term. Basically what I mean is that they were created. To help solve the volatility issues that we see in cryptocurrencies, but as cryptocurrencies become more and more adapted that volatility will go away and they will stable out therefore it allows people to hold onto their Bitcoins instead of cashing out and transferring it into something more stable like you sdt in the meantime. However, this is a very good option for people wanting to day trade while keeping their assets safe. But unless the United States government actually adopt a Coin as their own I don’t see stable coins lasting 20 years, but definitely for the next five, and that’s it guys.
That’s all you need to know to get started with stable coins. I hope you guys enjoyed this video, please don’t forget to like the Facebook page.
Smart contract are very popular nowadays, but what are they and what problems do they solve?
The term smart contract was first used by Nick Szabo in 1997 along before Bitcoin was created. He is a computer scientist lost collar and cryptographer. So I’ll spare you his exact words, but in simple terms he wanted to use a distributed ledger to store contracts. Now smart contracts are just like contracts in the real world. The only difference is that they are completely digital. In fact a smart contract is actually a tiny computer program that is stored inside of a blockchain.
Let’s take a look at an example to understand how smart contracts work. You probably are familiar with Kickstarter the large fundraising platform product teams can go to Kickstarter create a project set of funding goal and start collecting money from others who believe in the idea.
Kickstarter is essentially a third party that sits in between product teams and supporters. This means that both of them need to trust Kickstarter to handle their money correctly. If the project gets successfully funded the project team expects Kickstarter to give them their money on the other hand supporters want their money to go to the project if it was funded or to get a refund when it hasn’t reached its goals both the product team and its supporters have to trust Kickstarter.
But with smart contracts we can build a similar system that doesn’t require a third party like Kickstarter. So let’s create a smart contract for this we can program the smart contract so that it holds all the received funds until a certain goal is reached the supporters of a project can now transfer their money to the smart contract if the project gets fully funded the contract automatically passes the money to the creator of the project and if the project fails to meet these goals that the money automatically goes back to the supporters pretty awesome, right and becauseSmart contracts are stored inside a blockchain. Everything is completely distributed with this technique. No one is in control of the money.
They are immutable and they are distributed being immutable means that once a smart contract is created. It can never be changed again. So no one can go behind your back and tamper with the code of your contract and being distributed means that the output of your contract is validated by everyone on the network. So a single person cannot force the contract to release the funds because other people have network will spot this attempt and mark it as invalid. Tampering with smart contracts becomes almost impossible
Smart contracts can be applied to many different things not just on crowdfunding. Banks for example could use it to issue loans or to offer automatic payments insurance companies could use it to process certain claims and postal companies could use it for payment on delivery and so on and so on. So now you might wonder where and how can I use Smart contracts? Well, right now there are a handful of blockchains who support smart contracts, but the biggest one is Ethereum.
Although commonly associated with Bitcoin, blockchain technology has many other applications that go Beyond digital currencies.
In fact Bitcoin is only one of several hundred applications that use blockchain technology today until relatively recently Building Block Chain applications required a background in coding cryptography and Mathematics as well as significant time and resources, but now previously unimagined applications are being developed to play faster than ever.
Ethereum is making this possible by providing developers the tools to build decentralized applications at its simplest. Ethereum is an open software platform based on blockchain technology that enables developers to build and deploy decentralized applications is etherium similar to bitcoin sort of but not really like Bitcoin if your aim is a distributed public blockchain network, although there are some significant technical differences between the two the most important distinction is that Bitcoin and Ethereum different purpose and capability Bitcoin offers a peer-to-peer electronic cash system that enables online payments it Syrian focuses on running code for any
The application that’s deployed on his Network on the Ethereum blockchain ether is the cryptocurrency that fuels the network either is a currency like Bitcoin, but it’s also used by people on the network to pay for code execution. So what kind of code is being executed a smart contract is a phrase used to describe an Ethereum application that can facilitate the exchange of money content property shares or anything of value user send ether to interact with these self-operating computer programs and they will run exactly as coded without any possibility of censorship. Shift down time fraud or interference and cerium allows developers to create whatever interactive operations they want in their smart contracts. This means that developers can build thousands of different applications that go beyond anything built on a blockchain before.
For example, the MLB has released crypto baseball an online collectible store built on Ethereum users can buy and sell unique Collectibles using ether as well as earn rewards based on their real-world performance because this application is built on a theory users are able to truly own they’re collectibles.
Like they would in real life rather than building an entirely original Block Chain for each new application. Ethereum enables the development of thousands of different applications all on one block chain platform a simple way to look at it is that Bitcoin is an app it exchanges money in a decentralized way and that’s amazing it serum on the other hand isn’t just an app. It’s more like an app store. It’s a Computing platform that allows developers to create any application. They want on one decentralized platform in doing so the theory of has removed much of the barrier to entry and creating decentralized. Blockchain applications while it’s still in its early days etherium looks to be a truly transformational platform with many of the most exciting applications yet to be developed. We can only begin to wonder about the possibilities that await.
What is the concept behind decentralized finance and layman terms and how it is revolutionary in nature. What are the downsides of it?
Alright, so the basic concept of decentralized finance is to create all of these composable Basic Finance Primitives that are implemented as smart contracts with some degree of decentralization. And one of the things we’re going to be talking about today is what exactly does it mean to say some degree of decentralization.
There’s a balance to strike in how decentralized a platform is between fully decentralized where no one has any control and if something goes wrong all of the funds go poof as we saw with the Dow to some what decentralized with some governance overrides, maybe an escape hatch for when problems happen to shut down the smart contract and refund funds and of course not so the centralized. When a when there are effectively management keys that allow all of the functions of the smart contract to be overridden by a small number of parties and there’s all of the range in between. So that’s the decentralized and DeFi. Of course, the five-part means that this is primarily focused on financial products and that means lending investing borrowing of course saving implementing various forms of currency.
All kinds non-functional tokens various forms of asset-backed tokens and things like that crowdfunding and crowd raising or fundraising mechanisms such as what are they called token bonded curves? Yes. That’s the fancy term used in the ethereum space and for the most part we’re talking about DeFi. I as a function that has come out of the development of aetherium. But of course defy isn’t restricted to a theorem quite the opposite Defiance and entire industry and the best way I’d like to describe Defiance by contrast to see if I see if I of course is centralized Finance. That’s when somebody else takes your money abuses it to implement political favors in their benefits and then the charges
You for the privilege of them holding your money and perhaps if you’re lucky they give it back to you perhaps not while enriching themselves unfairly in a parasitical codependent relationship with government. That’s CeFi. so DeFi really can’t fail unless it becomes CeFi because CeFi is already an incredibly damaging parasitic system that plagues our planet. So DeFi is an approach that is primarily focused on the centralizing the power Dynamic. That’s the real key here who has power over money and buy the centralizing power of the money. What opportunities does that give people to have better relationships with their money and not be exploited as well as how does that increase access to financial services by disintermediating all the gate?
Papers that prevent and the limit access to financial services effectively banking the unbanked or the banking all of us.
How does it work is xrp ripples cryptocurrency a good investment? And what does this all have to do with the banking system? Well stick around in this episode of crypto whiteboard. Tuesday will answer these questions and more.
Hi, I’m Nate Martin from 99Bitcoins.com and welcome to crypto whiteboard Tuesday where we take complex cryptocurrency topics break them down and translate them into plain English before we begin don’t forget to subscribe to the channel and click that Bell. So you will immediately get notified when a new video comes out. Today’s topic is Ripple and xrp one of the leading cryptocurrencies around have you ever had occasion where you needed to wire money to someone only to be told it might take several days for that money to
In their account, well, that’s because most major banks are still using systems that were built 40 years ago for this task Swift MoneyGram and Western Union are just some examples of slow expensive and relatively limited systems that Financial Services used to transfer money on top of that not all of the Pink’s are connected via the same network. So in many cases you don’t even have a direct line between two Banks when they need to transfer money from one account to the other in order for Bank a to send money to bank. Be that it doesn’t have any direct relationship with more often than not it will have to go through several intermediary Banks searching for common network connections between each other in order to clear a path for the money. That’s why International wire transfers are so slow and costly each Bank along the way takes time to process the transaction and a fee for servicing the process in some cases Bank transfers must involve currency conversions, which make things even more problematic and expensive for example
Directly transferring currency from Japan to Nicaragua means turning Yen’s into cordobas, which is generally not feasible. The reason is that Japanese Banks don’t usually hold accounts denominated in cordobas because there’s not a lot of demand for them. However both Japanese and Nicaraguan Banks hold accounts in dollars. So instead an individual or bank will usually trade Yen’s four dollars and then dollars to cordobas as you can imagine. This process can be costly due to the multiple. Ian’s in short the banking system today doesn’t have a main connecting network with a uniform set of rules each time. You want to exchange or send money through the banking system. You need to find a path to transfer that money depending on the circumstances. That’s exactly what Ripple is here to change just like the internet has its own rules or protocol to transfer information known as HTTP Ripple met uses a protocol known as art exp for moving value around the world Ripple laps the
Haters are triple net aim to create the internet of value away from money to move as quickly as information desk through the use of Ripple map. There is no reason to be a fortune and wait days when transferring money globally the idea for ripple was actually first conceived way back in 2004 by Ryan fugger and was called Ripple pay but in 2012 was passed to Jed McCaleb and Chris Larson who found it open coin later to be called Ripple Labs unlike most cryptocurrencies who focus on the individual. The Ripple Labs aims to serve Banks and payment providers allowing them to lower transaction costs and expedite settlements. But how does it all work Ripple net is a network based on a set of rules known as the Ripple transaction protocol or art exp. For sure. The network consists of computers monads validators that are spread around the world and maintain a shared Ledger of who owns what validators make sure every transaction sent through the network follows the art exp rules.
Anyone can run a validator and help maintain the Ripple Network just like anyone can run a Bitcoin though to maintain the Bitcoin Network companies who want to access the Ripple Network can use gateways gateways, which are usually run by Banks act as entry points to Ripple for people outside the network. It’s the same idea as going to a bank or a credit company to gain access to the banking system. So Ripple basically offers businesses and alternative to the banking system in the form of an Internet of value.
Call Triple net Ripple products like X rapid X via and X current are offered to companies in order to optimize their current solutions for transferring money around the world. It’s worth mentioning that for you as a customer of a financial service using Ripple. This solution is transparent if the banks which is to this technology, your bank account balance could be residing on The xrp Ledger tomorrow, and you would never know it this all sounds great. But what type of currency can actually be sent through the Ripple Network well. So unlike other cryptocurrencies. Two calls which support only their own asset Ripple offers two different types of currencies, iou’s and XR P IO u–‘s are tokens on the Ripple Network that can be stored on any Ripple wallet just like we can store a variety of ethereum tokens on an ethereum wallet. We can have plenty of tokens coexisting on the same Ripple wallet, but we should really stop the comparison here since this is as far as the similarities go any participant on the Ripple Network can issue an IOU, however an Oh, you doesn’t represent something you own it represents something you oh, it’s a debt an obligation to pay back something you got in real life when I issue an IOU to someone. It means I owe them something when I hold an IOU issued by someone else. It means someone owes me something each IOU has a name that is comprised out of who issued it and what it represents. For example. USD dot bitstamp is an IOU issued by bitstamp promising to pay back.
Back US Dollars and I owe you can be issued for any type of real world asset. For example, you can have an IOU for dollars Euros gold oil airline miles and even cows for each asset. We borrow we will issue a new I owe you unlike other forms of debt that can be traded iou’s for the same asset type are not interchangeable if they were issued by two different people. For example, if I borrow money from you and issue you a 20 USD dot Nate I owe you. That I owe you can’t be added to a 20 USD bitstamp I owe you since each IOU has a different credit line or trust line. You can only redeem the USD dominate IOU for me. It’s important to note that the IOU itself is not the asset. It’s just a promise by the issuer to give you the asset back in the future This Promise won’t do you any good if the issuer isn’t good for his word. That’s why I trust pays an important issue with iou’s in order for you to accept an eye.
You from someone you have to trust that they will be able to pay you back in Ripple net. This is known as a trust lie. A trust line is somewhat similar to a line of credit with the bank. It’s an agreement to trust someone up to a limited amount of money aside from iou’s there is another currency the Ripple protocol supports XR P XR p is a currency issued by Ripple labs to help transfer payments through the Ripple Network, for example, if a bank wants to move large amounts of money instead. Ed of needing to use multiple intermediary Banks to transfer the money it can just convert the money to xrp and send that xrp to the recipient bank. It’s important to note that two Banks don’t have to use xrp to transfer assets between them instead. They can choose to keep an open tab using iou’s only without ever closing. It still xrp is a form of payment that unlike an IOU is final and considered a tradable asset by anyone on the network unlike iou’s xrp is the actual ass.
So there is no counterparty risk in other words, once you’ve received payment in xrp the transaction is made and there’s no fear that the other party will not meet its obligations for payment. So if know trust is needed and no trust line needs to be opened when sending xrp to the other network participants, why do we even need IO use the simple answer is that xrp being a crypto currency asset by itself is relatively volatile and also not respected worldwide iou’s on the other hand are treated and valued as the The assets each represents xrp has additional advantages as well. It’s fast and scalable sending an X RP transaction through the network takes 4 seconds as opposed to Bitcoins 10-minute average also xrp can handle 1500 transactions per second while Bitcoin can handle only seven. So the upside of using xrp is a form of payment is pretty obvious. One question. People ask us a lot is if x RP is a cryptocurrency. Can it be mind the answer?
No, it can’t Mining and Bitcoin is done in order to confirm and determine the order of transactions on the blockchain in Ripple transactions are handled through a different process. Let me explain when an xrp transaction is broadcast through the network the validators that maintain the network decide if it’s valid or not through voting when a validator receives the transaction it consults with other trusted validators and they vote on whether a transaction is valid if 80% or more vote.
Valid the transaction is updated in the Ripple Ledger this list. Trusted validators that a validator consults with is known as a unique node, lesueur UNL for short each validator has its own UNL deciding who will be included in the validators. UNL is completely up to the person who runs the validator. However, Ripple offers a default list of trusted validators validators don’t get compensated for the work like Bitcoin miners do with new coins when Ripple Labs started out. They actually issued or pre mind a total of 100 billion xrp and according to the Ripple Protocol no more xrp can ever be created you might be wondering who owns all of these pre mind coins 20 billion xrp were given to Ripple Founders Gemma Caleb Chris Larson and Arthur Britto Ripple Labs holds around 7 billion xrp 40 billion xrp have been sold to companies and individuals. The remaining Supply is sealed in a smart contract that releases 1 billion xrp
We’ll all of the 100 billion xrp cap will be reached xrp can be divided into six decimal points with the smallest unit being known as a drop. If you want to hold xrp, you will need a wallet that supports the currency and the minimum deposit of 20 x RP in your account. This is done in order to prevent people from spamming the Ripple Network by opening a large number of accounts. One last thing to know about xrp. Is that the xrp supply decreases over time making it It in theory more valuable as time passes. This is done through destroying the transaction fees attached to each xrp transaction. For example, at the time of shooting this video were down to about 99.99% of the original 100 billion. Xrp the missing xrp our transaction fees that have been destroyed and can never be used again. So is it a good idea to invest in xrp when people invest in xrp they are
We betting that in the future Banks and institutions will use xrp to move value and will therefore by xrp and drive up its price of course Banks could always use iou’s instead and that will keep XR peas price rather stagnant. Therefore. The question of will XRP rise in value is mainly a question of whether a majority of Banks and payment providers choose to utilize it instead of their current infrastructure before we end this video. I want to touch upon one more subject and that’s the criticism. Chism about Ripple being a centralized platform there are many arguments for both sides. And well I clearly have my opinion. I will try to display some of the main points of debate just like Bitcoin once ripples protocol is published Ripple Labs has no control over it validators run the code themselves. This is pretty similar to Bitcoins core development team maintaining the Bitcoin protocol but having no real control over the nodes that run it but while Ripple Labs doesn’t control the protocol it does.
A lot of influence since it is the organization maintaining it. So if for some good reason it determined to create more coins, it might succeed Ripple Labs. It’s sort of a central bank for ripple men. The Ripple protocol itself is open source, meaning that if Ripple Labs ceases to exist the validators can still run the network themselves on the other hand products the company offers to Banks and institutions aren’t open source and our run solely by Ripple Labs the number of Ripple voltage. Validators today is relatively small and is a fraction of the number of Bitcoin nodes that maintain the Bitcoin Network since these relatively few validators are ultimately responsible for maintaining the Integrity of the network this raises the question. How can we know the validators aren’t colluding in order to defraud ripples users. Another attribute in Ripple that raises concern is that you ultimately have to depend on trust in order to use the IOU tokens in contrast Bitcoins entire system is designed to work in a
Crustless environment additionally while Bitcoin is free for all and censorship resistant Ripple is committed to monitoring and Reporting any anti-money laundering Flags across the network as well as reporting suspicious activity to relevant authorities on the upside, since there’s no such thing as Ripple mining. The network itself is much more energy efficient compared to Bitcoins extreme energy consumption in the end. There’s no clear answer to whether Ripple is decentralized or not. A personally I I think the real question of centralization arises when there’s one key figure or company that has implicit power over what the community thinks in this case Ripple Labs. Undoubtedly has the most influence on the entire Rebel Community making it much more centralized in nature than Bitcoin. It’s up to you to decide if you think Ripple is centralized or not or whether it even matters Rupal isn’t built on the same ideals as Bitcoin. It’s a for-profit company serving the banking system perhaps this centralized solution is a more efficient means of
International transaction but is it the right one? Well, that’s it for today’s episode of crypto whiteboard Tuesday a hopefully by now you understand what Ripple is and how it works a network designed to move value around the world mainly aimed at Banks and payment providers. You may still have some questions ma’am. If so, just leave them in the comment section below and if you’re watching this video on YouTube and enjoy what you’ve seen don’t forget to hit the like button then make sure to subscribe to the channel and click that Bell so that you’ll be notified as soon as we post new. New episodes. Thanks for joining me. Here at the Whiteboard 499 Bitcoins.com. I’m Nate Martin and I’ll see you in a bit.
See there’s a coin that’s currently worth hundreds of US dollars, but it’s not made of gold or platinum or any precious metal. In fact, it’s not the kind of coin. You can hold in your hand or stick in a piggy bank. It’s a digital currency, which means it only exists electronically. I’m talking about Bitcoin.
Bitcoin doesn’t work like most money. It isn’t attached to a state or government. So it doesn’t have a central issuing authority or regulatory. A body basically, that means there’s no organization deciding when to make more Bitcoins figuring out how many to produce keeping track of where they are or investigating fraud. So how does Bitcoin work as a currency or have any value at all? Well Bitcoin wouldn’t exist without a whole network of people and a little thing called cryptography. In fact, it’s sometimes described as the world’s first cryptocurrency. And here’s how it works Bitcoin is a fully digital currency and you can exchange Bitcoins between computers in a worldwide peer-to-peer Network the whole
The most part of your networks is sharing stuff like letting people make copies of super legal music or movies to download if Bitcoin is a digital currency what’s stopping you from making a bunch of counterfeit copies and becoming fabulously wealthy well unlike an MP3 or a video file a Bitcoin isn’t a string of data that can be duplicated. A Bitcoin is actually an entry on a huge Global Ledger called the blockchain for reasons. We’ll get to in a minute the blockchain records every Bitcoin transaction that has ever happened and as of late 2016 the complete Ledger ER is about 107 gigabytes of data. So when you send someone Bitcoins it’s not like you’re sending them a bunch of files instead. You’re basically writing the exchange down on that big Ledger something like Michael sends Hank 5 Bitcoins now, maybe you’re thinking but wait you said that Bitcoin doesn’t have a central authority to keep track of everything even though the blockchain is essential record. There’s no official group of people who update The Ledger and keep track of everybody’s money like a bank does its decentralized? In fact anybody can volunteer to keep the blockchain up to date with all the new transactions and
Ton of people do it all works because there are lots of people keeping track of the same thing to make sure all transactions are accurate, like imagine you’re playing a game of poker with some Pals but none of you have poker chips and you left your cash at home. There’s no money on the table. So a few of you get up some notebooks and start writing down who bets how much who wins and who loses you don’t completely trust anyone else. So everyone keeps their Ledger’s separately at the end of every hand you all compare what you’ve written down that way if someone makes a mistake or tries to cheat and snag some extra money for themselves that discrepancy is Caught after a couple of hands, you might fill up a page of your notebook with notes about the money movement. You can think of each page as a block of transactions. Eventually. Your notebook will have pages and pages of information a chain of those blocks hence blockchain. Now, if thousands of people are separately maintaining the Bitcoin blockchain, how are all the ledgers kept in sync to stick with our poker analogy think of the entire Bitcoin peer-to-peer Network as a really huge poker table with millions of people some are just exchanging money, but lots of volunteers are keeping ledgers. So when you want to send
Receive money you have to announce it to everyone at the table. So the people keeping track you can update their Ledger’s so for every transaction, you’re announcing a couple of things to the Bitcoin Network your account number the account number of the person you’re sending Bitcoins to and how many Bitcoins you want to set and all of the users who are keeping copies of the blockchain will add your transaction to the current block having a bunch of people keep track of transactions seems like a pretty good security measure, but if all it takes to send Bitcoins is a couple of account numbers that seems like it might be a security problem. It’s a huge problem with regular money. He just think of all the ways criminals try to steal other people’s credit card information and with Bitcoin, there’s no Central Bank to notice anything weird going on to shut down fraud. Like if it looked like suddenly you spent your entire life savings on beef jerky. So what’s stopping Hank from pretending? He’s me and just sending himself. All of my Bitcoins Bitcoins are kept pretty safe. Thanks to cryptography which is why it’s considered a cryptocurrency specifically Bitcoin stays secure because of keys which are basically chunks of information that can be used to make mathematical guarantees about messages. Like hey, this is really
Me when you create an account on the Bitcoin Network, which you might have heard called a wallet that account is linked to two unique Keys a private key and a public key. In this case. The private key can take some data and basically Market also known as signing it so that other people can verify those signatures later if they want. So let’s say I want to send a message to the network that says Michael sends three Bitcoins to Olivia. I sign that message using my private key, which only I have access to you and nobody else can replicate then I send that signed message out to the Bitcoin Network and everyone can use my public key to Make sure my signature checks out that way. Even track of all the Bitcoin trading nose to add my transaction to their copy of the blockchain in other words, if the public key works, that’s proof that the message was signed by my private key and is something I wanted to send unlike a handwritten signature or a credit card number this proof of identity isn’t something that can be faked by a scam artist The Who part of each transaction is obviously important to make sure the right people are swapping Bitcoins, but the when matters as well if you had a thousand dollars in your bank account for example and tried to buy two things for $1,000 each the bank would honor the first Urges and deny the second one if the bank didn’t do that you’d be able to spend the same money multiple times, which might sound awesome but it’s also terrible Financial system can’t work like that because no one would get paid. So if I only have enough money to pay Olivia or Hank but I try to pay them both. There’s a check built into the Bitcoin system both the Bitcoin Network and your wallet automatically check your previous transactions to make sure you have enough Bitcoins to send in the first place, but there’s another problem that might happen with timing because lots of people are keeping copies of the blockchain all over the world Network.
He’s means that you won’t always receive the transaction requests in the same order. So now you’ve got a bunch of people with a bunch of slightly different blocks to pick from but none of them are necessarily wrong. Okay Bitcoin, how do you solve that problem? It turns out it’s by actually solving problems math problems to add a block of transactions to the chain each person maintaining a ledger has to solve a special kind of math problem created by a cryptographic hash function a hash function is an algorithm that takes an input of any size and turns it into an output with a fixed size. For example, let’s say you had this string of numbers as your input and our example, hash functions says to add all of the numbers together. So in this case the output would be 10 what makes hash functions really good for cryptography is that when you’re given an input it’s really easy to find the output but it’s really hard to take an output and figure out the original input even in the super simple example, there are lots of strings of numbers that add up to 10. The only way to figure out that the input was 1 2 3 4 is to just guess until you get it right now. The hash function that Bitcoin uses is called sha-256 which stands for
Secure hash algorithm 256-bit and it was originally developed by the United States National Security Agency computers that were specifically designed to solve sha-256 hash problems take on average about 10 minutes to guess the solution to each one. That means they’re churning through billions and billions of guesses before they get it right. Whoever solves the hash first gets to add the next block of transactions to the blockchain which then generates a new math problem that needs to be solved if multiple people make blocks at roughly the same time the network picks one to keep building upon which becomes the The longest and most trusted chain and any transactions in those alternate branches of the chain get put back into a pool to be added onto later blocks these volunteers spend thousands of dollars on special computers built to solve sha-256 problems and run their electricity bills up sky-high to keep those machines running. But why what are they get out of maintaining the blockchain is it just community service? Well, Bitcoin actually has a built-in system to reward them today every time you win the race to add a block the Block Chain 12 and 1/2 new Bitcoins are created out of thin air and
What into your account in fact you might know the Bitcoin Ledger Keepers by another name miners? That’s because keeping the blockchain updated is like swinging a proverbial pickaxe at those hash problems. Hoping to strike it rich with Bitcoins were first created in 2009. They didn’t really have any perceived value tens of Bitcoins would have been worth the same as a bunch of pennies as of November 10th 2016, though one Bitcoin is worth 708 US dollars. So twelve-and-a-half Bitcoins are worth eight thousand eight hundred fifty dollars. That’s a nice chunk of change every single Bitcoin that exists was created to reward a Coin liner besides the big payout when they add a new block of transactions miners are also essentially tipped a very small amount for each transaction. They add to The Ledger it’s also worth noting that every 210,000 blocks the number of coins generated when a new block is added goes down by half. So what started as a reward of 50 Bitcoins decreased to 25 then 12 and a half and it’ll only be around six Bitcoins in a couple more years and keep decreasing eventually. There will be so many transactions in a block that it’ll still be worthwhile for miners to mostly be paid in tips. According to current projections the last Bitcoin.
Old are dug out of the earth. And the idea is that keeping the supply of Bitcoins limited will raise their value over time. So is investing in Bitcoin a good idea. Now, that’s not really a sideshow kind of question Bitcoin is still volatile and experimental a lot of people love it. And a lot of people think it’s doomed to fail. We just think it’s an interesting idea and it makes us wonder what cryptography might do for us next. Thanks for watching this episode of scishow brought to you by our patrons on patreon. If you want help support this show just go to patreon.com/scishow and don’t forget to go to youtube.com/scishow And subscribe problem.