people have always thought about ways of
reforming the monetary system for years however until recently success had proven
elusive at the beginning of the 20th century engineers and programmers finally did it in this
video i'll explain in the simplest way possible what cryptocurrencies bitcoin and blockchain
are and whether or not you should invest in cryptocurrencies when the engineers and
programmers were reforming the monetary system they had to consider three things one the emission
of money must be uniform and predictable two everything must be done within a decentralized
platform open to all so that there's no need to involve the banks three the security of keeping
the money for the participants must be provided so that no one can steal it now that you know that
let's try to understand how cryptocurrencies work a cryptocurrency is a digital currency that can
be used to buy goods and services but uses an online ledger with strong cryptography
to secure online transactions oh right let's make it simpler john and sarah
are playing in the park with their friends john wants to give ten dollars to sarah when
sarah takes the money that's considered a physical transaction they didn't need a friend or a witness
to prove that the transaction happened they both knew the transaction occurred this transaction is
recorded in a trustable ledger for john and sarah the ledger is a large collection of data in which
transactions and billions of dollars are recorded what if john wants to give ten dollars to sarah
virtually as he did in the park it's possible let's say there's a virtual controller between
john and sarah which controls the transaction oh but what if john or sarah tries to cheat or
something goes wrong with the controller is there any other solution well yes let's consider
that both john and sarah have this ledger what if their friends also have the same ledger
so if the transaction is virtual everyone has this ledger on their computer they all keep track
of the transaction john or sarah wouldn't be able to cheat the ledger since it wouldn't agree
with everyone else in the system this ledger will be very difficult to destroy especially if
many friends of john and sarah are using it this ledger system has a defined set of rules from the
beginning everyone transacting within the ledger can know how money is transacted if everyone
within the ledger agrees to the set of rules then everyone has trust in all transactions so there's
not one person that has full control over this john and sarah have id numbers in this ledger much
like a nickname no one in the ledger knows what id number belongs to john or sarah unless they give
that information to whoever they're transacting with this provides a layer of anonymity for
john and sarah this is called bitcoin protocol instead of money this system uses cryptocurrencies
which are bitcoin ethereum ripple and many others most cryptocurrencies do not belong
to anyone and no one controls them this means they are independent of local and
international central banks no one has complete control over this system everyone knows the
rules and transactions are completely transparent the total value of all cryptocurrencies on april
13th 2021 was more than 2.2 trillion dollars according to coin market cap and the total value
of all bitcoins the most popular digital currency was pegged at about 1.2 trillion dollars let's
talk about bitcoin you definitely heard the story about laszlo honyaks who bought two pizzas
with 10 000 bitcoins in 2010 in 2010 the value of a single bitcoin was only 0.0008 nowadays with 10
000 bitcoins laszlo could buy one pizza for every person who lives in italy bitcoin is the first
cryptocurrency ever created all that changed when satoshi nakamoto in 2008 published a document
online this document is called the whitepaper it suggested a way of creating a system for a
decentralized currency called bitcoin satoshi nakamoto created this system in such a way that
there will never be more than 21 million bitcoins let's compare bitcoin to the normal bank
the bank's ledger is not transparent and it's stored on the bank's main computer you
can't sneak a peek into the bank's ledger and only the bank has complete control over it
bitcoin on the other hand is a transparent ledger at any point in time i can see all of the
transactions and balances that are taking place this system claimed to create digital money that
solves the double spend problem without the need for a central authority at its core bitcoin is
a transparent ledger without a central authority here are some advantages bitcoin has over the
current system one you have complete control over your money nobody can access your funds
nobody can confiscate your holdings also there's no bank or government to freeze your account
two in many cases bitcoin is cheaper to use than traditional wire transfers or money orders
today in 2021 you can book a hotel or order a flight with bitcoin if you want also there are
even bitcoin debit cards that allow you to pay at any store with your bitcoin balance how does
bitcoin work bitcoin works via the blockchain but what is the blockchain the blockchain is
the biggest innovation after the internet and will affect everyone's life in a few decades it's
a new way to store valuable data and transactions the blockchain eliminates the need for an
intermediary like a bank allowing people to transact directly with each other blockchain
technology can be used to transfer anything of value not just financial transactions it's
possible to carry out transactions without the need to refer to a third party recognized
by all as reliable transactions can be settled between peers by the majority of network
participants it's based on four fundamental concepts decentralization transparency safety
immutability how does it work the blockchain is a database structured in blocks each block
contains data the first hash hash of the block the second hash hash of the previous block the
data that's stored inside a block depends on the type of blockchain the bitcoin blockchain for
example stores the details about a transaction such as a sender receiver and amount of coins
a block also has a hash you can compare a hash to your dna it identifies a block in all of its
contents and it's always unique just as your dna once a block is created its hash is being
calculated changing something inside the block will cause the hash to change so in other words
hashes are very useful when you want to detect changes to blocks if the dna of a block changes
it no longer is the same block the third element inside each block is the hash of the previous
block this effectively creates a chain of blocks and it's this technique that makes a blockchain
so secure if the second hash of the block is bound to the hash of the previous block what's the
second hash of the first block now the first block is a bit special it cannot point to previous
blocks because it's the first one we call this the genesis block now let's say that you tamper
with the second block this causes the hash of the block to change as well in turn that will make
the next block and all following blocks invalid because they no longer store a valid hash of the
previous block so changing a single block will make all following blocks invalid but using hashes
is not enough to prevent tampering computers these days are very fast and can calculate
hundreds of thousands of hashes per second so to alleviate this blockchains have something
called proof of work it's a mechanism that slows down the creation of new blocks in bitcoin's case
it takes about 10 minutes to create a new block for a transaction to be processed and considered
valid it must be grouped with other transactions to form a block each block is added on top of the
previous block each block refers to the previous block number thus creating a link between all the
blocks making up the chain the first block in the chain is called the genesis block each block of
transaction is validated by the network itself and constitutes an archive of all transactions
of all the history of each transaction anyone who's part of the network information about the
transactions that take place within the network itself completely decentralized all information is
present on all the nodes that make up the network and therefore cannot be changed once a block
of transactions is added to the blockchain it's difficult to go back the more blocks are added to
the top the more difficult it will be to reverse the operation until it's completely impossible if
you want to make a change you'd have to change all the previous and next blocks by distributed
consent we mean the fact that most computers must agree on the validity of a transaction
before it's accepted in the blockchain mining is the process of validating transactions
and adding new blocks to the blockchain for a new transaction block to be added it must be checked
validated and encrypted to carry out this step it's necessary to solve a complex mathematical
problem that requires a high expenditure of power and processing capacity the solution to this
puzzle is called proof of work it's difficult to solve but easy to prove and it provides proof that
computing power was used to help build the network small cryptocurrency rewards are awarded
for each new block added advantages of the blockchain transparency transactions are visible
to all participants compared to existing archiving and recording systems the blockchain offers
significant improvements in terms of transparency removal of intermediaries allows the
removal of intermediaries involved in the archiving and transfer of goods
necessary in conventional transactions decentralization it can work on a decentralized
computer network reducing the risk of hacking server downtime and consequent data loss
confidence increases trust between parties involved in a transaction through greater
transparency and decentralization of networks safety the data entered in a blockchain or
immutable the data cannot be manipulated each transaction leaves a clear trace from the
start so it can be easily reviewed and verified wide range of uses anything that has a value can
be registered on the blockchain easily accessible technology blockchain technology facilitates
the creation of applications without the need for significant investments in infrastructure also
thanks to recent innovations such as the ethereum platform cost reduction transactions that require
multiple ledgers can be resolved on a single shared ledger reducing the cost of validating
and confirming each transaction across multiple organizations increased transaction speed removal
of intermediaries and regulation through shared ledgers allows for faster transaction speeds
than most existing systems should you invest in cryptocurrency cryptocurrency is an incredibly
speculative and volatile buy stock trading of established companies is generally less risky
than investing in cryptocurrencies such as bitcoin cryptocurrencies may go up in value but
many investors see them as mere speculations not real investments the reason just like real
currencies cryptocurrencies generate no cash flow so for you to profit someone has to pay
more for the currency than you did that's what's called the greater full theory of investment
contrast that to a well-managed business which increases its value over time by growing the
profitability and cash flow of the operation are cryptocurrencies legal there's no question
that they're legal in the united states though china has essentially banned their use and
ultimately whether they're legal depends on each country also be sure to consider how to protect
yourself from fraudsters who see cryptocurrencies as an opportunity to build investors as always
buy or beware thank you guys so much for watching let us know your thoughts with that said have a
great day and i'll see you all in the next one
