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