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How Cryptocurrency ACTUALLY works

How Cryptocurrency ACTUALLY works

all right bitcoin blockchain dogecoin  ethereum nfts  everyone is talking about  cryptocurrencies right now but  good lord what does all of it mean so  welcome to the one video that will take  you from crypto noob  to cryptogenius i'm going to tell you  what it is why it keeps becoming more  important  

what i've actually invested in myself  and the dark side of it  okay so when society was in its early  stages there was no such thing as money  we'll call this stage one the only way  to buy something off someone  was to go up to them and be like oh i  really like your horse  i'll trade you my cat for it sorry 

milo  i never trade you but the issue with a  system like that is that  even though you might be perfectly happy  to give up your horse you just  might not want a cat so that trade will  never happen but that's where currency  came in  stage two coins which because they were  made of precious materials like 

gold and  silver  everyone just accepted that they were  worth something you've heard of the  british pound right  well the reason they're called pounds is  because one pound literally just used to  be  one pound of silver and so all of a  sudden in a trade  it doesn't matter if you don't want my  cat as long as i 

have coins  we can still trade for your horse even  if you have no use at all for the silver  because it's a precious material you  have that reassurance that  you can take that coin give it to  someone else and trade for something  that you do want  convenient right but then this evolved  to stage three as banks 

became  established and governments had control  we realized that as long as there was  trust in the system we could move away  from needing to carry blocks of precious  metal  towards something even more convenient  paper money  it does the same thing but now the money  doesn't have value because 

it's made of  pure silver  it just has value because the government  says it has value  like this 10 pound note here in the uk  the note itself is just made of  well it's actually made of plastic they  changed it recently because it's more  durable but if you look closely you can  see that all this actually is is the  

bank of england promising that they will  pay the bearer of this note 10 pounds  really this is just a receipt a kind of  proof that you own a certain amount of  money  but as technologies improved even  further we found even more convenient  ways of storing and trading our stuff  we're now in what i 

would call stage  four where more people than ever are  buying things online and using credit  cards and really when you're at that  stage  we don't see our money anymore it's not  about coins or notes or  cats it's just entries on a spreadsheet  like when i buy a music album from  amazon all that's happening is 

that my  bank adds an entry in my spreadsheet  that says aaron now has ten dollars less  and then amazon's bank adds an entry  that says  they have ten dollars more so the reason  i've given you this entire intro  is to give you context on where  cryptocurrency sits it's seen by many  people  as the most 

convenient era of exchange  ever  stage five the way to think about a  cryptocurrency is that  it's 100 virtual i know the logo for  bitcoin kind of looks like a physical  coin  it really is a bit coin now but with  crypto there is no gold there is no  silver there is no paper  it really is just the transfer of  digital 

assets  the core concept is exactly the same  think of them as literally just running  spreadsheets of who's paid what to who  but instead of multiple banks keeping  their own separate records with crypto  there is just one  enormous spreadsheet of every  transaction made using that currency  and this is called 

a ledger okay we all  have a good spreadsheet but  what's all the fuss about why is  everyone going crypto crazy  well there are some distinct advantages  to a currency system like this  one it's decentralized which means that  while every transaction of a given  cryptocurrency is  all recorded on 

the same ledger there  are many many copies of that ledger  and anyone who is a part of the network  has one you might have heard of  cryptocurrency mining  or bitcoin mining well all that is is  someone who set up a computer to crunch  through transactions  on their copy of this ledger or  spreadsheet there 

are already about a  million bitcoin miners around the world  and bitcoin is just one type of  cryptocurrency  the reason they're doing it well if you  dedicate your computer's power to mining  say bitcoin then you will earn some  bitcoin as compensation  so the result of this is that if i go  into a store 

and spend five bitcoins on  something  then instead of just checking with one  bank's records the shop instead checks  with every single computer on this  network if i have enough  and assuming i do each computer will  give the go-ahead  and then every single one will update  their records independently  so 

because you end up having this many  copies of exactly the same ledger  it becomes very easy to tell if anyone's  trying anything fishy  did you who bought this  like if i try to hack into someone's  computer that's on the network and  give myself more money by adjusting  figures on their copy of the ledger  it's 

not going to get through the system  will realize that 99.9  of the copies on the ledger are saying  one thing but one of them is saying  something else  so must have been tampered with there's  very clear organization to the system  and i think people believe in it because  they see the future as  open 

traceable transactions much more so  than having like some bits of the record  over here and  other bits over there and i know it  seems complex at this point but  as we go through this i think you'll  realize that for a lot of people in a  way  it's simpler there are plenty of areas  in the world that have internet 

access  which is  all you'd need for crypto but don't have  access to traditional banks which  require a lot of paperwork  and documentation well two and i've kind  of implied this already but  the main perk of crypto is that you  don't need banks anymore  because everything is stored by the  people on this ledger  

you can make international payments  almost instantly instead of it taking  half a day  with no spending limits plus you don't  need to worry about exchange rates you  don't need to worry about interest rates  and  even transaction fees are close to zero  for  some cryptocurrencies that is but this  is where the real 

fun begins  i'm fine at parties i promise the reason  that cryptocurrencies are called  crypto currencies is because they're  secured by cryptography  and one example of this which a lot of  the major cryptocurrencies like bitcoin  use  is blockchain now people often get  confused by this blockchain is 

not  bitcoin blockchain is not a currency  itself  blockchain is just a secure type of  ledger so you know that big spreadsheet  that everyone has that's recording  transactions  blockchain is just a way of organizing  it funnily enough  into blocks so every time i pay for  something with bitcoin  that transaction is recorded as a block  each block contains transaction data  like who was paid and how 

much a hash  which is a unique identifier  and the hash of the previous block in  the sequence or the last transaction  that was recorded  and the pivot on which this system rests  is that if something in a block is  changed  then that block's hash will change you  might be starting to see where this is  going because 

each block  also contains the data of the previous  block if the hash of the block here  changes  then the next block will no longer have  a matching hash with it and so every  subsequent block after that one  becomes invalid so if you combine this  with what we talked about earlier  this whole idea of a million 

different  users all having their own copy of the  blockchain ledger  then if i wanted to fraudulently create  a transaction that say paid me money  i'd have to not just tamper with a block  and every single block after it  but i'd also have to do this on at least  half a million computers around the  world  so that 

the majority of computers in the  system are also consistent with the one  i've tampered with  probably not gonna happen whereas just  hacking into someone's dollar account  and sending myself money  that does happen and it's sometimes as  simple as just literally guessing  someone's six-digit pin  but there's 

a massive jump between that  and trying to hack into 500  000 uncorrelated computers at once okay  so  cryptocurrencies have their issues i'm  literally going to get to them in a  minute  but hopefully you can see why some  people are excited about them  and that brings me on to investments  you've probably 

heard of people  putting money into cryptocurrencies and  all that means is that they're  exchanging normal currencies like  dollars  for cryptos like bitcoin they're hoping  that those cryptocurrencies become the  next big thing  and therefore suddenly shoot up in value  at which point they can then  

either spend them or just exchange them  back for more dollars than they bought  them for  there's actually a term for  cryptocurrencies that skyrocket like  this  going to the moon or mooning  but that can mean something very  different depending on who you talk to  but the one decision that someone would  have to make at this point is  which cryptocurrency because we've  talked about bitcoin but 

bitcoin is just  one of over 4 000 different cryptos  already and each of them have different  properties  for example ethereum which is the second  most invested in  can process transactions even faster  than bitcoin there's one called cardano  which is considered to be  technologically superior  there's one called 

itecoin which has a  newer algorithm and if you are enjoying  this video then a sub to the channel  would be  delightful so let me show you what i've  done  and disclaimer this is not in any way at  all  financial advice i'm not recommending  this i've literally only put in a small  amount of money that i am 

comfortable  losing  and to be honest the way i'm seeing it  is more as an optimistic gamble  as opposed to a strategic investment the  only thing that you absolutely should  buy is  one of these hats best purchase i've  ever made  that is financial advice so i've put 40  in ethereum 20  to polygon 20 in 

cardano 10 in cartesi  and 10 in litecoin and this portfolio  has basically gone up and then down and  then up and then down and then  honestly you probably get more  consistency from so  crypto is in a pretty weird place right  now and this brings me onto its problems  the dark side one of the main 

ones is  exactly this  the reason i think a lot of people don't  take crypto seriously  is its volatility because these  currencies are so new  and they're completely digital unlike  say the market for gold  no one really knows what they should be  worth and so you find that crypto prices  are quite heavily speculative  they're tied to the news cycle like when  a glowing article comes out about them  prices 

spiral upwards but then when elon  musk posts a tweet that puts them down  they go way down two is the fact that  they're not really accepted as a form of  payment in  well most places like yes i can now book  holidays with crypto  i can donate to wikipedia with crypto  but there's been a lot of companies 

who  are pretty back and forth with it  microsoft tesla even burger king are  examples of companies who said they were  going to accept bitcoin  and then they said they weren't going to  accept bitcoin three  there can be an environmental concern  see the whole reason why a lot of these  cryptos are so secure  is 

because of this concept of  transactions being verified many many  times  by many many computers so i think it's a  fair criticism that that in itself  creates a fundamental inefficiency  that much computing power requires a lot  of electricity  but at the same time you could counter  this by saying that 

traditional banking  uses more electricity that there are  newer coins with better technology  that are more efficient and that one day  we'll be able to get that electricity  from renewable sources  depends who you ask and four there's  also a pretty strong sentiment that  because there's no real policing or  

regulation on crypto right now  it's like the perfect currency for  criminals but to be honest i think the  data speaks for itself on that one  according to chain analysis 0.34 percent  of crypto transactions are criminal  up to 5 of normal cash transactions are  criminal and  i think that's because it's a bit of a  

misconception that currencies like  bitcoin  are anonymous they're actually  pseudonymous which means that even  though your actual details aren't  visible to everyone  your public key your unique identifier  will be  permanently baked into the blockchain  upon making transactions with it  so cash is 

just a better currency for  most types of criminal activity  because by its very nature it's  untraceable  don't ask me how i know that but as well  as the negatives there are also just  some straight up odd things that have  come about  because of crypto for example you might  have heard of an nft  a non-

fungible token if you haven't  you might want to take a seat for this  one  i don't want to call it stupid but uh  this one's a head scratcher  so you know how now you can go into an  art gallery and you can pay to own a  painting  well now thanks to the blockchain you  can pay  just to have digital ownership 

over  something so it doesn't stop anyone from  using or sharing that thing  but all it means is that you'd  effectively be the owner of the original  and they'd all be sharing copies of it  even if for most intents and purposes  they look and behave identically  like a lot of these nfts are literally  just jpeg images  i 

think the reason some people find this  stupid and kind of funny  is that there's a distinct difference  between buying an nft and buying the  rights over something  so if you buy the right service  something that's a very legitimate  purchase because you can create merch or  sell licenses  with an nft you can't 

the original owner  still has  all the reproduction rights over that  piece all it is  is that you're using the blockchain to  prove that you have some  ownership over that asset but clearly  just being able to say that has some  value because  an nft of this gucci ghost sold for 3  600  the ceo of twitter jack dorsey he 

sold  the first tweet he ever made  as an nft for 2.9 million dollars  five words i could do that any takers  and this one just blows my mind this  photo which is basically an overview of  one guy's pieces of art  sold for 69 million dollars very  nice to clarify this literally just  gives the buyer some  digital 

ownership over a jpeg image  and finally you might have heard of  dogecoin dirt coin is based on the same  tech as litecoin  but it was created as a joke people  started sharing it and putting a bit of  money into it because they thought it  was funny  but that propelled its value to the  point where now we have 

people who have  actually become millionaires  just because they bought dogecoin when  it was cheap it's an interesting world  out there  if you did find this useful then do  consider sharing it with a friend or  family member you could benefit  i would really appreciate it and for my  best phones of 2021  click 

here for an instagram story that  crashes your phone click here  my name is aaron this is mr who's the  boss i'll catch you in the next one