Name: Ever wonder how Bitcoin (and other cryptocurrencies) actually work?
Uploaded: 2017-10-19T18:44:18.000Z
Duration: 26 min 21 s
Description: Thousands of YouTube videos with English-Chinese subtitles! Now you can learn to understand native speakers, expand your vocabulary, and improve your pronunciation...

Adverbs of degree

it's a fully digital currency with no government to issue it;

and that no banks need to manage accounts and verify transactions;

and also that no one really knows who invented it.

And yet, many people don't know the answer to this question, at least not in full.

and to make sure that the technical details underlying the answer actually feel motivated,

what we're going to do is walk through step by step

how you might have invented your own version of Bitcoin.

We'll start with you keeping track of payments with your friends using a communal ledger.

And then, as you start to trust your friends and the world around you less and less,

and if you're clever enough to bring in a few ideas from cryptography

what you end up with is what's called a "cryptocurrency".

You see, Bitcoin is just the first implemented example of a cryptocurrency.

And now, there are thousands more on exchanges with traditional currencies.

Walking the path of inventing your own can help to set the foundations

for understanding some of the more recent players in the game

and recognizing when and why there's room for different design choices.

In fact, one of the reasons I chose this topic is that

in the last year, there's been a huge amount of attention and investment

and, well, honestly hype directed at these currencies.

And I'm not going to comment or speculate on the current or future exchange rates,

anyone looking to buy a cryptocurrency should really know what it is.

And I don't just mean in terms of analogies with vague connections to gold mining,

I mean an actual direct description of what the computers are doing

when we send, receive and create cryptocurrencies.

One thing worth stressing, by the way, is that

even though you and I are going to dig into the details here,

you don't actually need to know those details if you just want to use the cryptocurrency,

just like you don't need to know the details of what happens under the hood when you swipe a credit card.

Like any digital payment, there're lots of user-friendly applications that

let you just send and receive the currencies without thinking about what's going on.

The difference is that the backbone underlying this

is not a bank that verifies transactions.

Instead, it's a clever system of decentralized trust-less verification

based on some of the math born in cryptography.

I want you to actually set aside the thought of cryptocurrencies and all that just for a few minutes.

We're going to begin the story with something more down-to-earth: ledgers and digital signatures.

If you and your friends exchange money pretty frequently,

you know, paying your share of the dinner bill and such,

it can be inconvenient to exchange cash all the time.

that records all of the payments that you intend to make some point in the future.

This ledger is going to be something public and accessible to everyone,

like a website, where anyone can go and just add newlines.

And let's say that at the end of every month,

you all go together, look at the list of transactions and settle up.

If you spent more than you received, you put that money in the pot;

and if you received more than you spent, you take that money out.

So the protocol for being part of this very simple system might look like this:

and at the end of every month you all get together and settle up.

Now, one problem with a public ledger like this is that anyone can add a line,

so what's to prevent Bob from going in writing "Alice pays Bob $100" without Alice approving?

How are we supposed to trust that all of these transactions

Well, this is where the first bit of cryptography comes in: digital signatures.

the idea here is that Alice should be able to add something next to that transaction

that proves that she has seen it and that she's approved of it.

And it should be infeasible for anyone else to forge that signature.

At first, it might seem like a digital signature shouldn't even be possible.

I mean, whatever data makes up that signature can just be read and copied by a computer,

Well, the way this works is that everyone generates what's called a "public key - private key pair",

each of which looks like some string of bits.

The "private key" is sometimes also called a "secret key",

so that we can abbreviate it as "sk", while abbreviating the public key is "pk".

Now as the name suggests, this secret key is something you want to keep to yourself.

In the real world, your handwritten signature looks the same no matter what document you're signing.

But a digital signature is actually much stronger,

because it changes for different messages.

It looks like some string of ones and zeros, commonly something like 256 bits;

completely changes what the signature on that message should look like.

producing a signature involves a function that depends both on the message itself and on your private key.

The private key ensures that only you can produce that signature,

and the fact that it depends on the message

means that no one can just copy one of your signatures and then forge it on another message.

Hand-in-hand with this is a second function used to verify that a signature is valid.

And this is where the public key comes into play.

to indicate if this was a signature produced by the private key

associated with the public key that you're using for verification.

I won't go into the details of how exactly both these functions work,

but the idea is that it should be completely infeasible to find a valid signature

Specifically, there's no strategy better than just guessing and checking random signatures,

which you can check using the public key that everyone knows.

Now think about how many signatures there are with a length of 256 bits,

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Ever wonder how Bitcoin (and other cryptocurrencies) actually work?

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