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Speaker 1: Text with Technology with tech Stuff from stuff dot com.

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Speaker 1: Hey there, and welcome to tech Stuff. I am your host,

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Speaker 1: Jonathan Strickland. I'm an executive producer at How Stuff Works,

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Speaker 1: and I'm in pain right now. People who are watching

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Speaker 1: the live stream know that just before I recorded this episode,

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Speaker 1: I eight Caroline her reaper corn Chip. So if you

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Speaker 1: want to watch me do dumb things immediately before I

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Speaker 1: do my job, go to twitch dot tv slash tech

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Speaker 1: Stuff and you can watch me record these live. But

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Speaker 1: let's put that aside. First of all, Happy New Year,

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Speaker 1: Welcome to two thousand eighteen. I'm recording this at the

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Speaker 1: end of seen, but by the time it goes out

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Speaker 1: it'll be so I'm sure the New Year has transformed

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Speaker 1: everything around us and we don't even recognize the world

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Speaker 1: of tomorrow, which I guess is today for you. But

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Speaker 1: today I wanted to talk about a technology that's been

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Speaker 1: around for a few years. Actually, elements of this technology

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Speaker 1: been around for decades, but people are talking about it

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Speaker 1: now more than ever and mentioning it as the technology

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Speaker 1: of the future. And what I'm talking about is the

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Speaker 1: technology of blockchain. So this is an interesting technology. It's

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Speaker 1: safe to say that I think you know. The most

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Speaker 1: famous example of something that's dependent upon blockchain technology is bitcoin.

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Speaker 1: Everyone's heard about bitcoin at this point, but it is

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Speaker 1: important to remember that bitcoins are an implementation on top

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Speaker 1: of blockchain technology, but not all blockchain technology has to

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Speaker 1: be Bitcoin. So what the heck is blockchain? Well, i'm

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Speaker 1: gonna talk about blockchain, I'm gonna talk about bitcoin. I'm

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Speaker 1: gonna talk about other uses of blockchain, but we will

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Speaker 1: mention Bitcoin quite a bit because again, it's the most

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Speaker 1: famous um implementation of blockchain technology and the reason why

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Speaker 1: anyone is really talking about it at all today because

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Speaker 1: it showed the potential for this technology. Now it's the

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Speaker 1: implementation of a collection of different really good ideas put

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Speaker 1: forward in an innovative way to create a distributed record

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Speaker 1: of transactions. That we can trace this technology back to

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Speaker 1: a name, but not to an actual person, and by

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Speaker 1: that I mean we can trace the concept to a

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Speaker 1: person or group of persons who used the name Satoshi Nakamoto.

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Speaker 1: If that name sounds familiar, probably means you've read up

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Speaker 1: on bitcoin, because that's where blockchain got start. It was

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Speaker 1: all on this white paper that was written about bitcoin

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Speaker 1: by someone or someone's going by the name Satoshi Nakamoto. Now,

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Speaker 1: the mystery of who is Satoshi Nakamoto is interesting, but

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Speaker 1: rather immaterial to our subject matter. So let's just say

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Speaker 1: there's a lot of speculation as to who ultimately is

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Speaker 1: behind the pseudonym. According to at least one post from

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Speaker 1: Nakamoto supposedly is someone from Japan who was born in

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Speaker 1: n but there's been a lot of speculation that that

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Speaker 1: is just a misdirection and in fact Nakamoto is really

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Speaker 1: someone who is originally from America or the European Union.

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Speaker 1: And that's all we know really. Now, what's really important

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Speaker 1: to us is that Nakamoto published the paper on a

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Speaker 1: mailing list that focused on cryptography, and this was back

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Speaker 1: in two thousand and eight. The first message in that

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Speaker 1: thread of messages was titled bitcoin P two p E

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Speaker 1: cash paper and it hit that mailing list on Saturday,

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Speaker 1: November one, two thousand eight. That's what I love about

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Speaker 1: the Internet. It means that if you go to a

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Speaker 1: message board, you can actually see the date when something

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Speaker 1: is posted, so you can have a very specific mention

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Speaker 1: of when something came into being. In fact, I could

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Speaker 1: even give you a time stamp if I still had

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Speaker 1: that page open to tell you what time it was

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Speaker 1: posted there. But the message contained a link to a

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Speaker 1: paper and white paper about this concept, and that paper

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Speaker 1: is still available in PDF format for free, So if

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Speaker 1: you'd like to read the whole thing, you can find

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Speaker 1: it at bitcoin dot org slash bitcoin dot pdf. Now

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Speaker 1: a lot of what I'm going to cover today comes

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Speaker 1: straight from that paper. Now, the abstract of that paper

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Speaker 1: lays out Nakamoto's general approach, so I'm going to quote

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Speaker 1: the abstract here. A purely peer to peer version of

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Speaker 1: electronic cash would allow online payments to be sent directly

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Speaker 1: from one party to another without going through a financial institution.

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Speaker 1: Digital signatures provide part of the solution, but the main

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Speaker 1: benefits are lost if a trusted third party is still required.

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Speaker 1: To prevent double spending, we propose a solution to the

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Speaker 1: double spending problem using a peer to peer network. The

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Speaker 1: network time stamps transactions by hashing them into an ongoing

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Speaker 1: chain of a hash based proof of work, forming a

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Speaker 1: wreck heard that cannot be changed without redoing the proof

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Speaker 1: proof of work. The longest chain not only serves as

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Speaker 1: proof of the sequence of events witnessed, but proof that

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Speaker 1: it came from the largest pool of CPU power. As

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Speaker 1: long as a majority of CPU power is controlled by

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Speaker 1: nodes that are not cooperating to attack the network, they'll

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Speaker 1: generate the longest chain and outpaced attackers. The network itself

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Speaker 1: requires minimal structure. Messages are broadcast on a best effort basis,

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Speaker 1: and nodes can leave and rejoin the network at will,

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Speaker 1: accepting the longest proof of work chain as proof of

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Speaker 1: what happened while they were gone. So this is all

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Speaker 1: about keeping that record of transactions that take place across

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Speaker 1: a system, and the ongoing record that keeps getting built

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Speaker 1: onto is also used to verify, uh, everything that happens

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Speaker 1: and to make certain that people are not able to

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Speaker 1: spend the same units more than once. Now, Nakamoto was

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Speaker 1: specifically talking about creating a digital currency, namely bitcoin, but

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Speaker 1: it turns out this decentralized peer to peer ledger system

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Speaker 1: could be used for lots of different stuff. Essentially any

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Speaker 1: sort of transaction, not just the ones involving spending digital

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Speaker 1: currency to purchase goods and services or even storing data online.

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Speaker 1: It would serve as the foundation for blockchain, which some

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Speaker 1: people are going so far as to call web three

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Speaker 1: point oh, which I absolutely hate but that would send

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Speaker 1: me down a rant about web two point oh, and

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Speaker 1: I've already done old episodes about that years ago, so

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Speaker 1: we'll not read tread that ground. To understand blockchain and

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Speaker 1: why so many people are convinced that it's going to

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Speaker 1: be the tech of the future, it helps understand how

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Speaker 1: transactions work in a traditional system. So let's start super

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Speaker 1: basic with bartering system. So this is the old tip

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Speaker 1: for tat approach. You have something I want, I've got

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Speaker 1: something you want. We agree upon the relative value of

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Speaker 1: those two things, and we do an exchange. So let's

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Speaker 1: say you make chairs and I breed chickens, and we

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Speaker 1: have to agree how many chickens does it out to

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Speaker 1: be valuable as valuable as a chair or vice versa,

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Speaker 1: and then we make the exchange. Pretty straightforward system, but

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Speaker 1: it has some major downsides. One of the big downsides

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Speaker 1: is I might really need that chair, but it may

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Speaker 1: turn out the carpenter has no need for my chickens,

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Speaker 1: so it doesn't matter how many chickens I offer against

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Speaker 1: the chair. The carpenter has no use for the chickens,

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Speaker 1: So I don't get the chair, and I'm unable to

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Speaker 1: sit down, and I am sad. Now I could go

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Speaker 1: out and try and find a different carpenter who does

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Speaker 1: need chickens, or maybe I find someone else who needs

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Speaker 1: chickens but is offering up something else entirely, and hope

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Speaker 1: that whatever that thing is is something that the carpenter wants,

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Speaker 1: and I've exchanged that for the chair. But this whole

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Speaker 1: process is cumbersome and messy unless the two parties in

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Speaker 1: question already possess exactly what the other party wants. Now,

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Speaker 1: another drawback is portability. It would be a real drag

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Speaker 1: to carry chairs and chickens around everywhere you went, just

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Speaker 1: when you needed to buy something. So sy alleviates that problem.

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Speaker 1: It acts as a store of value. Members of a

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Speaker 1: population agree upon what the units of that type of

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Speaker 1: money are worth in comparison to goods and services, and

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Speaker 1: it's easier to carry that stuff around than than actual products.

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Speaker 1: So step one in a currency is to have everyone

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Speaker 1: agree that yes, this currency, this money represents value, and

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Speaker 1: that the value is steady enough for us to make

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Speaker 1: transactions happen. So, in other words, when I go out

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Speaker 1: with my dollar bill and I'm ready to go buy something,

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Speaker 1: I know that by the time I get to the store,

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Speaker 1: that dollar bill is worth more or less the same

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Speaker 1: as it was when I left the house. This is

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Speaker 1: actually one of the big criticisms level that gets bitcoin.

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Speaker 1: By the way, the value of bitcoin changes so dramatically

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Speaker 1: so quickly that discourages anyone from using it as an

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Speaker 1: actual currency. In fact, people have said that by the

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Speaker 1: time a transaction can complete, the value of the bitcoins

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Speaker 1: can change so dramatically that it comp etally changes the

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Speaker 1: nature of the transaction itself. But we'll get into that

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Speaker 1: a little bit more a little bit later on. Now,

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Speaker 1: most currencies require some sort of backing institution to work,

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Speaker 1: and that might be a government or a bank, or

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Speaker 1: a combination of the two. And this is an entity

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Speaker 1: that can help guarantee the value of a currency and

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Speaker 1: that it remains stable. Also connect as a third party

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Speaker 1: during certain types of transactions, and third parties become even

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Speaker 1: more important when you start getting into concepts like credit.

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Speaker 1: You could have a specific credit with a particular store

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Speaker 1: or vendor, but these days it's far more common to

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Speaker 1: see people build up credit with an agency and use

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Speaker 1: a credit card to make purchases against that credit. Now

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Speaker 1: transactions require the involvement of additional agencies to verify that

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Speaker 1: the person making the purchase has the available credit to

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Speaker 1: do so, and that the vendor is authorized to accept

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Speaker 1: such credit. As more societies and populations interact with one another,

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Speaker 1: this process of transaction becomes way more complicated. So then

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Speaker 1: you've got things like exchange rates for currencies, and you've

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Speaker 1: got processing fees for payment service providers. You've got various

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Speaker 1: ledgers to keep track of purchases and sales. Information tends

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Speaker 1: to be in silos. It is not transparent. It is

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Speaker 1: privately held, which means you're not able to really get

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Speaker 1: a look at it. They're all independent from one another,

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Speaker 1: and this creates potential vulnerabilities that less honest people can exploit.

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Speaker 1: Then you've got the concept of disputes. Disputes can can

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Speaker 1: become a point of exploitation. Third parties frequently must mediate

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Speaker 1: disputes between buyers and sellers. Now, a dispute could arise

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Speaker 1: for many reasons. For example, and maybe that the delivered

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Speaker 1: goods don't match what was advertised. In the case of

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Speaker 1: physical goods, this can be a hassle. In the case

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Speaker 1: of services, it's even more thorny because how do you

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Speaker 1: get a refund for a service that's already been rendered,

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Speaker 1: even if that service wasn't what you had hoped for.

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Speaker 1: Are you did get something out of it and you

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Speaker 1: can't return it. It's it's a service, not a not

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Speaker 1: a product, So it's problematic. These third parties have to

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Speaker 1: spend a lot of money mediating disputes between these buyers

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Speaker 1: and sellers, and they tend to recapture those costs by

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Speaker 1: increasing the transaction fees they charge for using their services.

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Speaker 1: The transaction fees are what the amount of money that

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Speaker 1: gets paid to the service as opposed to going straight

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Speaker 1: to paying off the vendor for whatever you're purchasing. This

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Speaker 1: makes smaller transactions less practical, since more of the transaction

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Speaker 1: itself is going to this processing fee than it is

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Speaker 1: to revenue for the merchant. This is why you might

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Speaker 1: encounter some vendors they have a minimum charge amount for

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Speaker 1: any credit card purchases. Now, this in turn becomes an

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Speaker 1: issue of trust, and since trusted third party is part

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Speaker 1: of the name, you can imagine that's a big deal.

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Speaker 1: Merchants might demand more information from customers before accepting a

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Speaker 1: specific type of transaction, because without knowing more about their customers,

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Speaker 1: the merchant might want to worry about fraudulent disputes. A

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Speaker 1: fraudulent dispute may cost the money. They might have to

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Speaker 1: foot the bill and they end up getting the raw

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Speaker 1: end of the deal. They might end up being out

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Speaker 1: of a product and they don't get paid for it.

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Speaker 1: So this is particularly an issue with online payments. You

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Speaker 1: can make exchanges using actual currency in person, and that

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Speaker 1: avoids many of these problems because you don't need a

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Speaker 1: third party. It can just be a direct exchange that

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Speaker 1: here's my money, thank you for the thing, I'll be

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Speaker 1: on my way. But if you're buying something online, that's

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Speaker 1: not really an option. You essentially have to use some

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Speaker 1: other third party service, whether it's credit card or PayPal

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Speaker 1: or something along those lines. There really wasn't a way

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Speaker 1: to make a purchase without also relying on a third party,

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Speaker 1: and as a result, those third parties tend to be

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Speaker 1: big targets for hackers. They go after them because this

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Speaker 1: is sort of the the central point where a lot

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Speaker 1: of money has to pass through on any given day. Now,

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Speaker 1: Nakamoto's design was meant to change all of that. Third

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Speaker 1: parties would become obsolete because the system itself would serve

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Speaker 1: as a record of transactions and also the authorization tool

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Speaker 1: required to verify those transactions. The verification process would create

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Speaker 1: a situation that was, in the words of Nakamoto, quote

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Speaker 1: computationally impractical to reverse end quote. Now, that meant that

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Speaker 1: the amount of processing power required to change the transaction

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Speaker 1: record so that you would be able to commit fraud

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Speaker 1: would require so much computational power that no one would

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Speaker 1: have ready access to it. In addition, the record of

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Speaker 1: transactions would exist across an entire period of peer network,

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Speaker 1: so you would have to do so much work to

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Speaker 1: commit fraud that it would be a diminishing returns situation.

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Speaker 1: You would actually be spending more or money trying to

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Speaker 1: get ahead of the system than you would ever recapture

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Speaker 1: from committing fraud. In fact, it would make way more

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Speaker 1: sense to dedicate that computational power to working legitimately within

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Speaker 1: the system and earning money that way. But we'll talk

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Speaker 1: about that a little bit more later on. Before I

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Speaker 1: get into that, let's take a quick break to thank

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Speaker 1: our sponsor, the peer to peer decentralized network I was

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Speaker 1: talking about. That's the key year. It's what gives transactions

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Speaker 1: legitimacy and transparency keeps the system itself stable even if

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Speaker 1: it's a cryptocurrency system like Bitcoin. Even if the cryptocurrency

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Speaker 1: has a fluctuating value, the system itself is still stable.

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Speaker 1: It's also necessary so that no party can abuse the system,

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Speaker 1: such as spending the same digital currency twice. Now what

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Speaker 1: I mean by that is, well, let's let's take a

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Speaker 1: real physical world example and then compare it with a

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Speaker 1: digital example and see how they're different. Let's say that

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Speaker 1: you have in your possession of valuable physical commodity. We'll

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Speaker 1: say it's a a vinyl single. In fact, let's say

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Speaker 1: it's a vinyl single of the greatest song ever written,

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Speaker 1: which we all know is Hooked on a Feeling by

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Speaker 1: Blue Sweet. So a friend of yours is willing to

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Speaker 1: trade a Sweet Hollow shadowless Mutube Pokemon card in exchange

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Speaker 1: for your limited edition vinyl single of Hooked on a Feeling.

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Speaker 1: So you make the trade. You hand over the single,

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Speaker 1: they hand over the card, And once you do, that

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Speaker 1: vinyl single is no longer in your possession, right, it's gone.

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Speaker 1: You've given it to your friend, so you can't spend

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Speaker 1: it again. You aren't able to make that trade a

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Speaker 1: second time with someone else. But let's switch this to

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Speaker 1: the digital world. Let's say that you've convinced the same

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Speaker 1: friend to part with that sweet sweet card in exchange

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Speaker 1: for an MP three of hooked on a Feeling. Well,

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Speaker 1: that's a vy because you can make endless digital copies

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Speaker 1: of the MP three and you can spend it over

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Speaker 1: and over in traits like that. So if you find

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Speaker 1: that your other friends also what an MP three have

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Speaker 1: hooked on a feeling, then you can just keep on

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Speaker 1: trading that same file. You're just copying it over and

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Speaker 1: over again, so it's like you're spending the same dollar repeatedly. Clearly,

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Speaker 1: if you want a digital currency to work within a system,

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Speaker 1: you have to build in a mechanism to make sure

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Speaker 1: someone can't just spend the same units of currency repeatedly.

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Speaker 1: It has to be able to track when something has

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Speaker 1: been spent and mark that down so that you cannot

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Speaker 1: spend it again because you no longer possess it. Once

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Speaker 1: they make a transaction, the unit of currency has to

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Speaker 1: be transferred to a new owner with no copy left behind.

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Speaker 1: The distributed ledger helps ensure this by making sure everyone

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Speaker 1: has a copy of what's going on, and it avoids

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Speaker 1: the issue of having a centralized authority like an exchange

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Speaker 1: change or a bank or a government that is in

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Speaker 1: charge of saying yes, that transaction was legitimate. Because again,

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Speaker 1: if you have a central point, then that's the point

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Speaker 1: that's the most vulnerable. Everyone's going to attack it. If

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Speaker 1: it's distributed, it's way harder to take advantage of it

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Speaker 1: because it's spread across an entire network of computers. So

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Speaker 1: a distributed ledger helps ensure this safety. Everyone in the

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Speaker 1: system can see the record of transactions, and thus everyone

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Speaker 1: knows if you've already spent those digital units. The distributed

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Speaker 1: ledger is sort of like a shared online document or

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Speaker 1: a spreadsheet. So if you've used something like Google spreadsheets

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Speaker 1: and a shared work group, that's an okay example. It's

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Speaker 1: not exactly the same thing, but it's similar enough that

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Speaker 1: we can kind of draw some analogies. So you have

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Speaker 1: authorized users who can access and view and edit the

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Speaker 1: same spreadsheet. They don't possess a localized copy of the

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Speaker 1: spreadsheet the way you would with something like traditional versions

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Speaker 1: of Excel or Lotus one, two three. And this is

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Speaker 1: a good thing because in the old days of working

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Speaker 1: with these documents, you might get a copy of a

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Speaker 1: document you make some changes, you would save it. That

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Speaker 1: would create a new copy of the document somewhere else.

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Speaker 1: The older version still exists because someone sent that to you.

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Speaker 1: You then send your version to somebody, they make changes,

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Speaker 1: they save it. Now there's a third copy out there,

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Speaker 1: and so on and so forth, and you end up

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Speaker 1: with all these different copies of a document. You ultimately

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Speaker 1: have to reconcile them all, decide which one is the

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Speaker 1: definitive copy, which one has the the most accurate changes

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Speaker 1: in it, And it's a huge hassle if the other

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Speaker 1: person had made some changes that you didn't agree with,

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Speaker 1: and you've got to go back and forth on this,

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Speaker 1: and the separate instances of the same sort of file

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Speaker 1: create a huge amount of headaches. Blockchain ledgers kind of

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Speaker 1: get around this by having a shared document where everyone

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Speaker 1: can see it. Now, granted, it's it's kind of like

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Speaker 1: there are copies everywhere, but every copy of it has

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Speaker 1: to agree with all the other copies. Ultimately, it gets

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Speaker 1: a little messy in the short term, but in the

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Speaker 1: long term, all the copies have to agree with one another,

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Speaker 1: and they're distributed across the entire network, so it's more

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Speaker 1: like a shared spreadsheet. Where if I make a change

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Speaker 1: in that spreadsheet, everyone else will see that change, or

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Speaker 1: if really, I should say, if I make an addition

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Speaker 1: to it. Because the way blockchain has worked, it's meant

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Speaker 1: to allow for more information to be added to the

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Speaker 1: block chain the chain of blocks, and each block is

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Speaker 1: a block of data. So blockchain ledgers are a record

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Speaker 1: of transactions. In fact, they are a record of transactions

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Speaker 1: that date all the way back to the formation of

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Speaker 1: the blockchain. And this is a distributed record, meaning every

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Speaker 1: computer or node if you prefer, because that's what these

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Speaker 1: computers are called, every node on this network and this

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Speaker 1: peer to peer network can access that ledger. So to

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Speaker 1: perform a transaction with bitcoins, because again bitcoins being the

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Speaker 1: most famous implementation of the blockchain technology. First you need

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Speaker 1: a wallet, and the wallet exists as your repository of bitcoins.

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Speaker 1: Associated with the wallet are two security keys. One of

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Speaker 1: them is a public key, which you share with other

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Speaker 1: people on the network, and one is a private key,

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Speaker 1: which you keep for your very own. The keys are

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Speaker 1: connected to one another, but they are different, so the

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Speaker 1: public key and the private key are not the same

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Speaker 1: code essentially are same same characters. If you prefer but

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Speaker 1: they are connected to one another. Encrypting a message with

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Speaker 1: a public key makes it impossible essentially to read without

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Speaker 1: the corresponding private key. So if you wanted to send

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Speaker 1: me a message and you wanted to make sure that

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Speaker 1: I was the only person who could read that message,

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Speaker 1: you would use my public key, which everyone has access to,

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Speaker 1: and you would encrypt your message. Now, the only thing

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Speaker 1: that can decrypt that message is my private key, and

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Speaker 1: I'm the only one who possesses it. So that way

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Speaker 1: you know that the message you're sending me is safe

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Speaker 1: until I open it, because I'm the only one who

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Speaker 1: has the key to access it. Likewise, if I send

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Speaker 1: something out with my private key encrypting the data, that's

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Speaker 1: like a digital signature that's saying this message had to

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Speaker 1: come from Jonathan Strickland because it used his private key,

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Speaker 1: and I know that because I can decrypt it with

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Speaker 1: Jonathan Strickland's public key, which I have access to, and

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Speaker 1: that means that it's it's authenticated as coming from me. Now,

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Speaker 1: these are both very important concepts when it comes to transactions.

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Speaker 1: If I send out a message that I want to

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Speaker 1: make a transaction and use my private key, then again

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Speaker 1: only my public key, which is known to all nodes

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Speaker 1: on the network, can decrypt this message, and that authenticates

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Speaker 1: that the message actually came from me, no one else.

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Speaker 1: No one's able to impersonate me and spend my money

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Speaker 1: on my account, So all the nodes can see that ledger,

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Speaker 1: and when it's time to make a transaction, the parties

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Speaker 1: involved send a message out to the network using their

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Speaker 1: cryptographic keys. And a simple way to think about this

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Speaker 1: is that one party's bitcoin wallet will decrease by a

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Speaker 1: certain amount, and the other party's bitcoin wallet will increase

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Speaker 1: by that same amount. So let's say I'm buying something

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Speaker 1: for point zero zero zero five bitcoins, because you can

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Speaker 1: divide bitcoins up to like a hundred million places, and

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Speaker 1: the message that's sent out to the network is Jonathan's

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Speaker 1: wallet should decrease by point zero zero zero five bitcoins

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Speaker 1: and the Caso Hut's account should go up by point

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Speaker 1: zero zero zero five bitcoins. Although I should point out

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Speaker 1: that the blockchain isn't actually keeping track of how much

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Speaker 1: money is in my account. It doesn't care. Instead, it

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Speaker 1: keeps track of where all the units of currency in

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Speaker 1: the system are. Because all that history is contained within

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Speaker 1: the ledger. The nodes have to verify that I actually

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Speaker 1: have point zero zero zero five bit points, and they

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Speaker 1: do that by looking at the transaction history, all the

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Speaker 1: transactions where money was deposited to me versus money coming

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Speaker 1: out of my account to make certain that I actually

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Speaker 1: have that amount. So it's not really looking at my

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Speaker 1: account balance so much as it's just looking at the

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Speaker 1: transaction history. It's kind of a fine line to look at,

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Speaker 1: but that's how the system works. And if I do

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Speaker 1: have those units, then it will verify my transmission of

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Speaker 1: those units tokso hut, And if it works, then I

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Speaker 1: get caso, which makes me happy. Now, the notes will

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Speaker 1: add this transaction to their individual copies of this shared ledger,

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Speaker 1: and the new transaction will join other transactions made at

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Speaker 1: that same time to form a block. This this data.

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Speaker 1: So think of it and it looks like a think

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Speaker 1: of it like a physical block. That block represents a

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Speaker 1: certain number of transactions that took place within a given

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Speaker 1: amount of time. A new block forms approximately every ten minutes.

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Speaker 1: That's designed by the creators of the Bitcoin blockchain experience.

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Speaker 1: They wanted it to be on average ten minutes for

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Speaker 1: it to generate a new block of this at the

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Speaker 1: very least, you get a generation of a block that

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Speaker 1: will release more bitcoins into circulation. This is the process

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Speaker 1: of mining where you get new bitcoins to enter the system.

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Speaker 1: So in the case of bitcoins UH, you you do

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Speaker 1: this so that you can earn more. But other blockchain

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Speaker 1: implementations might go a totally different way and not use

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Speaker 1: any kind of cryptocurrency at all. Although you have to

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Speaker 1: figure out some way to give an incentive to people

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Speaker 1: to actually operate the nodes in order to verify these transactions,

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Speaker 1: because it does require some computational work to do this,

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Speaker 1: so there's a balance there. The blocks have to be validated,

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Speaker 1: So you've got all these different nodes on your system

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Speaker 1: that are all working to form the next block in

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Speaker 1: the blockchain, and to validate a block to validate that

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Speaker 1: list of transactions, it requires a certain amount of computational power,

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Speaker 1: and it's a good amount of power at this point.

434
00:25:09,440 --> 00:25:12,400
Speaker 1: Once a block is validated, then it joins the chain

435
00:25:12,400 --> 00:25:15,919
Speaker 1: of blocks of transactions that came before it UH And

436
00:25:15,960 --> 00:25:19,119
Speaker 1: in fact, the value of the new block is partly

437
00:25:19,160 --> 00:25:22,880
Speaker 1: determined by the value of all the preceding blocks, because

438
00:25:22,920 --> 00:25:28,240
Speaker 1: each verified block contains values of those previous blocks. Trying

439
00:25:28,240 --> 00:25:29,960
Speaker 1: to fool the system so that you can spend the

440
00:25:30,000 --> 00:25:33,520
Speaker 1: same bitcoins twice is really hard to do because every

441
00:25:33,520 --> 00:25:36,280
Speaker 1: ten minutes, another block is being added to this blockchain,

442
00:25:36,920 --> 00:25:41,080
Speaker 1: and pretty soon you've got your transaction that you're worried

443
00:25:41,119 --> 00:25:45,040
Speaker 1: about that's far behind the most current block of transaction.

444
00:25:45,160 --> 00:25:48,400
Speaker 1: So I'll give you an example. Let's say that I'm

445
00:25:48,400 --> 00:25:51,280
Speaker 1: a dishonest jerk so and so, and I want to

446
00:25:51,359 --> 00:25:55,520
Speaker 1: spend some bitcoins, but I already spent them in the past.

447
00:25:56,040 --> 00:26:02,240
Speaker 1: In fact, in this particular blockchain random example, the transaction

448
00:26:02,280 --> 00:26:05,680
Speaker 1: I made happened in block number forty two, and later

449
00:26:05,720 --> 00:26:08,400
Speaker 1: on I decide, hey, there's this other stuff I want

450
00:26:08,400 --> 00:26:11,080
Speaker 1: to buy, but I've already spent all my bitcoins. But

451
00:26:11,119 --> 00:26:13,879
Speaker 1: if I if I can fool the system into thinking

452
00:26:13,880 --> 00:26:17,600
Speaker 1: I never spent the last ones, then I could spend

453
00:26:17,640 --> 00:26:21,000
Speaker 1: them again and buy this other thing I want. However,

454
00:26:21,440 --> 00:26:24,119
Speaker 1: that transaction was all the way back in forty two,

455
00:26:24,160 --> 00:26:29,040
Speaker 1: and every block that went after forty two has that

456
00:26:29,119 --> 00:26:32,320
Speaker 1: information built into it, and it's currently up to block

457
00:26:32,440 --> 00:26:36,280
Speaker 1: number sixty seven. Here's the thing about blockchain. Whichever blockchain

458
00:26:36,400 --> 00:26:40,240
Speaker 1: is the longest is considered to be the most valid,

459
00:26:41,200 --> 00:26:46,359
Speaker 1: So if you could dedicate enough computational power. In theory,

460
00:26:47,000 --> 00:26:51,840
Speaker 1: you could go back change the data in block number

461
00:26:51,880 --> 00:26:55,159
Speaker 1: forty two, But then you would have to solve all

462
00:26:55,200 --> 00:26:59,720
Speaker 1: those computational problems and rebuild blocks forty two through sixty seven,

463
00:26:59,800 --> 00:27:02,720
Speaker 1: and then get to sixty eight before the rest of

464
00:27:02,760 --> 00:27:07,120
Speaker 1: the entire system could get block sixty So you would

465
00:27:07,160 --> 00:27:12,240
Speaker 1: have your one computer or even family of computers working

466
00:27:12,240 --> 00:27:16,560
Speaker 1: on this problem. Meanwhile, the entire Bitcoin system would be

467
00:27:16,600 --> 00:27:20,439
Speaker 1: working against you just in the regular process of validating

468
00:27:20,440 --> 00:27:23,480
Speaker 1: all the transactions, so the likelihood of you being able

469
00:27:23,520 --> 00:27:26,600
Speaker 1: to catch up and then pass the rest of the

470
00:27:26,640 --> 00:27:31,480
Speaker 1: blockchain system is next to nothing. The only way that

471
00:27:31,560 --> 00:27:37,040
Speaker 1: you could really commit fraud on this system is if

472
00:27:37,119 --> 00:27:39,959
Speaker 1: you controlled more of the computing power on the system

473
00:27:40,200 --> 00:27:43,760
Speaker 1: than legitimate nodes in the system. So if you had

474
00:27:43,800 --> 00:27:48,399
Speaker 1: more than of all the CPU processing power in the

475
00:27:48,400 --> 00:27:52,040
Speaker 1: Bitcoin blockchain family, if you possessed that much of it,

476
00:27:52,640 --> 00:27:55,439
Speaker 1: then you could potentially commit fraud. However, it would be

477
00:27:55,520 --> 00:27:58,520
Speaker 1: way easier for you to just use it legitimately and

478
00:27:58,600 --> 00:28:01,119
Speaker 1: make more money that way, a then for you to

479
00:28:01,160 --> 00:28:05,119
Speaker 1: go back and spend the same money you spent ages

480
00:28:05,160 --> 00:28:07,800
Speaker 1: ago again. In other words, it makes more sense to

481
00:28:07,800 --> 00:28:09,760
Speaker 1: follow the rules because you're going to make out like

482
00:28:09,760 --> 00:28:13,280
Speaker 1: a bandit. Then it would if you try to actually

483
00:28:13,320 --> 00:28:17,120
Speaker 1: be a bandit, it would be less profitable and more frustrating. So,

484
00:28:17,280 --> 00:28:19,840
Speaker 1: Nakamoto says, the entire design the system is such that

485
00:28:19,920 --> 00:28:23,720
Speaker 1: discourages cheating in this way, so it convinces you to

486
00:28:23,800 --> 00:28:26,080
Speaker 1: play by the rules rather than try and cheat, because

487
00:28:26,200 --> 00:28:29,800
Speaker 1: you're way more likely to make headway playing by the rules,

488
00:28:30,440 --> 00:28:33,399
Speaker 1: uh more or less. Although these days you've got to

489
00:28:33,480 --> 00:28:36,240
Speaker 1: have a whole lot of computers to to really have

490
00:28:36,320 --> 00:28:39,520
Speaker 1: a chance. Now, the process of validating, like I said,

491
00:28:39,560 --> 00:28:42,080
Speaker 1: it's called mining, and it's called that because whichever no

492
00:28:42,400 --> 00:28:46,479
Speaker 1: validates the next block in the chain earns a certain

493
00:28:46,560 --> 00:28:51,000
Speaker 1: number of bitcoins, which changes over time. Every few years,

494
00:28:51,120 --> 00:28:56,080
Speaker 1: it has an amount, so eventually you'll get down to

495
00:28:56,240 --> 00:28:59,960
Speaker 1: fractions of bitcoins, and then ultimately you're gonna get to

496
00:29:00,080 --> 00:29:02,920
Speaker 1: a point where all the bitcoins that were will ever exist,

497
00:29:03,480 --> 00:29:06,720
Speaker 1: will be in circulation and you'll never create more. But

498
00:29:07,200 --> 00:29:11,000
Speaker 1: in the meantime, it's incentive for people to participate in

499
00:29:11,040 --> 00:29:14,400
Speaker 1: this system and validate those transactions because they get something

500
00:29:14,400 --> 00:29:18,360
Speaker 1: out of it. By validating transactions, they get rewarded these bitcoins.

501
00:29:18,560 --> 00:29:23,480
Speaker 1: So participating means earning money. You accumulate wealth in this way. Really,

502
00:29:23,480 --> 00:29:26,280
Speaker 1: I shouldn't say earning money, I should say wealth because

503
00:29:26,400 --> 00:29:30,400
Speaker 1: it's slightly different from money in my opinion. Now, more specifically,

504
00:29:30,440 --> 00:29:32,720
Speaker 1: for a block to be valid and become the next

505
00:29:32,760 --> 00:29:35,680
Speaker 1: block in a blockchain, it must contain the answer to

506
00:29:35,800 --> 00:29:40,760
Speaker 1: a complex mathematical problem that's created through a cryptographic hash function,

507
00:29:41,080 --> 00:29:44,360
Speaker 1: and the way to solve this problem is guessing. Yep,

508
00:29:44,440 --> 00:29:46,920
Speaker 1: You've got to guess random numbers, and that these random

509
00:29:47,000 --> 00:29:51,280
Speaker 1: numbers will combine with the previous blocks content in order

510
00:29:51,280 --> 00:29:55,040
Speaker 1: to create a specific result. According to a Medium article

511
00:29:55,320 --> 00:29:58,200
Speaker 1: titled how does the blockchain Work? Which is a pretty

512
00:29:58,200 --> 00:30:00,640
Speaker 1: good article I recommend reading it, it would take a

513
00:30:00,680 --> 00:30:04,800
Speaker 1: typical computer about a year worth of processing to suss

514
00:30:04,800 --> 00:30:07,560
Speaker 1: out the problem for a single block. But in the

515
00:30:07,560 --> 00:30:10,760
Speaker 1: world we live in where people are dedicating hefty processing

516
00:30:10,760 --> 00:30:14,360
Speaker 1: resources like grids of computers in order to solve these

517
00:30:14,400 --> 00:30:18,800
Speaker 1: problems and to validate blockchain transactions, it takes about ten minutes,

518
00:30:18,840 --> 00:30:21,240
Speaker 1: and again that was by design. This is also why

519
00:30:21,280 --> 00:30:23,320
Speaker 1: you might hear people say that there's no point in

520
00:30:23,360 --> 00:30:26,240
Speaker 1: getting into bitcoin mining unless you can make an enormous

521
00:30:26,320 --> 00:30:29,400
Speaker 1: investment in computing power upfront, because there's just no way

522
00:30:29,440 --> 00:30:32,240
Speaker 1: to compete with the more beefy mining operations out there.

523
00:30:32,280 --> 00:30:35,760
Speaker 1: They're using way more computer processing power. It's also why

524
00:30:36,360 --> 00:30:39,200
Speaker 1: graphics cards can be hard to come by, because, as

525
00:30:39,240 --> 00:30:42,440
Speaker 1: it turns out, graphics processing units are really really good

526
00:30:42,480 --> 00:30:45,520
Speaker 1: for those kinds of problems. Fun fact, though, the system

527
00:30:45,560 --> 00:30:49,640
Speaker 1: actually adjusts the difficulty of this math problem based on

528
00:30:49,680 --> 00:30:53,560
Speaker 1: the amount of processing power throne at the math problems.

529
00:30:53,800 --> 00:30:55,680
Speaker 1: I'll talk a little bit more about that later, but

530
00:30:55,760 --> 00:30:58,440
Speaker 1: in other words, the harder you try to find them,

531
00:30:58,760 --> 00:31:01,600
Speaker 1: the harder they are to find. Mind. All right, So

532
00:31:01,680 --> 00:31:05,440
Speaker 1: you've got this concept of validating a block, and you've

533
00:31:05,480 --> 00:31:07,400
Speaker 1: got all these different nodes working to do it. They're

534
00:31:07,400 --> 00:31:10,120
Speaker 1: all trying to guess at this random number and find

535
00:31:10,160 --> 00:31:13,920
Speaker 1: the right random number so that it can end up

536
00:31:14,240 --> 00:31:16,680
Speaker 1: adding the next block to the blockchain and getting this

537
00:31:16,720 --> 00:31:20,160
Speaker 1: bitcoin reward. But what would happen if two or more

538
00:31:20,280 --> 00:31:24,120
Speaker 1: nodes came up with the right solution at the same time. Well,

539
00:31:24,600 --> 00:31:27,520
Speaker 1: each of those blocks could potentially be the next one

540
00:31:27,600 --> 00:31:32,520
Speaker 1: on the chain, so they almost all kind of occupy

541
00:31:32,880 --> 00:31:35,880
Speaker 1: what the next block would be. But none of them

542
00:31:36,080 --> 00:31:40,000
Speaker 1: are solidly connected to the blockchain. Yet what will then

543
00:31:40,040 --> 00:31:43,600
Speaker 1: happen is the system will continue to validate the next

544
00:31:43,640 --> 00:31:47,480
Speaker 1: block of transactions, so this would be twenty minutes out

545
00:31:47,600 --> 00:31:53,040
Speaker 1: from that original moment. And if one of those nodes

546
00:31:53,720 --> 00:31:56,920
Speaker 1: is able to put up the next block of transactions

547
00:31:56,960 --> 00:32:00,240
Speaker 1: that adds onto one of the previous ones that comes

548
00:32:00,280 --> 00:32:03,040
Speaker 1: the longest chain in the group, that one becomes the

549
00:32:03,120 --> 00:32:08,800
Speaker 1: valid answer and the others are discarded. So, uh, one

550
00:32:08,840 --> 00:32:11,280
Speaker 1: example I saw said, let's say you've got three different

551
00:32:11,320 --> 00:32:14,760
Speaker 1: nodes A, B, and C, and A, B and C

552
00:32:15,080 --> 00:32:17,920
Speaker 1: all present their solutions that are more or less the

553
00:32:17,960 --> 00:32:20,320
Speaker 1: same time, so they could each be the next block

554
00:32:20,400 --> 00:32:23,680
Speaker 1: on the blockchain. Well, they're all just kind of nebulously

555
00:32:24,600 --> 00:32:26,880
Speaker 1: hovering at the very end of the blockchain, but none

556
00:32:26,920 --> 00:32:29,800
Speaker 1: of them have solidly been connected yet. And then you

557
00:32:29,840 --> 00:32:34,400
Speaker 1: get solution in for the next block, the one after

558
00:32:34,800 --> 00:32:39,120
Speaker 1: either A, B or C, and it's attached to block B. Well,

559
00:32:39,160 --> 00:32:41,280
Speaker 1: that means that block B is now part of the

560
00:32:41,360 --> 00:32:44,600
Speaker 1: longest chain because it's not just B, it's also B

561
00:32:44,880 --> 00:32:49,000
Speaker 1: plus N. And because A and C do not have

562
00:32:49,640 --> 00:32:53,880
Speaker 1: another block after them, they're discarded. Those are no longer

563
00:32:53,960 --> 00:32:57,960
Speaker 1: the the right blocks for that blockchain, and they don't

564
00:32:58,000 --> 00:33:04,600
Speaker 1: earn any bitcoins. Womp, womp. So interesting system. Essentially, it

565
00:33:04,800 --> 00:33:10,960
Speaker 1: rarely happens that nodes present simultaneous answers, but it is possible.

566
00:33:10,960 --> 00:33:14,360
Speaker 1: It's just that eventually down the line, one of those

567
00:33:14,440 --> 00:33:16,600
Speaker 1: chains is going to be longer than the others and

568
00:33:16,640 --> 00:33:18,680
Speaker 1: it will end up becoming the official ones. So the

569
00:33:18,720 --> 00:33:23,000
Speaker 1: system self corrects after at least a few blocks. Now,

570
00:33:23,040 --> 00:33:27,600
Speaker 1: there are some drawbacks to the bitcoin world, and one

571
00:33:27,640 --> 00:33:30,320
Speaker 1: of those is that it's not difficult to lose access

572
00:33:30,360 --> 00:33:33,520
Speaker 1: to your own bitcoins. If you forget your password to

573
00:33:33,560 --> 00:33:36,360
Speaker 1: your wallet, or you lose access to the machine that

574
00:33:36,600 --> 00:33:39,880
Speaker 1: your wallet is on, you're out of luck. There are

575
00:33:39,920 --> 00:33:43,480
Speaker 1: stories about people who have lost potentially millions of dollars

576
00:33:43,480 --> 00:33:46,680
Speaker 1: worth of bitcoins because they no longer have the hard

577
00:33:46,760 --> 00:33:49,040
Speaker 1: drive they were stored the whilet was stored on, or

578
00:33:49,080 --> 00:33:52,200
Speaker 1: they lost the password or whatever. It's terrible stories like that.

579
00:33:53,400 --> 00:33:56,720
Speaker 1: There are also third party services that act as bitcoin wallets,

580
00:33:56,760 --> 00:34:00,240
Speaker 1: but these are prime targets for hackers and thieves. More

581
00:34:00,240 --> 00:34:03,400
Speaker 1: than one bitcoin wallet company or bitcoin exchange has had

582
00:34:03,440 --> 00:34:07,280
Speaker 1: to explain to customers that hackers managed to steal significant

583
00:34:07,280 --> 00:34:10,640
Speaker 1: some of bitcoins from the service, and it turns out

584
00:34:10,680 --> 00:34:14,920
Speaker 1: trust is still needed in this post trust economic environment.

585
00:34:15,560 --> 00:34:17,279
Speaker 1: And the only reason for that is because you had

586
00:34:17,280 --> 00:34:22,080
Speaker 1: to have these other entities in place to facilitate transactions.

587
00:34:22,160 --> 00:34:25,399
Speaker 1: And uh, that's where the real problem was. It's that

588
00:34:25,520 --> 00:34:29,360
Speaker 1: there's that that again creates this target. It's not distributed

589
00:34:29,400 --> 00:34:33,200
Speaker 1: across the entire network. It has these little focused points

590
00:34:33,200 --> 00:34:35,799
Speaker 1: that hackers can look at and say, let's let's aim

591
00:34:35,840 --> 00:34:38,120
Speaker 1: at this and see if we can make away with

592
00:34:38,440 --> 00:34:44,080
Speaker 1: a big old digital heist. Another drawback of bitcoins is liquidity,

593
00:34:44,480 --> 00:34:47,279
Speaker 1: being able to convert bitcoins into some other form of

594
00:34:47,320 --> 00:34:49,600
Speaker 1: wealth that you could actually spend, because, as it turns out,

595
00:34:49,640 --> 00:34:53,200
Speaker 1: bitcoins are very hard to spend, largely because their value

596
00:34:53,200 --> 00:34:56,279
Speaker 1: can fluctuate so dramatically from the beginning of a transaction

597
00:34:56,320 --> 00:34:58,760
Speaker 1: to the end of one, and several people have complained

598
00:34:58,800 --> 00:35:02,480
Speaker 1: that it's difficult to offload bitcoins when you need to. Again,

599
00:35:02,680 --> 00:35:06,520
Speaker 1: if you decide to offload your bitcoins and in the

600
00:35:06,560 --> 00:35:10,680
Speaker 1: process of actually trying to validate that that exchange, the

601
00:35:10,840 --> 00:35:13,799
Speaker 1: value has changed to the point where you wouldn't have

602
00:35:13,920 --> 00:35:17,200
Speaker 1: gotten rid of them, it kind of freezes you. And

603
00:35:17,239 --> 00:35:20,120
Speaker 1: also it's hard to find buyers. Everyone wants to get

604
00:35:20,160 --> 00:35:22,080
Speaker 1: at bitcoins, but not a lot of people want to

605
00:35:22,080 --> 00:35:24,279
Speaker 1: actually spend the money to buy them, so it does

606
00:35:24,320 --> 00:35:27,720
Speaker 1: get very complicated. Also, there's just a few hundred bitcoin

607
00:35:27,760 --> 00:35:31,600
Speaker 1: owners who possess enough of the percentage of bitcoins in

608
00:35:31,680 --> 00:35:35,719
Speaker 1: circulation that they could completely upset the economic order if

609
00:35:35,719 --> 00:35:37,800
Speaker 1: they were to offer up their bitcoins for purchase. That

610
00:35:37,880 --> 00:35:40,000
Speaker 1: around the same time, if they were all to sell

611
00:35:40,640 --> 00:35:44,000
Speaker 1: their bitcoins, then it would be almost akin to a

612
00:35:44,080 --> 00:35:46,400
Speaker 1: run on the banks. People predict that such a thing

613
00:35:46,480 --> 00:35:50,839
Speaker 1: would make the prices plummet afterward. So you get these

614
00:35:51,520 --> 00:35:55,479
Speaker 1: large entities, these these people or organizations that own a

615
00:35:55,480 --> 00:35:58,040
Speaker 1: ton of bitcoins, making an enormous amount of money in

616
00:35:58,040 --> 00:36:01,200
Speaker 1: the short term, and then the value of bitcoins would

617
00:36:01,600 --> 00:36:04,279
Speaker 1: drop out from under it. As a result. In the

618
00:36:04,280 --> 00:36:08,560
Speaker 1: bitcoin community, those entities are referred to as whales. Now

619
00:36:08,719 --> 00:36:11,160
Speaker 1: get a lot more to say about blockchain technology, but

620
00:36:11,200 --> 00:36:13,520
Speaker 1: before I do that, let's take another quick break and

621
00:36:13,560 --> 00:36:24,080
Speaker 1: thank our sponsor. Now, as I've said, the whole process

622
00:36:24,200 --> 00:36:26,360
Speaker 1: uh that we've just talked about is used by bitcoin

623
00:36:26,400 --> 00:36:30,279
Speaker 1: to validate cryptocurrency transactions. But that's just one potential use

624
00:36:30,440 --> 00:36:34,480
Speaker 1: of blockchain. There's a Wired article that is titled two

625
00:36:34,480 --> 00:36:38,600
Speaker 1: thousand eighteen The Year of the Cryptocurrency Craze, and it

626
00:36:38,640 --> 00:36:41,359
Speaker 1: talks about how blockchains can be used for anything that

627
00:36:41,400 --> 00:36:45,080
Speaker 1: you can make a list of, like land ownership. So

628
00:36:45,160 --> 00:36:47,759
Speaker 1: not only could you make such a system so it's

629
00:36:47,840 --> 00:36:50,760
Speaker 1: easier to deal with those sort of transactions, the system

630
00:36:50,760 --> 00:36:54,399
Speaker 1: itself becomes the record of ownership. It's like a deed

631
00:36:54,520 --> 00:36:56,840
Speaker 1: or a title to a car. If I were to

632
00:36:56,880 --> 00:37:01,560
Speaker 1: purchase land using a blockchain approach, that transaction would become

633
00:37:01,600 --> 00:37:05,000
Speaker 1: part of the block chain's history. So if some huckster

634
00:37:05,600 --> 00:37:08,799
Speaker 1: wanted to try and post as the legitimate owner of

635
00:37:08,800 --> 00:37:11,440
Speaker 1: the land and try and sell it to some sucker,

636
00:37:12,000 --> 00:37:13,800
Speaker 1: which is the old you know, I got this bridge

637
00:37:13,800 --> 00:37:17,280
Speaker 1: in Brooklyn, you gotta see routine, the system would reject

638
00:37:17,280 --> 00:37:20,960
Speaker 1: this transaction because the nodes in the system would start

639
00:37:21,040 --> 00:37:24,400
Speaker 1: looking for the digital information that represents that parcel of

640
00:37:24,520 --> 00:37:28,840
Speaker 1: land in its transaction history and try to verify that

641
00:37:28,920 --> 00:37:31,840
Speaker 1: the land does in fact belong to the huckster, that

642
00:37:31,960 --> 00:37:36,279
Speaker 1: at some point in the past I sold or traded

643
00:37:36,360 --> 00:37:39,600
Speaker 1: this land to that person and it's connected to the system.

644
00:37:39,640 --> 00:37:42,000
Speaker 1: And once the nodes look back and they see there's

645
00:37:42,040 --> 00:37:45,680
Speaker 1: no such record, that's not the case. They can reject

646
00:37:45,680 --> 00:37:50,799
Speaker 1: the transaction. The conman cannot fleece another mark because the

647
00:37:50,880 --> 00:37:55,319
Speaker 1: system knows. Oh, looking at this record of transactions, I

648
00:37:55,400 --> 00:37:58,160
Speaker 1: see that the actual true owner of the land is

649
00:37:58,239 --> 00:38:02,719
Speaker 1: Jonathan Strickland, So I know that this is a fake attempt.

650
00:38:03,280 --> 00:38:05,920
Speaker 1: But if I were to sell that land again using

651
00:38:05,920 --> 00:38:09,000
Speaker 1: this blockchain system, the notes would first verify that I'm

652
00:38:09,000 --> 00:38:11,320
Speaker 1: the rightful owner. They would look through that transaction history.

653
00:38:11,320 --> 00:38:14,440
Speaker 1: They'd say, yes, Jonathan bought that land at this time,

654
00:38:14,560 --> 00:38:19,160
Speaker 1: stamp because here's the record within my system, And it

655
00:38:19,160 --> 00:38:21,319
Speaker 1: would then make sure that I had not at any

656
00:38:21,360 --> 00:38:24,279
Speaker 1: point gotten rid of that and given it to someone

657
00:38:24,320 --> 00:38:26,640
Speaker 1: else or sold it to someone else. Once a note

658
00:38:26,719 --> 00:38:30,160
Speaker 1: validates that, a new transaction can be authorized, and I

659
00:38:30,200 --> 00:38:32,440
Speaker 1: can sell the land to a new owner, and all

660
00:38:32,480 --> 00:38:35,280
Speaker 1: the records in the system update with this transaction across

661
00:38:35,280 --> 00:38:39,080
Speaker 1: the entire peer to peer network, and everyone knows that

662
00:38:39,120 --> 00:38:41,799
Speaker 1: the ownership of that land has changed hands, and I

663
00:38:41,800 --> 00:38:45,200
Speaker 1: wouldn't be allowed to sell that same land again because

664
00:38:45,239 --> 00:38:49,359
Speaker 1: the system reflects that I no longer own it now.

665
00:38:49,400 --> 00:38:51,400
Speaker 1: This is one of the most powerful aspects to the

666
00:38:51,400 --> 00:38:54,799
Speaker 1: blockchain approach. There's no need to appeal to some sort

667
00:38:54,840 --> 00:38:58,000
Speaker 1: of authority figure. You don't need a government or a

668
00:38:58,040 --> 00:39:01,520
Speaker 1: financial institution to keep a record of all the transactions.

669
00:39:01,920 --> 00:39:06,040
Speaker 1: You don't need notaries, you don't need any verification that

670
00:39:06,640 --> 00:39:10,960
Speaker 1: this is a lawful transaction, because the economic system itself

671
00:39:11,120 --> 00:39:16,520
Speaker 1: keeps that record and verifies it. The process secures itself

672
00:39:17,120 --> 00:39:21,080
Speaker 1: as it's perpetuated, so it's kind of like a self

673
00:39:21,120 --> 00:39:24,880
Speaker 1: policing system, just based on the way it's designed and

674
00:39:24,920 --> 00:39:28,520
Speaker 1: because of that unalterable record. There have been other suggested

675
00:39:28,640 --> 00:39:31,879
Speaker 1: uses for blockchain technology, for example, using it to keep

676
00:39:31,960 --> 00:39:35,560
Speaker 1: track of supply chain issues. I've seen it for food services.

677
00:39:35,800 --> 00:39:38,680
Speaker 1: The idea of being that by connecting everything, you could

678
00:39:38,719 --> 00:39:42,399
Speaker 1: more easily identify if a potential problem comes up. Let's

679
00:39:42,440 --> 00:39:45,560
Speaker 1: say that there's a disease outbreak that could affect a

680
00:39:45,560 --> 00:39:48,520
Speaker 1: certain kind of crop. You could check the blockchain and

681
00:39:48,640 --> 00:39:51,640
Speaker 1: use that to prevent that food from entering into the

682
00:39:51,640 --> 00:39:55,759
Speaker 1: rest of your supply and thus contaminating potential customers. The

683
00:39:55,760 --> 00:39:59,359
Speaker 1: precious gems industry is looking into using blockchain in order

684
00:39:59,400 --> 00:40:02,400
Speaker 1: to trace diamonds and other gemstones to make sure the

685
00:40:02,440 --> 00:40:06,560
Speaker 1: ones on the market aren't conflict gemstones, so they make

686
00:40:06,600 --> 00:40:08,879
Speaker 1: sure that the ones that are on the market are

687
00:40:08,880 --> 00:40:14,040
Speaker 1: all from legitimate sources that haven't been using forced labor

688
00:40:14,160 --> 00:40:20,319
Speaker 1: or other awful awful methods to mine those gemstones. There's

689
00:40:20,360 --> 00:40:23,759
Speaker 1: a cloud storage company called store s t o r

690
00:40:24,040 --> 00:40:28,800
Speaker 1: J which uses blockchain technology to create distributed data storage banks.

691
00:40:29,280 --> 00:40:31,759
Speaker 1: So it encrypts the data, but if you have the key,

692
00:40:31,840 --> 00:40:35,000
Speaker 1: you can decrypt the data, and you would. When you

693
00:40:35,040 --> 00:40:38,839
Speaker 1: retrieve a document from this cloud service, it sends it

694
00:40:38,920 --> 00:40:43,560
Speaker 1: from whatever would be the closest slash fastest computer on

695
00:40:43,640 --> 00:40:46,919
Speaker 1: the system to you. So whichever node would be able

696
00:40:46,960 --> 00:40:49,960
Speaker 1: to most quickly get the data to you, it sends

697
00:40:50,000 --> 00:40:52,440
Speaker 1: it from there. And the idea is that this not

698
00:40:52,600 --> 00:40:56,280
Speaker 1: only creates a distributed storage network, but it also speeds

699
00:40:56,320 --> 00:41:01,120
Speaker 1: things up a little bit through that actual architecture. For

700
00:41:01,239 --> 00:41:03,960
Speaker 1: many types of information, block chains make a lot of sense.

701
00:41:04,080 --> 00:41:07,360
Speaker 1: Anytime you want a public record of transactions or changes,

702
00:41:07,800 --> 00:41:10,960
Speaker 1: a block chain could be a good solution. There needs

703
00:41:11,000 --> 00:41:12,680
Speaker 1: to be some sort of system in place to create

704
00:41:12,680 --> 00:41:15,799
Speaker 1: an incentive to participate in the block chain, since the

705
00:41:15,840 --> 00:41:19,839
Speaker 1: process of validation requires computational power, and that in turn

706
00:41:19,920 --> 00:41:23,160
Speaker 1: means there are energy costs to consider. In other words,

707
00:41:23,239 --> 00:41:27,239
Speaker 1: validating transactions comes at a cost, so there needs to

708
00:41:27,239 --> 00:41:30,480
Speaker 1: be an offset of those costs to make the system viable.

709
00:41:30,840 --> 00:41:34,360
Speaker 1: In the case of bitcoin, the incentive is more units

710
00:41:34,440 --> 00:41:39,319
Speaker 1: of cryptocurrency, more bitcoins. Miners are rewarded for their computational

711
00:41:39,360 --> 00:41:43,640
Speaker 1: power by potentially earning more bitcoins through validating transactions, but

712
00:41:43,680 --> 00:41:46,319
Speaker 1: it's a first come, first served approach that in turn

713
00:41:46,440 --> 00:41:50,359
Speaker 1: creates an incentive among miners to consistently turn more computational

714
00:41:50,360 --> 00:41:53,720
Speaker 1: power toward validating blocks, and it can even lead hackers

715
00:41:53,719 --> 00:41:57,080
Speaker 1: to create armies of bot net like computers just to

716
00:41:57,160 --> 00:42:00,480
Speaker 1: help mind for bitcoins. So they're not going after data,

717
00:42:00,800 --> 00:42:04,000
Speaker 1: they're not trying to send you spam. They're literally trying

718
00:42:04,000 --> 00:42:06,560
Speaker 1: to infect your computer so they can turn it into

719
00:42:07,080 --> 00:42:09,520
Speaker 1: one of the seven dwarfs as they mine for bitcoins.

720
00:42:09,800 --> 00:42:13,000
Speaker 1: In fact, bitcoin mining is responsible for an awful lot

721
00:42:13,040 --> 00:42:17,640
Speaker 1: of energy consumption. According to the digit digit Economist website,

722
00:42:18,120 --> 00:42:22,440
Speaker 1: bitcoin mining consumes thirty two tarot watt hours of power annually,

723
00:42:23,080 --> 00:42:27,280
Speaker 1: or two fifty kilowatt hours per transaction. Now thirty two

724
00:42:27,280 --> 00:42:30,560
Speaker 1: taro watt hours is equivalent to the power consumption of

725
00:42:30,760 --> 00:42:34,359
Speaker 1: Denmark over the course of a year more or less,

726
00:42:34,760 --> 00:42:37,800
Speaker 1: and two KWA hours is the same amount of energy

727
00:42:37,880 --> 00:42:40,640
Speaker 1: you'd use to power your home for more than a week.

728
00:42:41,680 --> 00:42:46,280
Speaker 1: Eric Holthouse predicted that by twenty bitcoin mining will consume

729
00:42:46,440 --> 00:42:50,240
Speaker 1: as much electricity as what the entire world is using

730
00:42:50,640 --> 00:42:55,040
Speaker 1: this year, in well last year. For you guys who

731
00:42:55,040 --> 00:43:00,000
Speaker 1: are listening because it's coming out early. That's pretty dramatic.

732
00:43:00,600 --> 00:43:03,080
Speaker 1: But it turns out it's not really as simple as that,

733
00:43:03,960 --> 00:43:09,040
Speaker 1: because here's how it boils down. The more energy you use,

734
00:43:09,960 --> 00:43:12,560
Speaker 1: the more you will ultimately have to pay. Because you're

735
00:43:12,640 --> 00:43:15,600
Speaker 1: using up more energy. There's a certain amount of energy

736
00:43:15,960 --> 00:43:19,240
Speaker 1: rate that you're paying. The more you're using, the higher

737
00:43:19,280 --> 00:43:21,960
Speaker 1: that electric bill is going to be. If you're using

738
00:43:21,960 --> 00:43:25,240
Speaker 1: so much energy, that's requiring power companies to supply even

739
00:43:25,320 --> 00:43:28,840
Speaker 1: more than they normally would. Energy prices as a whole

740
00:43:28,920 --> 00:43:31,600
Speaker 1: will also increase. So not only are you using more

741
00:43:31,800 --> 00:43:35,120
Speaker 1: per unit of time, but that cost per unit of

742
00:43:35,160 --> 00:43:38,200
Speaker 1: time goes up. This is the basic idea behind supply

743
00:43:38,200 --> 00:43:40,760
Speaker 1: and demand. Your demand for energy has increased, the supply

744
00:43:40,840 --> 00:43:44,320
Speaker 1: has not necessarily increased, at least not simultaneously with demand.

745
00:43:44,719 --> 00:43:47,240
Speaker 1: Prices go up. Well, if prices go up, that starts

746
00:43:47,280 --> 00:43:50,080
Speaker 1: to eat into your profit. As you mind bitcoins. There's

747
00:43:50,120 --> 00:43:53,040
Speaker 1: no guarantee that you're going to find the next block.

748
00:43:53,560 --> 00:43:56,600
Speaker 1: So if the energy prices increase to the point that

749
00:43:56,680 --> 00:44:00,560
Speaker 1: it's no longer profitable to do bitcoin mining, you'll ease off.

750
00:44:01,000 --> 00:44:04,200
Speaker 1: You'll create a little relief on the system. Now, the

751
00:44:04,200 --> 00:44:08,880
Speaker 1: difficulty of those complex mathematical problems isn't static I mentioned earlier.

752
00:44:09,200 --> 00:44:11,960
Speaker 1: It's dependent upon how much processing power is being thrown

753
00:44:12,000 --> 00:44:16,200
Speaker 1: at them. So every two thousand sixteen blocks, the blockchain

754
00:44:16,239 --> 00:44:19,040
Speaker 1: system takes a look at how long the average block

755
00:44:20,000 --> 00:44:23,279
Speaker 1: went before it was validated. The goal is to keep

756
00:44:23,320 --> 00:44:27,400
Speaker 1: that time as close to ten minutes per block as possible. Now,

757
00:44:27,440 --> 00:44:30,120
Speaker 1: if there's an enormous amount of computing power directed at

758
00:44:30,120 --> 00:44:33,440
Speaker 1: the problem, that means the mathematical problem has to be

759
00:44:33,560 --> 00:44:37,560
Speaker 1: harder to solve, to balance out the massive amounts of

760
00:44:37,600 --> 00:44:41,920
Speaker 1: computer power that's being shot at it. But if people

761
00:44:41,960 --> 00:44:46,080
Speaker 1: start dropping out of minding because it's getting too expensive

762
00:44:46,239 --> 00:44:48,880
Speaker 1: to run the computer systems that are validating these blocks,

763
00:44:48,880 --> 00:44:52,120
Speaker 1: the energy bills are so high that there's no more profit,

764
00:44:52,800 --> 00:44:55,840
Speaker 1: people start to drop away. People back off. The system

765
00:44:55,880 --> 00:44:59,480
Speaker 1: will actually notice this, They'll see that it's taking longer

766
00:44:59,520 --> 00:45:03,880
Speaker 1: and longer to validate a block of the chain because

767
00:45:04,040 --> 00:45:06,359
Speaker 1: there's not as much processing power being thrown at it,

768
00:45:06,880 --> 00:45:09,680
Speaker 1: So then it will adjust that computational problem. It will

769
00:45:09,680 --> 00:45:12,680
Speaker 1: make it less difficult to solve, to try and get

770
00:45:12,680 --> 00:45:15,560
Speaker 1: back to that ten minute mark, so it gets easier

771
00:45:15,600 --> 00:45:19,239
Speaker 1: to solve blocks. And meanwhile, because the profit margin has

772
00:45:19,280 --> 00:45:22,120
Speaker 1: been whittled away and energy prices are high, more and

773
00:45:22,160 --> 00:45:24,560
Speaker 1: more miners have dropped out of the system, at least temporarily,

774
00:45:24,800 --> 00:45:29,879
Speaker 1: which decreases the demand for energy. Prices will gradually readjust

775
00:45:29,920 --> 00:45:33,600
Speaker 1: and become lower again, and it becomes profitable to mine

776
00:45:33,680 --> 00:45:37,680
Speaker 1: bitcoins all over again. The whole process starts up. Now.

777
00:45:37,719 --> 00:45:39,799
Speaker 1: A lot of these companies are using various types of

778
00:45:39,800 --> 00:45:43,239
Speaker 1: cryptocurrency as an incentive to be part of this, and

779
00:45:43,320 --> 00:45:45,560
Speaker 1: some of them are using cryptocurrency in a way as

780
00:45:45,600 --> 00:45:49,040
Speaker 1: to say this is an investment, and your investment into

781
00:45:49,080 --> 00:45:51,879
Speaker 1: the system will eventually pay off in profit because the

782
00:45:51,960 --> 00:45:56,400
Speaker 1: value of what you hold will increase over time. Others say,

783
00:45:56,600 --> 00:46:00,520
Speaker 1: your participation in this system is what gives the system value,

784
00:46:00,560 --> 00:46:02,920
Speaker 1: so the more people who participate, the more valuable the

785
00:46:02,960 --> 00:46:05,360
Speaker 1: system is, and the more you will get out of

786
00:46:05,360 --> 00:46:08,560
Speaker 1: it as a result. So it's two slightly different approaches

787
00:46:09,080 --> 00:46:10,799
Speaker 1: UH and a lot of these companies are using what

788
00:46:10,840 --> 00:46:15,399
Speaker 1: they're called i c o s initial coin offerings. It's

789
00:46:15,440 --> 00:46:17,920
Speaker 1: kind of like an initial public offering, except instead of

790
00:46:17,920 --> 00:46:22,120
Speaker 1: offering up stock, they're talking about offering up cryptocurrency or

791
00:46:22,160 --> 00:46:26,640
Speaker 1: tokens in a system so that they're able to do

792
00:46:26,719 --> 00:46:29,160
Speaker 1: whatever it is they're trying to do, and that could

793
00:46:29,160 --> 00:46:32,560
Speaker 1: be pretty much anything. It's an interesting world, and there

794
00:46:32,560 --> 00:46:34,520
Speaker 1: are a lot of people who are wondering if this

795
00:46:34,600 --> 00:46:38,799
Speaker 1: is going to be the next evolution of finance, or

796
00:46:38,840 --> 00:46:41,480
Speaker 1: if this is going to be a bubble that once

797
00:46:41,520 --> 00:46:45,799
Speaker 1: it bursts, it doesn't recover. Some people are pretty sure

798
00:46:45,840 --> 00:46:49,000
Speaker 1: that there's gonna be a bubble that bursts and it

799
00:46:49,040 --> 00:46:52,359
Speaker 1: will be fine after that, after the market readjustment. It's

800
00:46:52,400 --> 00:46:53,879
Speaker 1: just that people are gonna lose a lot of money

801
00:46:53,920 --> 00:46:57,400
Speaker 1: in the short term, but it'll survive and keep going.

802
00:46:58,000 --> 00:46:59,840
Speaker 1: And then there's some people who say, no, this is

803
00:47:00,280 --> 00:47:02,960
Speaker 1: gonna inflate to a point where people are going to

804
00:47:03,040 --> 00:47:07,600
Speaker 1: be on paper millionaires and then it's going to crash,

805
00:47:07,719 --> 00:47:12,560
Speaker 1: and then the various cryptocurrencies will be worth nothing and

806
00:47:12,760 --> 00:47:16,719
Speaker 1: people will abandon it because of that massive failure. What

807
00:47:16,840 --> 00:47:19,400
Speaker 1: actually turns out we'll have to wait and see. Honestly,

808
00:47:19,400 --> 00:47:21,640
Speaker 1: I think that cryptocurrencies are here to stay, but I

809
00:47:21,680 --> 00:47:26,440
Speaker 1: do think we're gonna see occasional market corrections, as they say,

810
00:47:26,640 --> 00:47:31,880
Speaker 1: and we'll see that value drop precipitously. A few times.

811
00:47:31,880 --> 00:47:34,040
Speaker 1: We've actually seen that at the end of twenty seventeen,

812
00:47:34,120 --> 00:47:37,520
Speaker 1: where there are times where the cost of a bitcoin

813
00:47:37,680 --> 00:47:40,200
Speaker 1: was more than sixteen thousand dollars and other times when

814
00:47:40,239 --> 00:47:43,400
Speaker 1: it was less than eight thousand dollars, and it was

815
00:47:43,440 --> 00:47:47,279
Speaker 1: just fluctuating back and forth wildly day to day. That's

816
00:47:47,280 --> 00:47:50,040
Speaker 1: probably gonna keep going for a while until there's a

817
00:47:50,080 --> 00:47:53,400
Speaker 1: real market correction, and then we'll see maybe steady gains

818
00:47:53,400 --> 00:47:56,839
Speaker 1: from there on out. That's a guess on my part. Well,

819
00:47:56,880 --> 00:48:01,680
Speaker 1: that concludes our talk about blockchain technology the technology of

820
00:48:01,719 --> 00:48:04,239
Speaker 1: the future. I look forward to doing a whole lot

821
00:48:04,280 --> 00:48:07,680
Speaker 1: more episodes and talking to all sorts of tech, whether

822
00:48:07,719 --> 00:48:10,440
Speaker 1: it's old or new. Who knows. Maybe our next one

823
00:48:10,440 --> 00:48:15,200
Speaker 1: will be some sort of ancient technology, uh maybe something

824
00:48:15,239 --> 00:48:20,600
Speaker 1: like ancient or or maybe uh like nineteen century medical technology.

825
00:48:20,640 --> 00:48:23,640
Speaker 1: Because I was just thinking I need more nightmare fuel

826
00:48:23,760 --> 00:48:26,960
Speaker 1: material and that will certainly supply it. But maybe you

827
00:48:27,000 --> 00:48:29,040
Speaker 1: have suggestions for things I should talk about in future

828
00:48:29,040 --> 00:48:31,719
Speaker 1: episodes of tech Stuff. If you do, you can send

829
00:48:31,760 --> 00:48:34,400
Speaker 1: me a message. The email address for this show is

830
00:48:34,440 --> 00:48:36,600
Speaker 1: tech Stuff at how stuffworks dot com, or you can

831
00:48:36,680 --> 00:48:39,600
Speaker 1: draw me a line on Facebook or Twitter. The handle

832
00:48:39,719 --> 00:48:44,840
Speaker 1: for both of those social networks is tech Stuff hs W. Again,

833
00:48:45,239 --> 00:48:49,160
Speaker 1: I record these shows live on twitch dot tv slash

834
00:48:49,160 --> 00:48:52,520
Speaker 1: tech Stuff every Wednesday and Friday, so just swing by

835
00:48:52,560 --> 00:48:54,880
Speaker 1: there you'll see the schedule. You can join in, be

836
00:48:54,960 --> 00:48:59,160
Speaker 1: part of the chat room, and watch as a fumble

837
00:48:59,239 --> 00:49:04,239
Speaker 1: my way through the world of technology gravely and with

838
00:49:04,400 --> 00:49:15,200
Speaker 1: abandoned and with that law too again, really sin. For

839
00:49:15,280 --> 00:49:17,600
Speaker 1: more on this and thousands of other topics, is that

840
00:49:17,680 --> 00:49:28,600
Speaker 1: how staff works dot com.