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Speaker 1: The coin Bureau Podcast is a production of I Heart Radio.

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Speaker 1: Every bitcoin transaction has a tiny fee attached to it,

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Speaker 1: and this is this exists in order to pay the

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Speaker 1: miners for their work. But the main reward for miners

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Speaker 1: is what's called a block reward, So they get a

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Speaker 1: certain amount of BTC for every block that they mine

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Speaker 1: for them that they meant. Hello everyone, and welcome to

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Speaker 1: the coin Bureau Podcast. And this is Blockchain Part three,

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Speaker 1: Part three. Yes, we're still in the same spot. My

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Speaker 1: nosebleeded has finally stopped, and I'm ready to get stuck

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Speaker 1: in all right, Mike, all right, you're ready to pick

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Speaker 1: up where we left off and carry on our little

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Speaker 1: odyssey into blockchain. Yeah, let's do this. Okay, let's go.

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Speaker 1: We've talked about this holy grail, this idea of a

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Speaker 1: system that allows us to transact without anyone in the middle. Um,

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Speaker 1: so we've got a middleman, no middleman, exactly perfect. So

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Speaker 1: the solution to this problem is blockchain. So I think

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Speaker 1: I think we better now actually answer the question of

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Speaker 1: what a blockchain actually is. That that makes sense. Yeah, yeah,

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Speaker 1: I think I think We've beaten about the bush for

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Speaker 1: long enough. Okay, So here's here's a here's a definition

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Speaker 1: to get us started off. So basically, a blockchain is

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Speaker 1: a database of transactional data and it's stored on a

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Speaker 1: network of separate computers. It's decentralized, and these computers are

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Speaker 1: known as notes, and they can be scattered across any

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Speaker 1: number of locations, and in fact, the more the better

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Speaker 1: because that makes it even more decentralized, and that has

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Speaker 1: great advantages as well, as we'll see shortly. So that's

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Speaker 1: a that's a sort of working definition, this decentralized network

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Speaker 1: of separate computers and they're all storing this database. They're

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Speaker 1: all storing a copy of the database. Um. Now I

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Speaker 1: use that term node, and this is going to come

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Speaker 1: up a few times. So a node on a blockchain

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Speaker 1: is basically a computer that's downloaded and is running the

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Speaker 1: software for that particular blockchain. And you can think of

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Speaker 1: each note, if it's helpful, as a sort of individual bookkeeper,

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Speaker 1: so it has it has a copy of the of

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Speaker 1: the book of the ledger okay um. And this decentralized

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Speaker 1: network and the transaction history it holds is often referred

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Speaker 1: to as a distributed ledger. That's another term that I

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Speaker 1: don't like that. I don't use that term too much,

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Speaker 1: but you do see it quite a lot when when

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Speaker 1: people are talking about blockchains, nerds nerds when yeah, it's

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Speaker 1: it's a popular term. A distributed ledger, a record of

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Speaker 1: accounts spread out over many inter link computers. So here

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Speaker 1: is how it works. Okay, so just a quick note.

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Speaker 1: We're obviously going to use bitcoin as our example here,

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Speaker 1: but it could be any cryptocurrency depending on which blockchain

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Speaker 1: is being used. Bitcoin was the original, so we're going

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Speaker 1: to stick with bitcoin. So let's imagine a transaction taking place,

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Speaker 1: and this time, rather than me sending money to you,

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Speaker 1: as it's been the case in previous episodes, you're going

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Speaker 1: to send some to me. You're going to send a

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Speaker 1: bitcoin to me, a whole bitcoin. Whole bitcoin. Yeah, yeah,

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Speaker 1: what have I've done? Yeah? Read your contract, it's all

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Speaker 1: in there. So before we talk about that, we need

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Speaker 1: to talk about one of these technical aspects of blockchain,

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Speaker 1: which is public and private keys. Now, this is really

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Speaker 1: important from a security standpoint. So one of the main

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Speaker 1: ways in which blockchains are safe to use and ideally

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Speaker 1: supported ideal for supporting cryptocurrencies is through the use of

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Speaker 1: cryptography and This is where we get the crypto part

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Speaker 1: of it, which is cryptography. You can think of basically

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Speaker 1: the science of secrecy. Bitcoin uses two types of cryptography.

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Speaker 1: The first is what's called public key infrastructure p KI,

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Speaker 1: another little act them for you, and the other one

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Speaker 1: is hashing. But we're going to get to hashing later.

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Speaker 1: Hashing is um yeah, hashing gets really complex, but p

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Speaker 1: KI public key infrastructure as well. Yeah, okay, so that

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Speaker 1: makes us both sound clever. P KI public key infrastructure

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Speaker 1: works like this, so as a user has two separate keys,

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Speaker 1: which are basically just expressed as long strings of letters

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Speaker 1: and numbers. That's how they look on on the screen

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Speaker 1: on the page, as it were. So one is a

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Speaker 1: public key which everyone is able to see, and this

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Speaker 1: is basically the address of your bitcoin wallet. Um. And

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Speaker 1: you can give this out to people quite freely and

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Speaker 1: they can send you bitcoin. So you're looking to send

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Speaker 1: a bitcoin to me, that first of all, you need

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Speaker 1: my public key. Without that, you can't you can't send

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Speaker 1: me anything. The other key that you have that every

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Speaker 1: user has is a private key. Now this, as the

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Speaker 1: name suggests, you cannot share with anyone. You have to

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Speaker 1: keep this secret top top secret. Never ever share your

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Speaker 1: private key with anyone because this is used to basically

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Speaker 1: sign transactions and it proves to the network that you

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Speaker 1: control the address and the bitcoins within it. So, in

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Speaker 1: the example of our transaction where you're sending me a bitcoin,

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Speaker 1: thanks very much, by the way, I can receive that bitcoin,

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Speaker 1: I don't need to do anything. All I need to

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Speaker 1: do is make sure that you have my address and

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Speaker 1: then you can send that bitcoin to me. But I

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Speaker 1: know I don't need to do anything else than that.

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Speaker 1: But you need to sign the transaction with your private

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Speaker 1: key in order to make sure that that bitcoin leaves

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Speaker 1: your wallet, um so. And that will then that will

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Speaker 1: then come to me because the network will know that

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Speaker 1: that you have can that the person you've signed it off,

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Speaker 1: you've okayed exactly exactly um so. And a useful analogy

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Speaker 1: which isn't which isn't perfect, but it's good enough for

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Speaker 1: our purposes. Is you can think of the public key

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Speaker 1: is being based like your bank account because you give

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Speaker 1: your bank account number. Yeah, you give your bank account number.

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Speaker 1: When when you want someone to do some dodge your

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Speaker 1: stuff with people's bank account, I'm sure you can apparently

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Speaker 1: set up direct that I heard yeah. I mean, you

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Speaker 1: wouldn't want your bank account number to be generally which

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Speaker 1: is why yeah, which is why the analogy isn't isn't perfect,

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Speaker 1: But you can think of it like that. It works

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Speaker 1: in the same way. You know, if I wanted, if

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Speaker 1: I wanted you to send me money by a bank transfer,

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Speaker 1: I would have to give you my account number and

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Speaker 1: trust you not to misuse it. By the look in

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Speaker 1: your look in your eyes is probably should do that.

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Speaker 1: Let's stick to bit. I think I'm safer. I think

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Speaker 1: I'm safer like that. And you can also think of

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Speaker 1: your so you can think of your private key as

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Speaker 1: being similar to your PIN. Again, this is something that

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Speaker 1: you would not share with anyone, and obviously when you

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Speaker 1: want to send, when you want to withdraw money from

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Speaker 1: your account, you need that pin in order in order

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Speaker 1: to do it. If you're if you're making a cash

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Speaker 1: withdrawal of your typing it into a card terminal or whatever,

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Speaker 1: um so, and the public key, this one that you

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Speaker 1: can share, is generated from the private one. And I'm

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Speaker 1: only going to touch on how this is done because

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Speaker 1: this gets really complicated, but it's using, in Bitcoin's case,

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Speaker 1: a method called elliptic curve digital signature algorithm e c

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Speaker 1: D s A. This is as deep as I'm going

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Speaker 1: to dive into this element of cryptography, because I mean,

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Speaker 1: as you can probably tell from the sound of that,

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Speaker 1: it gets really complicated after that. UM, still with me.

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Speaker 1: The important thing and this I think this is amazing.

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Speaker 1: Really the important thing to take note of is that

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Speaker 1: e C D s A is almost impossible to reverse engineer.

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Speaker 1: So if you have someone's public key, you can't you

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Speaker 1: can't reverse it, you kind of you can't run it

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Speaker 1: back through the algorithm and guess their private key from that.

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Speaker 1: And it's very very clever and high level how this

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Speaker 1: is done. But obviously, yeah, if that was if if

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Speaker 1: it was if if if you were able to run

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Speaker 1: it the other way, it would be useless. But this

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Speaker 1: system has developed so that, yeah, it's impossible to guess

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Speaker 1: what someone's private key would be even though you have

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Speaker 1: your public key, which is why it's obviously safe for

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Speaker 1: your public key to be distributed in order for people

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Speaker 1: to send you money to send you bitcoin. UM. So

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Speaker 1: the take out here is that only you can send

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Speaker 1: BTC out of your wallet if you have the private key,

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Speaker 1: And there are instances where people have lost their private keys,

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Speaker 1: which means they lose access to their bitcoin, which is

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Speaker 1: obviously a bit of a diast. Yeah, and you'll notice

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Speaker 1: there that I referred to BTC. Now, this is something

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Speaker 1: that will touch on again in a minute or so,

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Speaker 1: but BTC is basically the native coin of the Bitcoin network.

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Speaker 1: There is there is a distinction that we need to

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Speaker 1: draw here because sometimes the word bitcoin sort of gets

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Speaker 1: thrown around and people refer to bitcoin. Well, and yeah,

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Speaker 1: that's something that's something else entirely. That's what's that's what's

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Speaker 1: known as a as a hard fork of bitcoin. Hard

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Speaker 1: forks are an aspect of blockchain that I think we'll

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Speaker 1: probably touch on in future, but I don't think we'll

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Speaker 1: touch on this in either of these two episodes. It's

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Speaker 1: not yeah, it's a bit, it's a it's a bit.

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Speaker 1: Next level. Okay, happy with p K I UM, So

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Speaker 1: let's get back to that transaction. Then the record, a

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Speaker 1: record for the transaction is created by the Bitcoin network

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Speaker 1: and it's broadcast to all the nodes, and then every

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Speaker 1: node on the network then checks the transaction and validates it. Okay,

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Speaker 1: still with me. Periodically, a predefined number of validated transactions

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Speaker 1: are grouped together into a block, and these blocks need

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Speaker 1: to be linked together to form a chain exactly exactly,

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Speaker 1: and that's where we get the term from. Obviously, now

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Speaker 1: we'll look later on at how these blocks are linked together,

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Speaker 1: because it gets pretty complex. Um. Just for the time being, though,

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Speaker 1: in order for the linking of blocks to be done,

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Speaker 1: the network has to agree that all transactions are valid

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Speaker 1: and the ledger can be updated, and this is known

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Speaker 1: as consensus. Here's another technical term. And again we're going

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Speaker 1: to come back to this maybe in this episode or

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Speaker 1: possibly the next one. So the blocks need to be

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Speaker 1: linked together. Consensus needs to be reached on the network.

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Speaker 1: Consensus is basically agreement as the as the term suggests,

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Speaker 1: and it's reached when a majority of Notes I or

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Speaker 1: more agree that everything is as it should be and

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Speaker 1: the blockchain can be updated with the latest batch of transactions. Okay.

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Speaker 1: And because all the blocks are linked together in sequence,

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Speaker 1: the information contained on that blockchain is immutable. And the

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Speaker 1: reason for this is because it's it's very very difficult

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Speaker 1: and almost impossible really to go back and change it,

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Speaker 1: because if you changed any information further back along the blockchain,

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Speaker 1: doing so would affect all the subsequent information and the

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Speaker 1: network nodes would notice that something was amiss. And this

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Speaker 1: is a key part of why blockchains are so secure

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Speaker 1: in that it's it's, as I say, almost impossible to

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Speaker 1: go back and fiddle with the information. Now, this could

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Speaker 1: be done, this has This is much easier to do

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Speaker 1: with a centralized database where the data is all all

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Speaker 1: just sitting there. But because blockchain is sequential in that way,

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Speaker 1: any any sort of retrospective hanky panky, yeah, one of

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Speaker 1: the better term is pretty difficult. Okay, So what I've

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Speaker 1: just given you there is a really simplified overview of

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Speaker 1: what a blockchain is, and we're going to dig deeper

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Speaker 1: into the whole process. Do you do you have a

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Speaker 1: kind of meant good mental picture of what we're dealing

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Speaker 1: with here. It all makes sense, It all makes sense.

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Speaker 1: It's not particularly riveting. I want to see I want

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Speaker 1: to see some green candles, That's all I'm about. You

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Speaker 1: want to see green candles. I can respect that, but

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Speaker 1: it is good to know how those green candles are

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Speaker 1: made and what keeping them on exactly exactly. And I

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Speaker 1: think you know, perhaps as we as we dig deeper

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Speaker 1: into it, you know, maybe some of these technical aspects

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Speaker 1: of it will will excite you a bit more. But

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Speaker 1: what we should have now two of blockchains I think

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Speaker 1: most important qualities should be apparent by now. So this

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Speaker 1: is the fact that is decentralized. It's spread across all

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Speaker 1: these nodes, so you can't just attack one place and

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Speaker 1: take control or interfere with the data. And it's immutable. Basically,

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Speaker 1: it can't be it can't be altered by respectively. Fudged.

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Speaker 1: Did you say fudged? Interesting interesting term. Yeah, I like that. Um.

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Speaker 1: And there's no single point of failure for the network,

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Speaker 1: and the information it carries is the truth. And and

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Speaker 1: actually blockchains have been referred to in in in the past,

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Speaker 1: some people refer to it as a truth machine. UM.

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Speaker 1: So if someone were to dispute a transaction, let's say

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Speaker 1: that you wanted to you were going to claim that

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Speaker 1: you've never sent me this bitcoin hang on a sect

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Speaker 1: that didn't happen, then we could go back check the

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Speaker 1: record and we'd have our answer that. Yeah, there are

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Speaker 1: there are blockchain explorers, and there are ways. There are

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Speaker 1: plenty of companies that can that can do this as well. Um.

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Speaker 1: And actually, one of the interesting things is that bitcoin

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Speaker 1: is commonly perceived as being untraceable and anonymous, and it's not. No.

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Speaker 1: In fact, bitcoin is a lot easier to track than cash.

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Speaker 1: So if anyone ever says to you, oh, bitcoin cryptocurrencies

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Speaker 1: is used by money launders and criminals, you can come

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Speaker 1: back to them and say, well, actually, if you were

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Speaker 1: looking to laund the money, you'd be much better off

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Speaker 1: using cash because bitcoin is is a lot easier to track.

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Speaker 1: It takes a bit of it can take a bit

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Speaker 1: of doing, and obviously experience, money launders will will have

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Speaker 1: many many processes. But because it's all sat there on

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Speaker 1: the blockchain and easily viewable, it's actually really difficult to conceal.

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Speaker 1: And it's all they're in zeros and ones, black and white. Yeah,

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Speaker 1: So before we before we move on, before we get

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Speaker 1: a little more technical, should we take a quick break.

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Speaker 1: So quick grain, let's have a quick fife. I've talked

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Speaker 1: about nodes a few times now, and these are an

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Speaker 1: essential part of the blockchain because, as I say, they

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Speaker 1: keep they hold this record of they hold the transaction history.

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Speaker 1: They're vital to the running and decentralization of the blockchain.

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Speaker 1: Um and let's before I want to talk about how

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Speaker 1: they're kept honest basically how they're incentivized to do their work.

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Speaker 1: But before we do that, let's just take a moment

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Speaker 1: to think about just how amazing this system is because firstly,

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Speaker 1: no one entity is in charge. This is a this

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Speaker 1: is a truly decentralized, truly decentralized. Yeah, no, no one person,

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Speaker 1: no one group of people really has any has any

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Speaker 1: control over the network. It's and because it's decentralized, with

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Speaker 1: no single point of failure, there's no one person that

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Speaker 1: you can lean on if you were if you were

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Speaker 1: going to try and manipulate it. It creates a record

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Speaker 1: that can't possibly be altered. Its censorship resistant, as we

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Speaker 1: as we say, and it solves this double spend problem

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Speaker 1: that we've talked about, and so all these things, it's

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Speaker 1: it's all these things are enormous, enormous um. All these

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Speaker 1: things are enormous kind of obstacles to to have overcome.

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Speaker 1: And the amazing thing about bitcoin is how cleverly it does.

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Speaker 1: It takes a lot of boxes. Yeah, yeah, it's um,

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Speaker 1: it's overcome all these different challenges, which individually I think

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Speaker 1: are pretty difficult to tackle themselves, but as a whole

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Speaker 1: is Yeah, it's a huge achievement that Satoshi has has

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Speaker 1: has pulled off. Yeah, yeah, it's amazing. But here's a question.

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Speaker 1: So let's say someone wanted to attack the network for

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Speaker 1: for some reason, maybe maybe financial gain, or they just

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Speaker 1: they just wanted to see destroy jes see exactly what

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Speaker 1: prevents them from running multiple nodes and gaining control that way,

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Speaker 1: Because setting up a node is really really easy. I'm

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Speaker 1: going to talk about this a bit more in Part two.

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Speaker 1: But the hardware you need to run a node is tiny,

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Speaker 1: It costs almost nothing, and you don't need to expend

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Speaker 1: much in the way of electricity or even time on

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Speaker 1: running a node. So you could argue that if someone

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Speaker 1: wanted to gain a lot of influence over the network,

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Speaker 1: they could just set up multiple nodes. It would take

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Speaker 1: a little bit of doing, but if they were in

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Speaker 1: coordination with a bunch of other bad guys, then it

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Speaker 1: would be But it's a lot. There's a lot of

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Speaker 1: nodes on there. There are a lot of nodes. Yeah,

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Speaker 1: because and it's certainly in the case of Bitcoin. It's

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Speaker 1: this is something that that comes up a lot when

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Speaker 1: people are talking when we're talking about other cryptocurrencies and decentralization,

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Speaker 1: because a lot of cryptos make these claims that they

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Speaker 1: have a lot of nodes and they're decentralized, and actually

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Speaker 1: when you dig down into them, they're not. But Bitcoin

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Speaker 1: genuinely has hundreds of thousands, it's thought of nodes across

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Speaker 1: the world. So actually, in theory, even even even if

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Speaker 1: there wasn't a system in place to keep nodes honest,

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Speaker 1: in theory, it would still be pretty difficult. But it

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Speaker 1: would have been a lot easier in Bitcoin's early days

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Speaker 1: when it was still when it was growing relatively slowly,

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Speaker 1: when they're only a handful maybe, I mean it started

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Speaker 1: off obviously with with with one and grew from there. Um,

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Speaker 1: so yeah, this would have been more relevant in Bitcoin's

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Speaker 1: early days, but it's still it's still something to consider.

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Speaker 1: So if someone were to control a majority of nodes

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Speaker 1: on the network, then they could theoretically have their fraudulent

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Speaker 1: transactions confirmed, and this would corrupt the whole blockchain and

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Speaker 1: may it useless. So there would be one way to

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Speaker 1: get around this, and that would be to have basically

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Speaker 1: some central authority keeping an eye on all the nodes

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Speaker 1: and authorizing each one. But this would of course destroy

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Speaker 1: the whole decentralized nature of it because again you're relying

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Speaker 1: on one entity, even if it's even if that one

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Speaker 1: entity only has a limited role in in approving nodes

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Speaker 1: or saying who or who can't be a node that's

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Speaker 1: still centralized. That's still a lot of power concentrated in

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Speaker 1: one place, which is which is against everything that Bitcoin

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Speaker 1: is it stands for. So um, what Satoshi was able

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Speaker 1: to do was to devise a system of basically incentives

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Speaker 1: and punishment's carrots and stick if you like, that would

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Speaker 1: keep the nodes honest and make the actual act of

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Speaker 1: trying to corrupt the network pointless. And this was this

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Speaker 1: was again the big challenge into avoid having this centralized authority.

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Speaker 1: So how does this work? How does this written stick

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Speaker 1: system work? A certain type of node creates the blocks

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Speaker 1: and these are batches of validated transactions and adds them

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Speaker 1: to the chain. Now, these nodes are known as miners. Okay,

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Speaker 1: this is a term I'm sure you've heard before. Miners

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Speaker 1: as in, yeah, minors, people who mine, not children. Not children. Um,

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Speaker 1: So we'll come back to mining later on because that's

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Speaker 1: a whole that's a whole field of discussion in itself.

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Speaker 1: But miners are basically rewarded for doing this work for

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Speaker 1: validating transactions and adding them to the chain. And bitcoin

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Speaker 1: miners are rewarded for maintaining the Bitcoin blockchain with BTC

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Speaker 1: basically UM. And there are two ways in which they're rewarded.

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Speaker 1: They get what's known they get a transaction fees, so

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Speaker 1: every Bitcoin transaction has a tiny fee attached to it,

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Speaker 1: and this is this exists in order to pay the

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Speaker 1: miners for their work. But the main reward for miners

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Speaker 1: is what's called a reward, So they get a certain

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Speaker 1: amount of BTC for every block that they mine for

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Speaker 1: them that they meant And we'll come back to how

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Speaker 1: how it is they do this, and again just flag

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Speaker 1: up just to flag up the difference between BTC, as

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Speaker 1: it talked about BTC being the native coin are on

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Speaker 1: the bitcoin network. So these Bitcoin the rewards, these BTC

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Speaker 1: rewards are distributed through a kind of lottery like system

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Speaker 1: UM and this reward is this this lottery system basically

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Speaker 1: is the incentive for doing the work. But what stops

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Speaker 1: them from trying to earn more rewards by running multiple nodes,

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Speaker 1: which could then give them control of the network. You

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Speaker 1: see again, it's this idea of that someone even if

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Speaker 1: they weren't looking to bring down the network, they could

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Speaker 1: still gain a lot of power for themselves by by

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Speaker 1: running locked by by yeah, running lots of mine. That's

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Speaker 1: having control of a lot of mining nodes. So all

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Speaker 1: minors have to expend computing power in order to earn

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Speaker 1: the chance to win this bitcoin lottery. And this system

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Speaker 1: is known as proof of work. Now, this is a

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Speaker 1: really important concept. Um So proof of work was something

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Speaker 1: that it wasn't devised by Satoshi himself. The proof of

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Speaker 1: work actually existed as a concept before Satoshi came along

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Speaker 1: with bitcoin, and it was originally developed as a system

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Speaker 1: for stopping spam email and you'll see you'll see why

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Speaker 1: in a minute. But what Satoshi managed to do was

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Speaker 1: basically pulled together a number of features from previous experiments

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Speaker 1: at creating a peer to peer digital cash and devise

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Speaker 1: a system that finally worked. At some point, I think

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Speaker 1: we'll have to go We'll have to do an episode

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Speaker 1: where we talk about some of these previous incarnations, maybe

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Speaker 1: when we dig into the history of bitcoin a bit more.

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Speaker 1: Because Bitcoin isn't the first attempt to create a peer

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Speaker 1: to pere digital cash. There are others that have that

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Speaker 1: have come close, some have been some have been more

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Speaker 1: successful than others. But so Toshi certainly wasn't the first

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Speaker 1: person to try and solve this problem, to try and

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Speaker 1: to try and invent this, this this thing. So proof

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Speaker 1: of work plays a really critical role in keeping the

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Speaker 1: network secure. But we'll come back to that. So proof

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Speaker 1: of work eats a lot of computing power, and this

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Speaker 1: obviously has to be paid for through electricity costs. So

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Speaker 1: what this means that if if one minor wanted to

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Speaker 1: gain control of the network, they would have to commit

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Speaker 1: so much computing power and pay for it through their

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Speaker 1: electricity bills obviously in order that they could do that.

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Speaker 1: And you can see that that's already a barrier, Yeah,

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Speaker 1: a disincentive if you like, Um, this is and the

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Speaker 1: expense of this is such that will almost certainly cancel

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Speaker 1: out any financial gain that the minor could could reasonably

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Speaker 1: expect to get from corrupting the network. And even if

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Speaker 1: they were able to force through their forgent transaction and

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Speaker 1: the rest of the network would notice what they were

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Speaker 1: trying to do. Also, I mean it's that's the basis

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Speaker 1: of of wine bitcoin is worth money. Yeah, in that

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Speaker 1: if you if you are able to corrupt it, but

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Speaker 1: you're paid with it, exactly. Yeah, that's a really good point.

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Speaker 1: If if you, yeah, if you corrupt to the network,

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Speaker 1: if you're a bitcoin miner and you wanted to corrupt

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Speaker 1: the network, then that would make the bitcoin, the BTC

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Speaker 1: that you hold, people's confidence in the network would crumble

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Speaker 1: and it would be worthless. So again, yeah, this is

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Speaker 1: this is part of that carrots and stick system that

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Speaker 1: Satoshi devised, that the miners are the miners have an

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Speaker 1: interest in keeping the network secure. Yeah, because the whole

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Speaker 1: reason above board exactly exactly. As soon as as soon

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Speaker 1: as the network was was found to be corrupted, as

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Speaker 1: soon as any large group of miners managed to gain control,

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Speaker 1: no one would want to use bitcoin. So all bitcoin,

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Speaker 1: all the BTC that they'd accumulated, would plummet in value.

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Speaker 1: So yeah, they're they're they're kept honest economically, if you like,

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Speaker 1: that's a really good point. Yes, So, um, people would, Yeah,

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Speaker 1: people would lose confidence in it, the bitcoin, Bitcoin's price

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Speaker 1: would tank, the miners gains would be wiped out. Um.

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Speaker 1: And I should say actually as well that we talk

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Speaker 1: about that, we talk about this idea of of of

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Speaker 1: people wanting to corrupt the network for financial gain. It's

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Speaker 1: also worth pointing out that not all incentives to take

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Speaker 1: down bitcoin areily financial. Were a government China, China, people America,

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Speaker 1: or American government a crypto, yeah, a government that is

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Speaker 1: hostile to crypto, and China is definitely the entity that

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Speaker 1: brings to mind here. People have talked about this a

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Speaker 1: lot because a lot of bitcoin miners until fairly recently

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Speaker 1: were concentrated in China, and there was a lot of

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Speaker 1: worry that the Chinese government being yes, possibly um, but

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Speaker 1: there is Yeah, the Chinese government is obviously one of

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Speaker 1: the more how to put this coercive government's out there,

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Speaker 1: authoritarian authoritarian yeah, um. And it's quite possible that that

430
00:25:21,400 --> 00:25:24,080
Speaker 1: the Chinese government would want to do something like that

431
00:25:24,160 --> 00:25:27,600
Speaker 1: if it's saw bitcoin as enough of a threat, then

432
00:25:27,800 --> 00:25:30,879
Speaker 1: it would theoretically be able to get the resources together,

433
00:25:30,920 --> 00:25:34,040
Speaker 1: certainly to lean on the miners that it could it

434
00:25:34,119 --> 00:25:37,200
Speaker 1: could infeasibly lean on. And because so many of those

435
00:25:37,200 --> 00:25:41,440
Speaker 1: miners were in China, this was a genuine concern. Since

436
00:25:41,520 --> 00:25:45,439
Speaker 1: China basically banned mining in one in sort of mid

437
00:25:46,240 --> 00:25:50,840
Speaker 1: one miners have miners have left China, and I think

438
00:25:50,920 --> 00:25:53,960
Speaker 1: as as we speak, there are virtually I think that

439
00:25:54,000 --> 00:25:56,240
Speaker 1: all the hash power has gone from from China, so

440
00:25:56,240 --> 00:26:01,160
Speaker 1: there's virtually no bitcoin mining taking place in mainland China anymore,

441
00:26:01,640 --> 00:26:04,560
Speaker 1: which is which is a good thing for the network really,

442
00:26:04,600 --> 00:26:08,080
Speaker 1: because yeah, I mean it was remember it was kind

443
00:26:08,119 --> 00:26:10,760
Speaker 1: of okay, look that that might be a problem. People

444
00:26:10,760 --> 00:26:13,879
Speaker 1: were like worried about it, but yeah, because you know,

445
00:26:14,160 --> 00:26:17,760
Speaker 1: you're seeing it's seen as a crackdown, but actually it's

446
00:26:17,760 --> 00:26:21,320
Speaker 1: a bit more liberating for the for the cause exactly. Yeah,

447
00:26:21,400 --> 00:26:26,560
Speaker 1: because the miners are incentivized, pretty heavily incentivized to move

448
00:26:26,600 --> 00:26:31,159
Speaker 1: their operations elsewhere. So a lot of miners from China,

449
00:26:31,480 --> 00:26:33,280
Speaker 1: a lot of them went to the United States, and

450
00:26:33,520 --> 00:26:35,840
Speaker 1: a lot of them also went to sort of neighboring countries.

451
00:26:35,880 --> 00:26:39,080
Speaker 1: I think places like Kazakhstan saw a lot of influx

452
00:26:39,119 --> 00:26:42,720
Speaker 1: of miners and it's it's not a sorry, is it

453
00:26:42,800 --> 00:26:46,200
Speaker 1: cheap power there or yeah? Yeah, so there are places

454
00:26:46,560 --> 00:26:49,840
Speaker 1: And this was another concern about about mining in China

455
00:26:49,960 --> 00:26:53,160
Speaker 1: was a lot of it was done using coal, and

456
00:26:53,520 --> 00:26:58,040
Speaker 1: obviously that has huge environmental issues. Kazakstan is just pure

457
00:26:58,160 --> 00:27:02,600
Speaker 1: natural gas. Yeah. It's also worth pointing out that as

458
00:27:02,640 --> 00:27:06,480
Speaker 1: well as governments perhaps a rival crypto project to be

459
00:27:06,520 --> 00:27:11,120
Speaker 1: motivated to take down Bitcoin s Gridcoin, squid Coin, Yeah,

460
00:27:11,119 --> 00:27:14,840
Speaker 1: that the Mighty squid again, this would be they'd have

461
00:27:14,880 --> 00:27:19,080
Speaker 1: the motivation, but the means would again be really difficult.

462
00:27:19,119 --> 00:27:22,800
Speaker 1: It's just it's just so costly committing all this computing power.

463
00:27:23,160 --> 00:27:25,399
Speaker 1: And we're going to find out why exactly it uses

464
00:27:25,440 --> 00:27:28,800
Speaker 1: all this computing power later on. But yeah, in order

465
00:27:28,800 --> 00:27:31,280
Speaker 1: to do it, it would be it would cost so

466
00:27:31,359 --> 00:27:34,960
Speaker 1: much that you'd have to be really highly motivated and

467
00:27:35,000 --> 00:27:38,840
Speaker 1: either I think really only a government would be would

468
00:27:38,840 --> 00:27:41,760
Speaker 1: have the would have the resources to do that. So

469
00:27:41,800 --> 00:27:44,640
Speaker 1: this is another of bitcoin strengths. And people talk about

470
00:27:44,720 --> 00:27:47,800
Speaker 1: governments talk about banning bitcoin all the time, and as

471
00:27:47,840 --> 00:27:51,400
Speaker 1: anyone as any bitcoin will tell you, you you can't ban bitcoin.

472
00:27:52,320 --> 00:27:54,239
Speaker 1: You can make it, you can make it harder for

473
00:27:54,240 --> 00:27:58,359
Speaker 1: people to use it. But because it is spread spread

474
00:27:58,359 --> 00:28:01,120
Speaker 1: across the world, spread across all these different nodes, there's

475
00:28:01,160 --> 00:28:03,320
Speaker 1: no way of there's no way of going after the

476
00:28:03,359 --> 00:28:06,280
Speaker 1: network itself. The only way to do it, I guess,

477
00:28:06,280 --> 00:28:08,960
Speaker 1: would be to would be to limit people's access to it.

478
00:28:09,040 --> 00:28:11,359
Speaker 1: But even China struggles to do this, and China has

479
00:28:11,400 --> 00:28:13,919
Speaker 1: the great Firewall of China. China has some of the

480
00:28:14,000 --> 00:28:17,520
Speaker 1: strictest and most rigidly controlled internet in the whole world,

481
00:28:18,080 --> 00:28:22,320
Speaker 1: and even even the Chinese government can't stop people accessing

482
00:28:22,560 --> 00:28:26,160
Speaker 1: and using the Bitcoin network. Um and so you're it's

483
00:28:26,200 --> 00:28:28,800
Speaker 1: tempting to think that China can't do it. Really, no

484
00:28:28,800 --> 00:28:31,879
Speaker 1: one else is going to come close. So yeah, another

485
00:28:32,000 --> 00:28:33,520
Speaker 1: that's another thing to bear in mind. If you ever

486
00:28:33,520 --> 00:28:37,920
Speaker 1: hear about bitcoin being banned, it can't be. It can

487
00:28:37,960 --> 00:28:42,760
Speaker 1: be made illegal, but actually banning it, actually successfully stopping

488
00:28:42,760 --> 00:28:47,080
Speaker 1: people from having any access to it whatsoever, is difficult

489
00:28:47,160 --> 00:28:50,240
Speaker 1: and or impossible. So we should have a very simple

490
00:28:50,280 --> 00:28:54,040
Speaker 1: overview of how a blockchain like Bitcoin's works. A decentralized

491
00:28:54,040 --> 00:28:57,120
Speaker 1: network of nodes and miners that are incentivized to behave

492
00:28:57,200 --> 00:28:59,800
Speaker 1: in an honest fashion because if they didn't, they wouldn't

493
00:28:59,840 --> 00:29:02,360
Speaker 1: get anything from being part of the network. Um and

494
00:29:02,400 --> 00:29:04,160
Speaker 1: if any minor was to step out of line, the

495
00:29:04,160 --> 00:29:07,080
Speaker 1: penalties for doing so would not be worth the effort

496
00:29:07,080 --> 00:29:11,200
Speaker 1: they had expended. So the network, as I've sawn, is

497
00:29:11,240 --> 00:29:14,440
Speaker 1: designed to keep itself honest. You've got this balance of

498
00:29:14,680 --> 00:29:18,280
Speaker 1: incentives and punishment Carris and stick guy. I need to

499
00:29:18,280 --> 00:29:20,800
Speaker 1: stop you right there. I need to go to have

500
00:29:20,880 --> 00:29:24,920
Speaker 1: a piss. Fair enough, we also have some sponsor to

501
00:29:25,240 --> 00:29:26,640
Speaker 1: I mean, you could have just said we need to

502
00:29:26,640 --> 00:29:30,520
Speaker 1: take break. Whatever works for you, man, We'll be right back.

503
00:29:43,480 --> 00:29:47,800
Speaker 1: Welcome back everyone, Mike. Was that a successful toilet visit? Yeah? Good,

504
00:29:47,800 --> 00:29:50,160
Speaker 1: you were gone quite a while. Yeah, but you you

505
00:29:50,200 --> 00:29:53,680
Speaker 1: look lot on my hands unlike some of us. Guy,

506
00:29:54,400 --> 00:29:56,240
Speaker 1: dare you two more things I want to talk about

507
00:29:56,280 --> 00:29:59,440
Speaker 1: today in relation to blockchain? Sure? The first is what

508
00:29:59,640 --> 00:30:03,560
Speaker 1: is call all the blockchain tri Lemma. Okay this now

509
00:30:03,680 --> 00:30:06,320
Speaker 1: this sounds cool? Yeah, well all right, so let's start off.

510
00:30:06,360 --> 00:30:10,040
Speaker 1: There's a there's a payoff to bitcoin's proof of work blockchain. Okay,

511
00:30:10,680 --> 00:30:14,000
Speaker 1: because it's it's decentralized, as we've talked about, it is

512
00:30:14,000 --> 00:30:19,360
Speaker 1: also super secure, but it isn't all that fast. Yeah,

513
00:30:19,520 --> 00:30:23,000
Speaker 1: Like we're saying ten minutes for a transaction will come through, right, Yeah,

514
00:30:23,040 --> 00:30:25,400
Speaker 1: so a ten minute, ten minute block time, which is

515
00:30:25,480 --> 00:30:27,880
Speaker 1: kind of like yeah, so my problem is if I'm

516
00:30:27,920 --> 00:30:29,880
Speaker 1: buying something, I don't want to have to hang around

517
00:30:29,880 --> 00:30:32,880
Speaker 1: a ten minutes while exactly. Yeah. This has been something

518
00:30:32,920 --> 00:30:35,120
Speaker 1: that's been a problem with bitcoin for a while now,

519
00:30:35,160 --> 00:30:40,840
Speaker 1: in that if yeah, it's not ideally suited for yeah,

520
00:30:40,880 --> 00:30:44,000
Speaker 1: because transactions take a while to come through. And the

521
00:30:44,040 --> 00:30:47,040
Speaker 1: reason for this is that the bitcoin blockchain, this proof

522
00:30:47,040 --> 00:30:50,920
Speaker 1: of work blockchain, is really slow. It can only process

523
00:30:51,680 --> 00:30:57,000
Speaker 1: seven around seven transactions per second, okay, which might sound

524
00:30:57,400 --> 00:31:02,160
Speaker 1: quite a lot. But compare this with Visa, which can

525
00:31:02,200 --> 00:31:03,880
Speaker 1: handle Do you want to have a guess at how

526
00:31:03,920 --> 00:31:06,360
Speaker 1: many transactions per second the Visa network can handle at

527
00:31:06,360 --> 00:31:11,479
Speaker 1: at sort of top capacity? At nine sixty you were sleeping,

528
00:31:12,480 --> 00:31:15,200
Speaker 1: you know, in the higher lower game. I was going

529
00:31:15,320 --> 00:31:19,200
Speaker 1: slightly higher just you just weren't going to go too

530
00:31:19,200 --> 00:31:21,600
Speaker 1: far out then we want to go crazy. Yeah, okay, no,

531
00:31:21,800 --> 00:31:24,160
Speaker 1: well yeah you were you ever say slightly of sixty

532
00:31:24,160 --> 00:31:27,400
Speaker 1: five th tps? We we say tps for sure transactions

533
00:31:27,440 --> 00:31:31,720
Speaker 1: per second And that's when visas at maximum capacity. Um,

534
00:31:31,720 --> 00:31:36,720
Speaker 1: now Christmas time, Black Friday? Yeah yeah, yeah, so Black Friday.

535
00:31:37,120 --> 00:31:40,720
Speaker 1: The Visa network can handle a lot of traffic. The

536
00:31:40,720 --> 00:31:44,280
Speaker 1: Bitcoin network can only handle a tiny fraction of that,

537
00:31:44,800 --> 00:31:46,920
Speaker 1: which is obviously not ideal when you want to make

538
00:31:46,920 --> 00:31:49,160
Speaker 1: instant payments. Now, going back to that episode where we

539
00:31:49,160 --> 00:31:52,040
Speaker 1: talked about what happens when you make a card payment

540
00:31:52,120 --> 00:31:53,840
Speaker 1: and all this sort of stuff, there's a heck of

541
00:31:53,880 --> 00:31:56,320
Speaker 1: a lot of stages. Do you remember we talked about

542
00:31:56,320 --> 00:31:59,280
Speaker 1: how many stages, how many different third parties are involved

543
00:31:59,280 --> 00:32:02,040
Speaker 1: in the transact, and all that sort of stuff, from

544
00:32:02,080 --> 00:32:05,160
Speaker 1: the moment you you boop your card until the moment

545
00:32:05,200 --> 00:32:09,400
Speaker 1: the merchant gets paid. But it's it's it's seconds. Really,

546
00:32:10,240 --> 00:32:12,960
Speaker 1: it's a really it's a really quick process. And obviously

547
00:32:13,040 --> 00:32:16,040
Speaker 1: Visa has invested heavily in its infrastructure, and it's also

548
00:32:16,080 --> 00:32:20,440
Speaker 1: got a centralized network, and centralized networks are much better

549
00:32:20,560 --> 00:32:24,719
Speaker 1: at processing the processing a lot of transactions per second um.

550
00:32:25,560 --> 00:32:28,800
Speaker 1: But the Bitcoin network, now you can kind of understand it.

551
00:32:28,800 --> 00:32:31,240
Speaker 1: I guess given everything that we've talked about, everything that's

552
00:32:31,280 --> 00:32:33,880
Speaker 1: going on, all this computing power that's been thrown at it,

553
00:32:34,440 --> 00:32:37,880
Speaker 1: the fact that the block time is kept at ten minutes,

554
00:32:37,920 --> 00:32:42,440
Speaker 1: by the by the by the difficulty setting on the network,

555
00:32:42,800 --> 00:32:46,040
Speaker 1: and and also there's only so much information that you

556
00:32:46,080 --> 00:32:49,400
Speaker 1: can contain within a bitcoin block. It only actually holds

557
00:32:49,480 --> 00:32:53,000
Speaker 1: one megabyte of information. Now, when we come to talk

558
00:32:53,040 --> 00:32:55,880
Speaker 1: about bitcoin specifically, we're going to talk about there was

559
00:32:55,920 --> 00:32:58,200
Speaker 1: a huge argument a few years ago. Books have been

560
00:32:58,200 --> 00:33:01,600
Speaker 1: written about this, called the block size wars, and some

561
00:33:01,680 --> 00:33:05,080
Speaker 1: within the bitcoin community wanted to increase the amount of

562
00:33:05,120 --> 00:33:08,200
Speaker 1: information that you could that you could store in a block,

563
00:33:08,800 --> 00:33:11,720
Speaker 1: which would mean that Bitcoin, the network would be able

564
00:33:11,720 --> 00:33:15,520
Speaker 1: to trend, would be able to handle more transactions per second.

565
00:33:15,760 --> 00:33:18,400
Speaker 1: But other people on the other people in the bitcoin

566
00:33:18,440 --> 00:33:21,400
Speaker 1: community were totally against this, and one of the reasons

567
00:33:21,640 --> 00:33:23,840
Speaker 1: is that if you increase the size of the block,

568
00:33:24,600 --> 00:33:27,680
Speaker 1: it becomes a lot lot harder to store the whole

569
00:33:27,720 --> 00:33:31,440
Speaker 1: blockchain history because you increase the amount of data that

570
00:33:31,520 --> 00:33:34,960
Speaker 1: the blockchain is dealing with. And at the moment, pretty

571
00:33:35,040 --> 00:33:37,680
Speaker 1: much any any computer, even one of these tiny sort

572
00:33:37,680 --> 00:33:39,400
Speaker 1: of raspberry pies that we were talking about that you

573
00:33:39,440 --> 00:33:42,600
Speaker 1: can run a note on, it's it's only, um, it's

574
00:33:42,600 --> 00:33:46,080
Speaker 1: only a few gigs of data the Bitcoin blockchain, whereas

575
00:33:46,120 --> 00:33:49,160
Speaker 1: there are other blockchains out there that have much faster

576
00:33:49,640 --> 00:33:52,600
Speaker 1: transactions per second, that can handle a lot more, but

577
00:33:52,680 --> 00:33:55,440
Speaker 1: their data is huge. Salana is a good example, and

578
00:33:55,440 --> 00:33:58,040
Speaker 1: we'll obviously we'll talk about Salana in in due course,

579
00:33:58,120 --> 00:34:01,160
Speaker 1: but um, yeah, it's super fast, but in order to

580
00:34:01,600 --> 00:34:03,920
Speaker 1: it can't actually store all its data. It has to

581
00:34:04,040 --> 00:34:07,960
Speaker 1: use another cryptocurrency project in order to store its data.

582
00:34:08,239 --> 00:34:12,560
Speaker 1: It produces a vast amount so long story short, the

583
00:34:13,120 --> 00:34:15,400
Speaker 1: it would it would have been possible, with the agreement

584
00:34:15,440 --> 00:34:18,640
Speaker 1: of the bitcoin community to increase the block size, but

585
00:34:18,719 --> 00:34:21,200
Speaker 1: it was decided against doing this because that was that

586
00:34:21,320 --> 00:34:25,640
Speaker 1: just some vote. Yeah, it would have come down to

587
00:34:25,840 --> 00:34:27,480
Speaker 1: it would have come down to a vote in the end,

588
00:34:28,560 --> 00:34:32,040
Speaker 1: voting by voting by nodes and miners. And there's a

589
00:34:32,080 --> 00:34:35,240
Speaker 1: core group of about five people who are able to

590
00:34:35,400 --> 00:34:37,920
Speaker 1: enact changes on the Bitcoin network, but they can only

591
00:34:37,960 --> 00:34:41,200
Speaker 1: do it with the approval of a majority of the community.

592
00:34:41,200 --> 00:34:44,040
Speaker 1: And it was decided. I mean, this got really these

593
00:34:44,120 --> 00:34:47,600
Speaker 1: arguments got really heated, it got really bitter, and it

594
00:34:47,680 --> 00:34:50,120
Speaker 1: was a philosophical thing as much as anything else. But

595
00:34:50,200 --> 00:34:56,919
Speaker 1: basically the UM I don't quite recall now I think

596
00:34:56,960 --> 00:34:59,120
Speaker 1: it was. I think it was for a time, but

597
00:34:59,440 --> 00:35:01,799
Speaker 1: I think it was fairly it was fairly clear that

598
00:35:03,040 --> 00:35:05,799
Speaker 1: the majority wanted to keep it as it was UM.

599
00:35:06,160 --> 00:35:09,520
Speaker 1: But that said, it did that there were enough people

600
00:35:09,520 --> 00:35:12,480
Speaker 1: who disagreed with it, and we actually had a bit

601
00:35:12,560 --> 00:35:15,880
Speaker 1: that's where bitcoin cash came from. That that resulted in

602
00:35:15,920 --> 00:35:18,000
Speaker 1: a hard fork of the network. Now, this is getting

603
00:35:18,360 --> 00:35:22,239
Speaker 1: into stuff I wasn't planning to talk about today. UM,

604
00:35:22,280 --> 00:35:24,799
Speaker 1: but the network split and the people who wanted a

605
00:35:24,920 --> 00:35:29,520
Speaker 1: larger block size, started a new project called bitcoin Cash,

606
00:35:29,640 --> 00:35:33,839
Speaker 1: and the two communities do not get on um. But yeah,

607
00:35:33,840 --> 00:35:36,480
Speaker 1: so we wandered away from it slightly. But the reason

608
00:35:36,520 --> 00:35:39,680
Speaker 1: why the Bitcoin network is so slow is because it

609
00:35:39,800 --> 00:35:43,400
Speaker 1: is decentralized and because there can only be a small

610
00:35:43,440 --> 00:35:46,640
Speaker 1: amount one megabyte of information contained within each block, which

611
00:35:46,680 --> 00:35:49,000
Speaker 1: results in the fact that it can only process seven

612
00:35:49,040 --> 00:35:56,160
Speaker 1: transactions a second. So yeah, and this whole decentralization is

613
00:35:56,200 --> 00:35:58,920
Speaker 1: part of it. It means that any node can because

614
00:35:59,400 --> 00:36:01,799
Speaker 1: because the block size has been kept small, it means

615
00:36:01,840 --> 00:36:03,919
Speaker 1: that pretty much any node can story, which is great

616
00:36:03,920 --> 00:36:10,560
Speaker 1: for decentralization, it's not so good for speed. All makes sense, Yeah, okay,

617
00:36:10,600 --> 00:36:13,480
Speaker 1: so yeah, so this brings us to what is called

618
00:36:13,520 --> 00:36:15,600
Speaker 1: the blockchain trial lemo. Now, this is something that was

619
00:36:15,680 --> 00:36:20,480
Speaker 1: first identified by Vitalik Buterin, who is the founder of Ethereum,

620
00:36:20,520 --> 00:36:23,480
Speaker 1: and as will discover in future episodes, he was motivated

621
00:36:23,560 --> 00:36:27,640
Speaker 1: to to design and build Ethereum because of deficiencies that

622
00:36:27,680 --> 00:36:31,439
Speaker 1: he saw within Bitcoin. He he saw what Bitcoin's limitations were.

623
00:36:32,280 --> 00:36:34,600
Speaker 1: But what he said when he talked about the blockchain

624
00:36:34,640 --> 00:36:38,040
Speaker 1: tri lemma, he argues that blockchains have to compromise in

625
00:36:38,160 --> 00:36:42,799
Speaker 1: one of three key areas in order to in order

626
00:36:42,840 --> 00:36:50,919
Speaker 1: to function. Now, these areas are scalability, security, and decentralization. Okay, now, scalability,

627
00:36:51,000 --> 00:36:54,080
Speaker 1: let's tackle that one. Scalability is basically the ability to

628
00:36:54,200 --> 00:36:59,320
Speaker 1: maintain the same speed and performance regardless of the number

629
00:36:59,360 --> 00:37:04,200
Speaker 1: of users. It's it's the network's ability to grow and

630
00:37:04,280 --> 00:37:10,520
Speaker 1: yet still functions, still perform without slowing down. Now, um, yeah,

631
00:37:11,000 --> 00:37:14,279
Speaker 1: this is kind of related to to speed as such,

632
00:37:14,480 --> 00:37:17,400
Speaker 1: so we'll come back to that. Security is how safe

633
00:37:17,520 --> 00:37:20,160
Speaker 1: it is from being corrupted by a majority of miners.

634
00:37:20,320 --> 00:37:22,960
Speaker 1: You know, at this fifty attack that we that we

635
00:37:23,040 --> 00:37:25,680
Speaker 1: talked about this idea of a majority being able to

636
00:37:26,160 --> 00:37:29,359
Speaker 1: take over the network. And I think we're pretty clear

637
00:37:29,400 --> 00:37:33,920
Speaker 1: on decentralization. Okay, So what Vitale is talking about with

638
00:37:34,000 --> 00:37:36,040
Speaker 1: the blockchain try lemma is that he says, you can't

639
00:37:36,080 --> 00:37:38,719
Speaker 1: fulfill all three of these criteria. There has to be

640
00:37:38,760 --> 00:37:40,879
Speaker 1: a compromise somewhere. I think of it as a three

641
00:37:40,960 --> 00:37:44,160
Speaker 1: legged stool, where one leg necessarily has to be shorter,

642
00:37:44,480 --> 00:37:48,680
Speaker 1: which obviously results in it being wonky. So either a

643
00:37:48,680 --> 00:37:53,719
Speaker 1: blockchain can be fast and secure but not decentralized, or

644
00:37:53,760 --> 00:37:57,040
Speaker 1: it can be fast and decentralized but not as secure,

645
00:37:58,160 --> 00:38:01,800
Speaker 1: or it can be secure and centralized but not as fast.

646
00:38:02,040 --> 00:38:04,480
Speaker 1: And obviously with that last one, Bitcoin is the best example.

647
00:38:04,560 --> 00:38:08,600
Speaker 1: It's super secure, it it's really decentralized, but as we've

648
00:38:08,640 --> 00:38:11,799
Speaker 1: seen seven transactions per second, it's not all that fast. Now.

649
00:38:11,920 --> 00:38:14,040
Speaker 1: Lots of crypto projects claim to have solved the block

650
00:38:14,120 --> 00:38:17,719
Speaker 1: ject blockchain trilemma. Whenever a new crypto project comes out,

651
00:38:17,800 --> 00:38:20,279
Speaker 1: quite often they will make this claim. But when you

652
00:38:20,360 --> 00:38:24,640
Speaker 1: drill down, you usually find compromises somewhere. UM and normally

653
00:38:24,800 --> 00:38:28,360
Speaker 1: that is to do with decentralization. The project will not

654
00:38:28,960 --> 00:38:32,040
Speaker 1: be will not have quite not as many nodes or miners,

655
00:38:32,080 --> 00:38:37,200
Speaker 1: and exactly exactly now we've talked about Yeah, we've talked

656
00:38:37,239 --> 00:38:40,640
Speaker 1: about scalability. This this idea of the network growing whilst

657
00:38:40,640 --> 00:38:44,160
Speaker 1: handling more traffic and still maintaining that TPS rate. UM

658
00:38:44,560 --> 00:38:48,000
Speaker 1: and any blockchain project will want to scale successfully. It'll

659
00:38:48,040 --> 00:38:49,920
Speaker 1: want to grow, it will want to add more users

660
00:38:49,960 --> 00:38:54,520
Speaker 1: and process their transactions with minimal delays. And unfortunately, the

661
00:38:54,600 --> 00:38:57,879
Speaker 1: more centralized the network is, the easier this can be.

662
00:38:58,360 --> 00:39:01,120
Speaker 1: UM and again go back to the exam of Visa.

663
00:39:01,440 --> 00:39:04,640
Speaker 1: You know Visa is super centralized. You know Visa visa,

664
00:39:04,719 --> 00:39:08,319
Speaker 1: the company controls all the servers, it has these huge

665
00:39:08,360 --> 00:39:12,040
Speaker 1: stores of data. But that's much more efficient because there

666
00:39:12,440 --> 00:39:16,520
Speaker 1: they can concentrate that computing power in one place. UM,

667
00:39:16,560 --> 00:39:19,800
Speaker 1: Whereas with a decentralized network, you're having all these computers

668
00:39:19,800 --> 00:39:21,480
Speaker 1: are having to do this work, they're all having to

669
00:39:21,560 --> 00:39:26,880
Speaker 1: reach consensus. It's necessarily a sort of more drawn out process.

670
00:39:26,920 --> 00:39:31,760
Speaker 1: So yeah, well it also while centralization it can help

671
00:39:31,800 --> 00:39:36,279
Speaker 1: with scalability, UM, it also threatens to compromise security because then,

672
00:39:36,600 --> 00:39:38,239
Speaker 1: as I say, the data is all in one place,

673
00:39:38,280 --> 00:39:41,000
Speaker 1: hackers have a bigger target which to aim at UM

674
00:39:41,040 --> 00:39:43,759
Speaker 1: and a potential entry point into the network. So a

675
00:39:43,840 --> 00:39:46,880
Speaker 1: fast and scalable blockchain is all well and good, but

676
00:39:47,000 --> 00:39:50,799
Speaker 1: if it's vulnerable to attack, then then users will avoid it,

677
00:39:50,880 --> 00:39:52,759
Speaker 1: like the play you know. So so this is the

678
00:39:52,800 --> 00:39:55,360
Speaker 1: trial limit. You can't have all three. There has to

679
00:39:55,400 --> 00:39:59,240
Speaker 1: be a compromise. UM will and will encounter the blockchain

680
00:39:59,280 --> 00:40:00,759
Speaker 1: trial lemera a lot more or in the future, but

681
00:40:00,800 --> 00:40:03,040
Speaker 1: it's it's an important thing to to think about at

682
00:40:03,040 --> 00:40:07,160
Speaker 1: this stage. So yeah, by necessarily there's there's still has

683
00:40:07,200 --> 00:40:11,280
Speaker 1: to be a compromise. And in bitcoins, in Bitcoin's instance,

684
00:40:11,400 --> 00:40:14,640
Speaker 1: it's this idea is it's just not that fast. Now

685
00:40:14,680 --> 00:40:17,920
Speaker 1: people are developing solutions for this. There's something called the

686
00:40:18,000 --> 00:40:20,520
Speaker 1: Lightning Network, which a lot of work has been done

687
00:40:20,520 --> 00:40:24,320
Speaker 1: and recently, and this is aimed at making Bitcoin faster,

688
00:40:24,800 --> 00:40:28,160
Speaker 1: meaning that you can make these small payments very easily

689
00:40:28,160 --> 00:40:32,160
Speaker 1: and very quickly. Um. And that involves the process basically

690
00:40:32,200 --> 00:40:36,160
Speaker 1: handling these transactions off the main bitcoin blockchain and then

691
00:40:36,360 --> 00:40:39,280
Speaker 1: sort of sorting them all out later on. But again

692
00:40:39,320 --> 00:40:42,640
Speaker 1: this gets yeah, this gets pretty complicated. But yeah, this

693
00:40:42,719 --> 00:40:45,200
Speaker 1: is this is the big drawback that the bitcoin network

694
00:40:45,239 --> 00:40:48,359
Speaker 1: has at the moment. It's it's it hasn't been. It

695
00:40:48,400 --> 00:40:53,319
Speaker 1: can't handle that many transactions. Okay, all right, now we're

696
00:40:53,360 --> 00:40:56,120
Speaker 1: onto the final part of today's episode. I want to

697
00:40:56,160 --> 00:41:01,400
Speaker 1: talk very very briefly about proof of stakes. Proof of steak.

698
00:41:02,200 --> 00:41:05,319
Speaker 1: That's steaker is in not not the thing you eat.

699
00:41:06,320 --> 00:41:09,920
Speaker 1: Um yeah, steak as in something put down. The stakes

700
00:41:09,960 --> 00:41:12,160
Speaker 1: are high. The stakes are high, exactly. So we talked

701
00:41:12,160 --> 00:41:14,040
Speaker 1: about proof of work, didn't we, And we know all

702
00:41:14,080 --> 00:41:16,640
Speaker 1: about proof of work, um, And this is how the

703
00:41:16,640 --> 00:41:20,360
Speaker 1: bitcoin network reaches consensus. But there are obviously drawbacks. It

704
00:41:20,480 --> 00:41:24,040
Speaker 1: uses a lot of power, it's expensive, environmental concerns. As

705
00:41:24,080 --> 00:41:26,759
Speaker 1: we've also seen, it's kind of it's kind of heavy,

706
00:41:26,800 --> 00:41:29,359
Speaker 1: it's kind of comeing. Yeah, and that's and that's why

707
00:41:29,400 --> 00:41:33,120
Speaker 1: the bitcoin has this slow tps um. And another thing

708
00:41:33,160 --> 00:41:35,520
Speaker 1: to think about is also these high barriers to entry.

709
00:41:37,040 --> 00:41:40,440
Speaker 1: Not anyone can become a bitcoin miner these days. In

710
00:41:40,440 --> 00:41:42,239
Speaker 1: the early days, yes, when you could mind it with

711
00:41:42,320 --> 00:41:45,880
Speaker 1: your with your laptop CPU, great, but as we've seen,

712
00:41:47,320 --> 00:41:51,440
Speaker 1: that's that quickly became impossible. Obviously there was this chap

713
00:41:51,560 --> 00:41:54,160
Speaker 1: using GPUs, and then we got onto a six and

714
00:41:54,200 --> 00:41:57,040
Speaker 1: all this sort of stuff. So there's these high barriers

715
00:41:57,080 --> 00:41:59,440
Speaker 1: to entry. Not many people can afford the equipment needed

716
00:41:59,480 --> 00:42:01,560
Speaker 1: and the elect trusty bills. And this has a knock

717
00:42:01,600 --> 00:42:05,120
Speaker 1: on effect onto decentralization because it means that hash power

718
00:42:05,200 --> 00:42:09,640
Speaker 1: becomes concentrated in a small pool of miners, if you like.

719
00:42:09,719 --> 00:42:11,920
Speaker 1: Even though they may be spread across the globe, there

720
00:42:11,960 --> 00:42:14,480
Speaker 1: are still fewer of them because it's harder to become

721
00:42:14,520 --> 00:42:16,600
Speaker 1: a minor. You need you need to put a lot

722
00:42:16,640 --> 00:42:19,160
Speaker 1: of money down in order to and then hope you

723
00:42:19,200 --> 00:42:24,480
Speaker 1: get it back. Yeah, yeah, probability you will, but yeah,

724
00:42:24,600 --> 00:42:27,120
Speaker 1: the upfront costs would be very very high though, I

725
00:42:27,160 --> 00:42:28,920
Speaker 1: mean there are still people going into it, but I

726
00:42:28,960 --> 00:42:31,520
Speaker 1: mean for individuals especially, it's pretty much impossible. You need

727
00:42:31,920 --> 00:42:33,880
Speaker 1: you need a you need a heck of a lot

728
00:42:33,920 --> 00:42:36,879
Speaker 1: of financial firepower just to get started, which is which

729
00:42:36,920 --> 00:42:41,160
Speaker 1: is obviously not ideal. So as a result, as a

730
00:42:41,200 --> 00:42:44,640
Speaker 1: result of these drawbacks, many crypto blockchains use a different

731
00:42:44,719 --> 00:42:48,120
Speaker 1: system to achieve consensus, and there are several out there.

732
00:42:48,160 --> 00:42:50,200
Speaker 1: There there are, there are quite a few, and they

733
00:42:50,239 --> 00:42:53,319
Speaker 1: get quite complex. But the most popular alternative that we

734
00:42:53,400 --> 00:42:56,759
Speaker 1: have at the moment is called proof of steak, and

735
00:42:56,960 --> 00:43:00,920
Speaker 1: very simply, proof of steak involves putting down to staking

736
00:43:01,320 --> 00:43:03,520
Speaker 1: to have a chance of being chosen to produce a

737
00:43:03,520 --> 00:43:07,319
Speaker 1: block and earn the block reward. So let's go back

738
00:43:07,360 --> 00:43:11,080
Speaker 1: to our lottery example. Basically, you're kind of you're buying

739
00:43:11,120 --> 00:43:14,040
Speaker 1: a lottery ticket. Rather than committing computing power to earn

740
00:43:14,040 --> 00:43:17,720
Speaker 1: this lottery ticket, you're basically buying You're putting down money

741
00:43:18,040 --> 00:43:21,440
Speaker 1: um and miners and miners on a proof of state blockchain,

742
00:43:21,440 --> 00:43:25,560
Speaker 1: and known as validators. They are then chosen at random

743
00:43:25,800 --> 00:43:28,520
Speaker 1: to create a block. So there's none of this, none

744
00:43:28,520 --> 00:43:30,920
Speaker 1: of this expensive proof of work going on, none of

745
00:43:30,960 --> 00:43:34,359
Speaker 1: this computing power being being expended Uh, there is just

746
00:43:34,440 --> 00:43:39,920
Speaker 1: decided randomly. But although you're if you're a validator, your

747
00:43:40,000 --> 00:43:42,719
Speaker 1: chances of being chosen to increase with the more that

748
00:43:42,760 --> 00:43:46,520
Speaker 1: you stake. So yeah, again, it's a bit like a

749
00:43:46,560 --> 00:43:50,800
Speaker 1: lottery system. Now, validators are kept honest through a process

750
00:43:50,840 --> 00:43:53,440
Speaker 1: known as slashing, so if they're found to be misbehaving,

751
00:43:53,920 --> 00:43:56,280
Speaker 1: then they can have some or all of their steak

752
00:43:56,320 --> 00:43:59,200
Speaker 1: wiped out or slashed. As we say. So, there are

753
00:43:59,520 --> 00:44:03,640
Speaker 1: there are rarit and sticks musically again sort of trying

754
00:44:03,640 --> 00:44:06,440
Speaker 1: to to to take over the network, trying to maybe

755
00:44:06,480 --> 00:44:12,360
Speaker 1: collude with other validators to to approve transactions in their favor,

756
00:44:12,400 --> 00:44:16,279
Speaker 1: you know, to corrupt the blockchain. Um, yeah, there are

757
00:44:16,600 --> 00:44:19,040
Speaker 1: I think there are some pretty clever ways of doing it.

758
00:44:19,080 --> 00:44:22,720
Speaker 1: But again there are these there are these preventative measures

759
00:44:22,760 --> 00:44:26,200
Speaker 1: in place, so I get secular balance, yeah exactly, and

760
00:44:26,239 --> 00:44:30,560
Speaker 1: an economic incentive not to misbehave um. Now, this obviously

761
00:44:30,600 --> 00:44:33,480
Speaker 1: has the advantage of being much more energy efficient than

762
00:44:33,480 --> 00:44:37,920
Speaker 1: proof of work, and it's also much much faster. Um. However,

763
00:44:38,400 --> 00:44:42,720
Speaker 1: it does raise concerns around centralization, this blockchain trilemma again,

764
00:44:43,040 --> 00:44:46,840
Speaker 1: because those able to stake more are much more likely

765
00:44:46,880 --> 00:44:50,439
Speaker 1: to win. Now, now you and I could theoretically join

766
00:44:50,760 --> 00:44:54,920
Speaker 1: a proof of state network, but again a bit like

767
00:44:55,000 --> 00:44:56,759
Speaker 1: with a bit like with mining on a proof of

768
00:44:56,800 --> 00:45:00,000
Speaker 1: work network, you again, as these networks get more pot

769
00:45:00,200 --> 00:45:04,000
Speaker 1: that you need a larger and larger steak um. And

770
00:45:04,920 --> 00:45:06,919
Speaker 1: there are ways that there are ways that you can

771
00:45:07,880 --> 00:45:10,040
Speaker 1: you can participate in a proof of stake blockchain if

772
00:45:10,040 --> 00:45:14,200
Speaker 1: you're not necessarily wealthy, you can delegate your steak, you

773
00:45:14,239 --> 00:45:16,840
Speaker 1: can you can add money. You can delegate money to

774
00:45:17,480 --> 00:45:21,280
Speaker 1: a validator and receive a cut of their block rewards.

775
00:45:21,280 --> 00:45:26,240
Speaker 1: And this is becoming increasingly popular. But still, although proof

776
00:45:26,239 --> 00:45:29,640
Speaker 1: of steak has a lot of advantages, it still tends

777
00:45:29,680 --> 00:45:33,920
Speaker 1: to concentrate power in on the network. In yeah, in

778
00:45:34,200 --> 00:45:36,680
Speaker 1: in especially towards the wealthy, and a lot of people,

779
00:45:36,800 --> 00:45:38,920
Speaker 1: a lot of people in the bitcoin community especially have

780
00:45:38,920 --> 00:45:40,960
Speaker 1: a real problem with this, and I think it's a

781
00:45:41,040 --> 00:45:44,360
Speaker 1: valid point that they raise, because you shouldn't be able

782
00:45:44,480 --> 00:45:48,240
Speaker 1: to to buy your way by your way to power

783
00:45:48,280 --> 00:45:51,600
Speaker 1: on a network. And they would argue that there's nothing

784
00:45:51,640 --> 00:45:54,359
Speaker 1: stopping like some of these proof of steak blockchains, there's

785
00:45:54,360 --> 00:45:59,480
Speaker 1: nothing stopping big corporations swooping in and buying up validators

786
00:45:59,560 --> 00:46:03,040
Speaker 1: and having an inordinate amount of power UM, And there's

787
00:46:03,040 --> 00:46:04,760
Speaker 1: a lot more to proof of stake than this, because

788
00:46:04,760 --> 00:46:07,680
Speaker 1: also there's questions of governance. As you have more power

789
00:46:07,680 --> 00:46:09,560
Speaker 1: on the network, you also get more saying how it's

790
00:46:09,640 --> 00:46:13,480
Speaker 1: run um, which again is not great for decentralization. If

791
00:46:13,480 --> 00:46:18,279
Speaker 1: there are if there are people swaanning in UM, so

792
00:46:18,440 --> 00:46:20,600
Speaker 1: it's yes. So the net a proof of state network

793
00:46:20,640 --> 00:46:23,040
Speaker 1: is theoretically more corruptible as well, And it would be

794
00:46:23,080 --> 00:46:25,840
Speaker 1: easier for a government, say to to print money and

795
00:46:25,920 --> 00:46:28,879
Speaker 1: that and buy up validator nodes. But you could say

796
00:46:28,880 --> 00:46:30,680
Speaker 1: it's not quite so easy for them to get their

797
00:46:30,680 --> 00:46:33,080
Speaker 1: hands on a bunch of ASICs and start a mining operation,

798
00:46:33,960 --> 00:46:37,760
Speaker 1: for instance. So yeah, these concerns around centralization, this blockchain

799
00:46:37,800 --> 00:46:41,319
Speaker 1: trilemma is much discussed when it comes to proof of

800
00:46:41,320 --> 00:46:44,640
Speaker 1: steak as well. And UM. To give you an example,

801
00:46:44,680 --> 00:46:49,680
Speaker 1: Ethereum is currently in the middle where we're in late one. Now.

802
00:46:49,880 --> 00:46:53,239
Speaker 1: Ethereum has for a while now been transitioning from a

803
00:46:53,280 --> 00:46:57,240
Speaker 1: proof of work blockchain like bitcoins to a proof of steak,

804
00:46:57,480 --> 00:47:02,359
Speaker 1: and that's scheduled to happen sometime we hope in early two.

805
00:47:02,880 --> 00:47:05,160
Speaker 1: This will make it much more efficient, it will make

806
00:47:05,160 --> 00:47:08,719
Speaker 1: it much faster and much more scalable. Um, but there

807
00:47:08,719 --> 00:47:12,000
Speaker 1: are still concerns around centralization. So let's wrap things up

808
00:47:12,000 --> 00:47:14,239
Speaker 1: show we let's wrap up everything that we've we've talked

809
00:47:14,239 --> 00:47:22,759
Speaker 1: about today and plumat blockchain. So blockchain has solved this

810
00:47:22,800 --> 00:47:26,080
Speaker 1: problem of how humans can exchange value over distance without

811
00:47:26,080 --> 00:47:27,919
Speaker 1: the need for a third party. As I said, it's

812
00:47:28,000 --> 00:47:31,240
Speaker 1: it's an incredible achievement that because it's so so difficult

813
00:47:31,280 --> 00:47:35,040
Speaker 1: to do. The tech involved, as we've seen, is really advanced.

814
00:47:35,040 --> 00:47:38,160
Speaker 1: We've only just scratched the surfaces in these two episodes talking.

815
00:47:38,239 --> 00:47:41,400
Speaker 1: We've talked about hashing, and we've talked about merkel trees

816
00:47:41,600 --> 00:47:45,880
Speaker 1: and targets and nonsense, and yeah, it's it's it's complex,

817
00:47:46,040 --> 00:47:48,279
Speaker 1: it's it's really difficult to get your head around. So

818
00:47:48,440 --> 00:47:50,719
Speaker 1: I hope for I hope for everyone listening that that's

819
00:47:51,080 --> 00:47:54,759
Speaker 1: simplified it a bit um and simplified is a keyword there.

820
00:47:54,960 --> 00:47:56,640
Speaker 1: I think we I think we can agree there's that

821
00:47:56,640 --> 00:47:58,600
Speaker 1: there's a lot more to this, but I hope that

822
00:47:58,640 --> 00:48:01,239
Speaker 1: gives you a kind of working knowledge. Um, We'll come

823
00:48:01,239 --> 00:48:04,719
Speaker 1: back to blockchain at some point because not only are

824
00:48:04,719 --> 00:48:07,600
Speaker 1: there other things to discuss about the workings of blockchain

825
00:48:08,000 --> 00:48:10,600
Speaker 1: that I've already hinted at, but also it has uses

826
00:48:10,600 --> 00:48:14,919
Speaker 1: beyond just cryptocurrency. Um. It's a technology that a lot

827
00:48:14,960 --> 00:48:17,600
Speaker 1: of people are very excited about it. And depending on

828
00:48:17,640 --> 00:48:20,560
Speaker 1: who you believe, some people say it's it could potentially

829
00:48:20,640 --> 00:48:23,160
Speaker 1: change the world. Other people are a bit more circumspect

830
00:48:23,160 --> 00:48:27,839
Speaker 1: about that. But it really is an amazing innovation and

831
00:48:27,880 --> 00:48:29,759
Speaker 1: we're going to be hearing a lot more about it

832
00:48:29,760 --> 00:48:34,040
Speaker 1: in the future, both inside and outside of crypto. And

833
00:48:34,280 --> 00:48:35,399
Speaker 1: do you want to know what we're going to talk

834
00:48:35,400 --> 00:48:39,400
Speaker 1: about next time? We're going to talk about bitcoin. So

835
00:48:39,840 --> 00:48:43,840
Speaker 1: obviously we've already mentioned bitcoin quite a lot, but there's

836
00:48:43,960 --> 00:48:46,359
Speaker 1: a heck of a lot more to talk about. I'll

837
00:48:46,400 --> 00:48:48,240
Speaker 1: try not to cover too much of the same ground,

838
00:48:48,239 --> 00:48:49,880
Speaker 1: but obviously there are things that you know to do

839
00:48:49,920 --> 00:48:52,360
Speaker 1: with bitcoin mining and things like that that will that

840
00:48:52,400 --> 00:48:55,319
Speaker 1: will hint at. But this this episode should have given

841
00:48:55,440 --> 00:48:59,279
Speaker 1: given everyone a kind of entry into that. UM. But yeah,

842
00:48:59,360 --> 00:49:01,600
Speaker 1: I think probably rely the bitcoin episode, we might even

843
00:49:01,719 --> 00:49:04,839
Speaker 1: we might even do three episodes because there's a lot

844
00:49:04,920 --> 00:49:09,640
Speaker 1: to talk with the bitcoin tri lemma. We got pretty

845
00:49:09,680 --> 00:49:12,520
Speaker 1: technical there, didn't we. I think we did okay, you know, yeah,

846
00:49:12,640 --> 00:49:16,359
Speaker 1: I think with some some terrible puns and some good analogies.

847
00:49:16,800 --> 00:49:22,799
Speaker 1: We've managed to break a quite complex sort of uh

848
00:49:23,320 --> 00:49:26,719
Speaker 1: explanation down into some bite size that look, I understand it.

849
00:49:26,719 --> 00:49:28,440
Speaker 1: So if I understand it, I'm sure the majority of

850
00:49:28,520 --> 00:49:31,000
Speaker 1: listeners here. I certainly didn't see any smoke coming out

851
00:49:31,000 --> 00:49:34,480
Speaker 1: of your ears my as my brain assex was working. Yeah,

852
00:49:34,600 --> 00:49:36,759
Speaker 1: I didn't see. I didn't see your eyes glaze over

853
00:49:36,800 --> 00:49:39,440
Speaker 1: too much. I mean, you have got those dark glasses

854
00:49:39,440 --> 00:49:43,600
Speaker 1: on with with open eyes painted on them. Let me

855
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Speaker 1: take it off with my must There's a lot to

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Speaker 1: talk about. I can't wait. Thank you for today, Mikey,

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Speaker 1: Thanks everyone for listening. For more podcast from I Heart Radio,

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00:50:01,400 --> 00:50:05,000
Speaker 1: visit the I Heart Radio app, Apple Podcasts, or wherever

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00:50:05,160 --> 00:50:08,560
Speaker 1: you get your podcasts. The coin Viere of podcast is

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Speaker 1: a production of I Heart Radio. M