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

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Speaker 1: No one could quite figure out how we could transact

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Speaker 1: digitally peer to peer without a middle moment. Welcome everyone

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Speaker 1: to the coin Bureau Podcast. My name is Guy and

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Speaker 1: this is my friend Mad Mike much ad Mike Mouch,

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Speaker 1: joined as ever by my good and old friend, Mad

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Speaker 1: Mike Mouch. It's great to be here again with you,

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Speaker 1: Mad Mike. I'm well thanks. Well what's new? Well, not

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Speaker 1: an awful lot since we last spoke. It's been nose

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Speaker 1: to the grindstone. It really has been very very busy, um,

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Speaker 1: but in a good way. Where are we today Today?

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Speaker 1: As a special surprise for you, we are going to

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Speaker 1: be recording from the home dressing room at Stanford Bridge,

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Speaker 1: which is, of course the home of your beloved Chelsea

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Speaker 1: Football Clubs. Yes, yeah, I have managed to pull some

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Speaker 1: strings and I have managed to get us privileged access

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Speaker 1: to the first team dressing room, to the inner sanctum

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Speaker 1: of Stamford Bridge. Yeah amazing. Yeah, So I mean here

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Speaker 1: we are, um, and I can I can say I

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Speaker 1: can say one thing. I have never seen quite so

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Speaker 1: much marble in all my life. This must be this

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Speaker 1: must be a special moment for you to to be

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Speaker 1: been a while since I've been here. Anyway, Should we

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Speaker 1: talk about some some crypto stuff if you like, or

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Speaker 1: we're not talking about crypto Again's crypto podcast, the crypto

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Speaker 1: podcast that doesn't actually talk about crypto. I know. Yeah,

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Speaker 1: the last couple of episodes, we haven't really got on

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Speaker 1: too cryptocurrency at all, have we, because we've been talking

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Speaker 1: about everything underlying it to the banking system, how it works,

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Speaker 1: how money works, how money moves around, all these sorts

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Speaker 1: of things. So yes, rather embarrassingly we haven't got to

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Speaker 1: crypto at all. But Mike, I can promise you today

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Speaker 1: we are going to talk about crypto today. Sure, we're

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Speaker 1: not going to talk We're not going to talk about

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Speaker 1: it a lot, because what we're actually going to be

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Speaker 1: talking about today really is the technology that underpins crypto,

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Speaker 1: that makes crypto possible, and that, my dear old friend,

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Speaker 1: is blockchain, blockchain, blockchain, the very same. So yeah, and

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Speaker 1: I think this is almost certainly going to be a

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Speaker 1: two part at least, because blockchain, I have to say,

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Speaker 1: gets pretty complicated, big old subject. Yeah, yeah, there's a

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Speaker 1: lot to dig into. There are a lot of very

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Speaker 1: complicated ideas and bits of terminology to explain and to

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Speaker 1: look at. So yeah, I want to give us the

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Speaker 1: luxury of being able to kind of sit in it

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Speaker 1: for a bit rather than try and race through and

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Speaker 1: define that, and define this, and explain what's hashing is

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Speaker 1: very quickly and all these sorts of things. I'd like

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Speaker 1: to be able to spend a little bit of time

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Speaker 1: on it so both you and me and the listeners

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Speaker 1: can kind of feel comfortable with it. In the end,

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Speaker 1: I don't want it to become something that's too much

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Speaker 1: too quick. Yeah, exactly exactly. So we're going to have

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Speaker 1: a very nice, leisurely and of course informative discussion about

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Speaker 1: blockchain technology, which, as I say, is the reason why crypto,

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Speaker 1: why cryptocurrencies are able to function. Um, I should say

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Speaker 1: as well that we will when we when I talk

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Speaker 1: about examples of blockchain, what I will almost certainly be

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Speaker 1: referring to is bitcoin, because Bitcoin obviously is the original

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Speaker 1: cryptocurrency the o g exactly, so when I use examples,

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Speaker 1: we will generally use Bitcoin. Let's kick often, let's do

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Speaker 1: a quick recap from last time, just say, as we

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Speaker 1: know where we are, and we can kind of pick

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Speaker 1: up the thread of our discussion then, so you might

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Speaker 1: remember we talked about how money moves around digital money. Yeah, exactly.

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Speaker 1: I think it's good again to just high like the

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Speaker 1: difference between digital money and good old, cold hard cash cash. Yeah,

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Speaker 1: because obviously, as you'll remember, the problem with cash is

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Speaker 1: that you can only transact face to face, face to face,

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Speaker 1: or just use the postal. We've gone through this in

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Speaker 1: the last one. But yeah, tricky or as you pointed out,

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Speaker 1: a giant catapult, cash catapult, the cash catapult. Yes, we

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Speaker 1: talked about digital money and all the things, all the

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Speaker 1: stuff going on behind the scenes when we try to

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Speaker 1: move our digital money around, when we make payments, when

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Speaker 1: we make bank bank transfers, all those sorts of things.

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Speaker 1: There is a heck of a lot happening behind the scenes.

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Speaker 1: It's not as simple as as pounds or dollars or

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Speaker 1: any other currencies kind of flying through the ether. What

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Speaker 1: we also talked about was the need for third parties

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Speaker 1: in transactions. In these digital transactions, someone in the middle

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Speaker 1: to process the payment, to keep the records up to date.

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Speaker 1: And that could be a bank, that could be a

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Speaker 1: payment network, it could be a card issue or any

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Speaker 1: of these sorts of things, there's always someone at least

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Speaker 1: one other part in the middle making it happen, making

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Speaker 1: it possible. And we talked about the unbanked as well,

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Speaker 1: and how they were well over a billion people across

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Speaker 1: the world who didn't have access to any of the

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Speaker 1: sort of banking facilities that we here in the developed

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Speaker 1: world take for granted, and how that shuts them out

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Speaker 1: of the economy and basically keeps poor people poor, which

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Speaker 1: is again a big, big thing in crypto, And as

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Speaker 1: I said, we come across this phrase bank the unbanked

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Speaker 1: quite often. And finally, the other thing that I want

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Speaker 1: to pick up from from last week and run with

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Speaker 1: is we talked about the double spend problem when it

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Speaker 1: comes to digital money. Do you remember do you remember this? Yeah? Yeah, yeah,

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Speaker 1: it's called just the duplication of it and h and

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Speaker 1: making sure you're not getting charged twice. Yeah, exactly, exactly. Yeah.

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Speaker 1: So the problem with digital assets is that they're very

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Speaker 1: easy to copy, their very easy to replicate. So if

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Speaker 1: I'm paying you with digital money, you have to be

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Speaker 1: confident that I'm not paying I'm not basically sending the

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Speaker 1: same digital file to someone else. So again this is

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Speaker 1: where third parties come in because they have to. They

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Speaker 1: have to stand in the middle. Yeah, they have to

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Speaker 1: make sure that double spending isn't taking place. They are

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Speaker 1: responsible for keeping the records up to date and keeping

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Speaker 1: us all basically honest, because we can't really trust each other,

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Speaker 1: can we. No, No, the double spend problem, let's have

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Speaker 1: let's have a look at this. So the double spend problem,

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Speaker 1: as I said, is traditionally solved by having the third

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Speaker 1: parties in the middle. They keep the database of transactions

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Speaker 1: and everyone's balances up to date. That role is generally

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Speaker 1: fulfilled by banks. But as I think again we touched

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Speaker 1: on last time, third parties are kind of problematic. Yeah,

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Speaker 1: because having someone in the middle of these things, they

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Speaker 1: can see what we're spending our money on. They can

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Speaker 1: also lock us out of their accounts if there's something

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Speaker 1: that we don't that they don't like the look of.

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Speaker 1: And I think you used the example last time of

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Speaker 1: wiki leaks. Yeah, so this is something I remembered that

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Speaker 1: when I was putting the notes together for this show,

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Speaker 1: and I went back and had a look. So that

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Speaker 1: was back in two thousand and ten, So basically back

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Speaker 1: in two thousand and ten, PayPal was processing donations to

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Speaker 1: Wiki leaks, and the US government basically lent on them. Yeah, exactly,

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Speaker 1: they lent on PayPal and said you might want to

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Speaker 1: consider not doing this, and so PayPal had to suspend

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Speaker 1: payments to wiki leaks. Now there was quite a big

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Speaker 1: outcry about this, and I mean, I'm loath to express

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Speaker 1: any sort of sympathy for a big multinational organization like PayPal,

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Speaker 1: but I mean I can imagine that they were put

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Speaker 1: in a kind of difficult position because on the one hand,

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Speaker 1: they have this, they have this duty to their customer

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Speaker 1: in this case, Wiki Leaks, But on the other hand,

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Speaker 1: they of the US government breathing down their neck, and

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Speaker 1: I don't think anyone wants to be on the wrong

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Speaker 1: side of them, exactly. So as a result, Wiki leaks

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Speaker 1: was deprived of funding, and which is why, of course

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Speaker 1: WikiLeaks then turned to soliciting donations in crypto, in bitcoin,

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Speaker 1: which is something again that we'll we'll touch on later.

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Speaker 1: So we're left with this, We're left with this dilemma.

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Speaker 1: If we want to transact peer to peer but digitally

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Speaker 1: and without a third party involved, then we need a

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Speaker 1: system that can get rid of this double spend problem,

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Speaker 1: we need to um, there's because there's no way that

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Speaker 1: we can all trust each other to stay honest. We

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Speaker 1: need a system that kind of keeps us honest. Do

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Speaker 1: you see? For years this was this was basically the

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Speaker 1: major barrier that prevented a fully functional digital cash, appear

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Speaker 1: to peer money. UM. This was what prevented that sort

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Speaker 1: of that sort of system from coming into play, because

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Speaker 1: no one could quite figure out how we could transact

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Speaker 1: digitally peer to peer without a middleman, without a kind

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Speaker 1: of centralized authority. Before we look at the solution to

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Speaker 1: the double spend problem, but one that doesn't involve a

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Speaker 1: third party, let's quickly talk about centralized databases, because that

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Speaker 1: is what these third parties used to keep all our

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Speaker 1: records up today. Okay, so obviously everyone is everyone all

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Speaker 1: over the world is transacting on a daily basis, and

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Speaker 1: that is creating enormous quantities of data. And in recent years,

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Speaker 1: the amount of data that we create not just from

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Speaker 1: not just from transacting, but from everything from using the Internet,

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Speaker 1: from using all these interlink devices. The amount of data

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Speaker 1: that we create is phenomenally huge. And because data storage

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Speaker 1: has got cheaper, it's um, it's almost it's almost not

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Speaker 1: worth anyone's while actually deleting this data. It's cheaper just

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Speaker 1: to store it, but still does need to be stored.

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Speaker 1: And when we're talking about payment networks, when we're talking

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Speaker 1: about keeping people's accounts up to date, keeping track of

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Speaker 1: people spending and borrowing and all these other financial transactions,

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Speaker 1: all these records need to be stored, and they need

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Speaker 1: to be kept on these huge databases, which then have

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Speaker 1: to be maintained, constantly updated and crucially protected. Um. Because

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Speaker 1: what these databases tend to tend to act as is

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Speaker 1: giant honeypots. He's got these honeypots of data, and for

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Speaker 1: thieves that is really really tempting, um because can you

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Speaker 1: imagine if someone was able to gain access to all

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Speaker 1: this data, to to all your personal data, these giant

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Speaker 1: troves of data, these giant honeypots, Um, any hacker that

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Speaker 1: manages to get access to them can then make a

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Speaker 1: lot of money selling them onto criminals and scammers and

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Speaker 1: all that sort of lot um. And we hear about

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Speaker 1: these data breaches all the time. And two of the

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Speaker 1: two of the most toorious, perhaps not necessarily the biggest,

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Speaker 1: but the most notorious. Do you remember Ashley Madison? Yes,

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Speaker 1: actually Madison, which is the website designed for cheating partners. Yeah,

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Speaker 1: because you're a little bit on the side or something like. Yeah,

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Speaker 1: it's kind of like that has some very sensitive information

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Speaker 1: which could ruin some lives, marriages and families, which it did. Yeah. Yeah,

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Speaker 1: so this was yeah, this was back in two thousand

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Speaker 1: and fifteen, Ashley Madison got hacked. All these people's personal

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Speaker 1: data got stolen, and then then the hackers basically said

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Speaker 1: they were going to release it, didn't they And and

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Speaker 1: they did release it, and it caused an absolute tidal

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Speaker 1: wave of of trouble, which is which you can understand,

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Speaker 1: really can't You can imagine You can imagine that that

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Speaker 1: a lot of people would have been pretty devastated either

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Speaker 1: to find their details had been leaked, or to or

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Speaker 1: to find that their spouse, their other half, the person

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Speaker 1: that they trusted, was actually on this website that was

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Speaker 1: specifically designed for people who wanted to have extramarital affairs.

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Speaker 1: So this was one of the problems with keeping all

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Speaker 1: this very very sensitive data all in one place. It

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Speaker 1: made it made it a target for hackers, and when

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Speaker 1: they managed to get in, they were able to cause chaos.

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Speaker 1: A couple of years later, in September seventeen, Equifax. Yeah,

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Speaker 1: Equifax was one of the three largest consumer credit reporting

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Speaker 1: agencies in the United States. So again, lots of positive information,

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Speaker 1: lots of sensitive information breached, the sensitive and personal data

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Speaker 1: of one hundred and forty eight million Americans. Wow. Yeah,

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Speaker 1: I thought it was only million Americans. With three sixty

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Speaker 1: I couldn't tell you the exact population of America, like

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Speaker 1: probably a third of America. Yeah, well, I mean it

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Speaker 1: was one of the three largest consumer credit reporting agencies

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Speaker 1: in the United States, so perhaps it's yeah, perhaps it

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Speaker 1: could be expected to about a third third of people

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Speaker 1: on anyhow, it's yeah, it was. It was. It was

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Speaker 1: a disaster for all involved. And but these these data

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Speaker 1: breaches are all too common. Here's a list of some

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Speaker 1: companies that have suffered data breaches, some of them more

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Speaker 1: than once. Yahoo, I think, has been breached a number

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Speaker 1: of occasions linked in Facebook, eBay. Then we've got Capital

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Speaker 1: One and First American Financial Corp UM. Now I hadn't

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Speaker 1: heard of First American Financial Corps. I had to have

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Speaker 1: to look FAFC, the FAFC UM. But yeah, they were breached.

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Speaker 1: And obviously Capital One and First American Financial corps, as

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Speaker 1: their name suggests, held again a lot of personal financial information. Um,

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Speaker 1: and they've all suffered data breaches in the past in

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Speaker 1: recent years. So what this what this tells us is

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Speaker 1: that the third party solution to the double spending problem

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Speaker 1: has another weakness. Not only is there someone with oversight

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Speaker 1: over our spending who themselves are vulnerable to interference from

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Speaker 1: governments and regulators, but we also have to trust these

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Speaker 1: third parties to keep our data secure. We have to

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Speaker 1: We have to hope really that they got their act together. Yeah,

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Speaker 1: they got their act due diligence for everything you have

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Speaker 1: to do every every time you pay for something online.

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Speaker 1: Well in theory, yeah, but in practice that would be

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Speaker 1: impossible exactly as what I'm saying. It's it's it's just

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Speaker 1: there's there's there's only so much investigating you can do

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Speaker 1: before you buy a coffee, yeah, or order something online.

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Speaker 1: Everyone just everywhere, one queue of people waiting to pay

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Speaker 1: in another queue of people just researchers. What is their

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Speaker 1: cybersecurity protocol? Is this coffee shop going to lose my data?

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Speaker 1: Do they have a history? Who are their payment providers? Yeah? Um, yeah,

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Speaker 1: so they can't always do it. We have to trust them,

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Speaker 1: and sometimes that trust is breached. Unfortunately, we have to

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Speaker 1: big problems with our current payment system. It's controlled by

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Speaker 1: big banks and corporations who can see what we're doing,

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Speaker 1: their subject to oversight themselves. And it also requires these

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Speaker 1: enormous centralized ledgers full of data, and those are a

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Speaker 1: magnet for hackers and they have to be kept safe.

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Speaker 1: And as you can imagine, cybersecurity is big business. It

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Speaker 1: costs an absolute fortune, and spending on cybersecurity by companies,

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Speaker 1: by these big data data companies, is massive. It runs

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Speaker 1: into the billions. Everyone I've seen the matrix, the holy grail. Therefore,

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Speaker 1: what we're looking for is a system that allows us

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Speaker 1: to transact with one another at a distance, to transact digitally,

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Speaker 1: but that doesn't need a third party to keep everyone honest,

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Speaker 1: and that ideally doesn't result in a huge pile of

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Speaker 1: vulnerable data sitting around in one place that can be

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Speaker 1: easily so that is that is what we're after um

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Speaker 1: and we'll find it after the break. We're looking for

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Speaker 1: this holy grail of a system that we can transact

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Speaker 1: with one another, but we don't have to be in

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Speaker 1: the same room. We don't have to have a third

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Speaker 1: party in the middle keeping watch over everyone, and we

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Speaker 1: don't want loads of our data lying around. So the

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Speaker 1: solution to this is, funnily enough, blockchain. Now, I imagine

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Speaker 1: your first question is what is blockchain exactly? It's kind

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Speaker 1: of what everyone thinks because you're kind of not not everyone,

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Speaker 1: but ignoramus is like myself and people who are um

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Speaker 1: maybe headstrong with their investments. They just see some green candles,

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Speaker 1: just see a chance to make money. There's a blockchain

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Speaker 1: behind this. It's like if you invest in stocks, you

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Speaker 1: don't have an inside knowledge of everything you're investing in. Well, yes,

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Speaker 1: and no, you don't know exactly what's going on. Okay.

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Speaker 1: I mean, I'm sure there are plenty of investors out there, yeah, yeah,

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Speaker 1: but not me and not the majority. So if you're

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Speaker 1: investing in a pharmaceutical company, you don't have any idea

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Speaker 1: about everything that they're doing. Do you know, I suppose

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Speaker 1: you can't know every single drug that they're making. No,

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Speaker 1: fair enough, fair enough? Okay, Well it's a great question

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Speaker 1: because that is that that is the question that I

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Speaker 1: want to answer. What exactly is a blockchain? This word

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Speaker 1: has come up several times. We haven't answered it yet.

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Speaker 1: So I'm going to give you a very simple, kind

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Speaker 1: of working definition of a blockchain. I'm going to try

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Speaker 1: and keep it as jargon free as possible, because I

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Speaker 1: think when you start getting some of the jargon that

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Speaker 1: you find in this in this, in this area, it

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Speaker 1: can get really quite confusing. So if I do use

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Speaker 1: bits of jargon, then I will try and explain them

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Speaker 1: as I go along. Thank you. Does that sound fair?

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Speaker 1: Do we have a deal? Yeah? Okay. A blockchain is

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Speaker 1: basically a database made up of transactional data that's stored

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Speaker 1: on a network of separate computers. These computers that store

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Speaker 1: blockchain data, that store that store this ledger are known

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Speaker 1: as nodes. Okay, so this is this is a term

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Speaker 1: we'll hear a lot. But the nodes on a blockchain

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Speaker 1: are basically the computers that are running the particular software

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Speaker 1: for that blockchain that are a part of that network.

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Speaker 1: These can these nodes can be scattered across any number

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Speaker 1: of locations, and the whole point is that they are

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Speaker 1: supposed to be in many different places. So the more

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Speaker 1: the better. In fact, the more nodes there are, and

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Speaker 1: the more scattered they are ideally across the world, the

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Speaker 1: better because each node stores a copy of the entire

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Speaker 1: transaction history, and this can be referred back to in

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Speaker 1: case there are any disputes. So think of a node

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Speaker 1: on a blockchain. Basically a computer that's downloaded is running

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Speaker 1: the software for that particular blockchain, and each individual node

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Speaker 1: is acting like an individual bookkeeper. So it's keeping a

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Speaker 1: copy of the ledger. Okay, so we can already see

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Speaker 1: that if there's all spread out, then this idea of centralization,

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Speaker 1: this idea of all the information being kept in one place,

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Speaker 1: is already being addressed. Because a blockchain is a 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. So yeah, this is something.

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Speaker 1: This is something that another term that comes up a

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Speaker 1: lot distributed ledger. This is essentially what a blockchain is,

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Speaker 1: a record of accounts spread out over many interlinked computers. Okay,

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Speaker 1: so here is how it works. And again this I'm

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Speaker 1: going to keep this super simple. We'll touch on some

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Speaker 1: touch on some terms and some concepts, but I think

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Speaker 1: most of those were going to come back to later

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Speaker 1: maybe in a maybe in a in a later episode.

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Speaker 1: Just so as we can get a sort of very

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Speaker 1: simplified definition of work. How a blockchain works from this point. So, um,

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Speaker 1: and again I should say, if I use examples here,

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Speaker 1: it's going to be bitcoin again, because as you say,

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Speaker 1: bitcoin is the is the O G, the o G cryptocurrency. Okay.

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Speaker 1: So let's imagine a transaction take takes place. Now, last

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Speaker 1: time I was sending all these ten pound notes to you,

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Speaker 1: all these ten pounds to you through the traditional banking system.

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Speaker 1: The tables have been turned like you are going to

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Speaker 1: send me a bitcoin. Okay, thanks very much. You are

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Speaker 1: very welcome. At the moment, I'm doing pretty well. So

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Speaker 1: a record for the transaction is created by the bitcoin

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Speaker 1: network and it's broadcast out to all the nodes on

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Speaker 1: the network. Every node on the network then checks the

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Speaker 1: transaction and validates it. Okay. Periodically, a predefined number of

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Speaker 1: validated transactions are grouped together into a block. So there's

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Speaker 1: the there's the first half of the of the term

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Speaker 1: coming into use. Block block block. What comes next? Now,

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Speaker 1: in order for the information contained within these blocks to

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Speaker 1: be secure, the blocks themselves must be encrypted, okay, and

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Speaker 1: this is done using cryptography. Yeah, the science of secrecy.

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Speaker 1: There's this idea of encrypting data that we don't want

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Speaker 1: other people to be able to see where we want

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Speaker 1: to keep secret. Now, we're going to come back to

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Speaker 1: the cryptographic element of bitcoin later on because it gets,

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Speaker 1: as you can imagine, it gets pretty complex and there's

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Speaker 1: a lot to unpack there. But just yeah, for the moment,

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Speaker 1: it's it's enough to know that there is cryptography going

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Speaker 1: on here, that this the data that a blockchain holds

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Speaker 1: is being is being secure exactly, is being protected. So

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Speaker 1: by encrypting the blocks, the information in them has kept

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Speaker 1: secure from those who don't have the key, basically those

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Speaker 1: outside the network. And the encrypted blocks are then joined

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Speaker 1: together one after another in a sequential chain to form

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Speaker 1: a chain blockchain exactly, a chain of blocks, a blockchain.

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Speaker 1: So in order for this encryption and linking of blocks

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Speaker 1: to be done, the network has to agree that all

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Speaker 1: the transaction of valid and the ledger can be updated.

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Speaker 1: And this is known as consensus. Now, this is another term.

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Speaker 1: Now this is all related to the cryptographic element of it. Again,

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Speaker 1: it's very involved. So this is something again that we're

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Speaker 1: going to tackle in the later episode when we get

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Speaker 1: really technical. So consensus is reached when a majority of

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Speaker 1: the nodes or more agree that everything is as it

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Speaker 1: should be, and the blockchain can be updated with the

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Speaker 1: latest batch of transactions. So the encryption of the blocks

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Speaker 1: means that not only can everyone using the network be

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Speaker 1: confident that the transaction data hasn't been interfered with, but

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Speaker 1: also that the ledger itself is immutable. Here's another term

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Speaker 1: that we hear a lot when we talk about blockchains. Immutable.

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Speaker 1: It means it can't be altered. There's no third party,

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Speaker 1: there's no government leaning on someone saying cool, this isn't

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Speaker 1: this transaction isn't happening anymore, exactly exactly, So like PayPal

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Speaker 1: and the US government and wiki leaks, this could never happen.

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Speaker 1: Hence why witched leaks had exactly yeah crypto yeah. Because

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Speaker 1: the whole point of the blockchain is that it removes

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Speaker 1: the need for any sort of third party. And this

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Speaker 1: was that this was the really tough nut to crack.

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Speaker 1: How do you how do you create a network that

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Speaker 1: kind of police itself in a way that doesn't need

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Speaker 1: someone to oversee it and make sure that everyone's been

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Speaker 1: kept on this This is a This was the huge problem.

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Speaker 1: So this idea of a blockchain being immutable once once

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Speaker 1: something is in record. Once a transaction is committed to

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Speaker 1: the blockchain and has been encoded in a block, and

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Speaker 1: that block has been added to the chain, there is

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Speaker 1: no way of going back and altering those records. So

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Speaker 1: this is why sometimes people refer to it as something

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Speaker 1: like a truth machine. Basically it's something that can be

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Speaker 1: absolutely relied upon. Yeah, because there's no way, we have

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Speaker 1: no way of well without trusting. If you have to,

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Speaker 1: you have to compromise a lot of nodes exactly. Yeah,

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Speaker 1: and this is something. Yeah, we're going to get onto

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Speaker 1: this in the moment, because that is theoretically it is

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Speaker 1: possible if you gain control of enough nodes. But as

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Speaker 1: we'll see in a moment, there are there are ways

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Speaker 1: around that as well. There are al ways to keep

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Speaker 1: the network honest even if that were to happen. So

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Speaker 1: because of because of this encryption, the information contained in

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Speaker 1: the blocks, it can't be changed retroactively. No one can

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Speaker 1: go back and and and fiddle with rewrite the books,

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Speaker 1: cook the books, cook the books exactly. But centralized databases,

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Speaker 1: of course don't have this level of security. Although most

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Speaker 1: breaches of centralized database is the ones like we talked

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Speaker 1: about earlier. Although the aim really there is to is

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Speaker 1: to get hold of the data and sell it. There's

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Speaker 1: also nothing stopping particularly malicious hacker from altering the data

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Speaker 1: instead of perhaps selling it. And you can imagine how

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Speaker 1: much chaos that would cause. If someone was able to

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Speaker 1: let's say, break into the break into the central database

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Speaker 1: of the Bank of England, saying and go and rearrange

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Speaker 1: and tampa with all the data and you know, maybe

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Speaker 1: wipe wipe the accounts of certain account holders, transfer money

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Speaker 1: to others. It would cause absolute chaos. So this is

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Speaker 1: something that the blockchain seeks to avoid. It's just simply

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Speaker 1: impossible to go back and to go back and alter it. Okay,

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Speaker 1: so um, And although this is unlikely to happen, Although

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Speaker 1: it is unlikely that someone would go to all the

429
00:25:57,400 --> 00:26:01,399
Speaker 1: trouble of hacking, of hacking a huge centralized database and

430
00:26:01,440 --> 00:26:04,280
Speaker 1: then altering everything in it, we have to remember that

431
00:26:04,560 --> 00:26:08,639
Speaker 1: humans are corruptible. Um. There are always humans in in

432
00:26:08,680 --> 00:26:11,160
Speaker 1: the chain of command when you have these centralized structures.

433
00:26:11,160 --> 00:26:12,880
Speaker 1: So even though it might not be in the best

434
00:26:12,880 --> 00:26:15,919
Speaker 1: interest of a bank or perhaps a card company to

435
00:26:16,040 --> 00:26:19,760
Speaker 1: interfere with customer data themselves, even we can't be sure

436
00:26:19,800 --> 00:26:22,240
Speaker 1: that a human somewhere in the process couldn't be persuaded

437
00:26:22,280 --> 00:26:24,159
Speaker 1: to do that, or they could be forced to do that,

438
00:26:24,320 --> 00:26:26,920
Speaker 1: They could be blackmailed to do that. It doesn't necessarily

439
00:26:26,920 --> 00:26:29,680
Speaker 1: have to be they don't necessarily have to be doing

440
00:26:29,680 --> 00:26:33,719
Speaker 1: it for personal financial gain. They could be leaned on.

441
00:26:33,800 --> 00:26:39,239
Speaker 1: So again, it just highlights the sensitivity the vulnerability of

442
00:26:39,320 --> 00:26:44,720
Speaker 1: the centralized databases and the chaos that can ensume. Now

443
00:26:45,000 --> 00:26:47,119
Speaker 1: what I've just given you there is a really really

444
00:26:47,160 --> 00:26:51,000
Speaker 1: simplified overview of what a blockchain is and how it works.

445
00:26:51,040 --> 00:26:53,440
Speaker 1: So we're gonna dig a little deeper down into the

446
00:26:53,480 --> 00:26:55,240
Speaker 1: process in a minute, but I just want to touch

447
00:26:55,440 --> 00:26:58,400
Speaker 1: really on two of the on two of the most

448
00:26:58,400 --> 00:27:01,679
Speaker 1: important qualities that should be apparent by now, So the

449
00:27:01,720 --> 00:27:05,639
Speaker 1: fact that it's decentralized and the fact that it's immutable.

450
00:27:05,920 --> 00:27:10,399
Speaker 1: So these are these are two big weaknesses of centralized databases,

451
00:27:10,440 --> 00:27:13,480
Speaker 1: of the of the traditional database style that have been

452
00:27:14,600 --> 00:27:17,280
Speaker 1: that are no longer worried about. When when we talk

453
00:27:17,320 --> 00:27:22,360
Speaker 1: about blockshack, there's no single point of failure. The information

454
00:27:22,400 --> 00:27:26,400
Speaker 1: it carries can't be disputed. Now, let's say you were

455
00:27:26,560 --> 00:27:29,240
Speaker 1: to dispute the transaction. Let's say you'd sent me a bitcoin,

456
00:27:29,400 --> 00:27:31,480
Speaker 1: the network had logged it as it all, it has

457
00:27:31,520 --> 00:27:33,919
Speaker 1: all gone through. If you were to dispute that, if

458
00:27:33,920 --> 00:27:35,919
Speaker 1: you were to say, hang on, I never sent that I.

459
00:27:36,920 --> 00:27:39,119
Speaker 1: Something's wrong here, then all we can do is go

460
00:27:39,160 --> 00:27:41,600
Speaker 1: back and check check the record, and we have our answer.

461
00:27:41,960 --> 00:27:44,600
Speaker 1: It's clearly shown there. There's no way that I could

462
00:27:44,640 --> 00:27:47,679
Speaker 1: have manipulated it to to show that you'd sent me

463
00:27:47,760 --> 00:27:51,120
Speaker 1: unless I unless I had access to your to your

464
00:27:51,160 --> 00:27:54,080
Speaker 1: private key, which would be very unlikely when I was

465
00:27:54,200 --> 00:27:56,840
Speaker 1: when I was researching this, a real life kind of

466
00:27:56,880 --> 00:28:00,000
Speaker 1: example sprang up to me. And this is very very simplified,

467
00:28:00,119 --> 00:28:03,480
Speaker 1: but you remember when we left university, so this is

468
00:28:03,560 --> 00:28:06,440
Speaker 1: kind of early to mid noughties, and we were all

469
00:28:06,480 --> 00:28:08,320
Speaker 1: back home here in London. There was you and me,

470
00:28:08,400 --> 00:28:10,479
Speaker 1: and there was a few others of us, people like

471
00:28:10,600 --> 00:28:13,360
Speaker 1: Joe and Mark's are old school friends and people like that.

472
00:28:14,080 --> 00:28:17,000
Speaker 1: And I remember there was a period over a few

473
00:28:17,080 --> 00:28:21,080
Speaker 1: years where we were all kind of working occasional jobs

474
00:28:21,080 --> 00:28:22,879
Speaker 1: and things like that, trying to figure out what we

475
00:28:22,920 --> 00:28:25,560
Speaker 1: want to do, mostly living back at home with our parents,

476
00:28:25,640 --> 00:28:29,359
Speaker 1: all this sort of stuff, and sometimes we would have

477
00:28:29,400 --> 00:28:33,320
Speaker 1: money and sometimes we didn't, and so we were always

478
00:28:33,400 --> 00:28:36,200
Speaker 1: as I remember we were always in each other's pockets, yeah,

479
00:28:36,280 --> 00:28:39,000
Speaker 1: borrowing money off each other, lending money to each other,

480
00:28:39,760 --> 00:28:41,600
Speaker 1: So there was absolutely no way of keeping track of it.

481
00:28:41,640 --> 00:28:43,600
Speaker 1: And I used to kind of I used to kind

482
00:28:43,600 --> 00:28:46,400
Speaker 1: of dream, because we'd always have these disputes about it.

483
00:28:46,440 --> 00:28:48,640
Speaker 1: We'd be we'd meet up a few nights later. You've

484
00:28:48,640 --> 00:28:51,240
Speaker 1: got that twenty quid what quid? This is the sort

485
00:28:51,240 --> 00:28:53,800
Speaker 1: of example I think it shows. I think it shows

486
00:28:53,800 --> 00:28:56,520
Speaker 1: it quite well. Because transactions are happening all the time,

487
00:28:56,560 --> 00:28:58,520
Speaker 1: there's no way we can all remember that. It's very

488
00:28:58,600 --> 00:29:01,320
Speaker 1: difficult to to keep all these records up to date,

489
00:29:01,400 --> 00:29:04,360
Speaker 1: especially if these transactions are happening peer to peer. Because

490
00:29:04,400 --> 00:29:06,640
Speaker 1: obviously if we were, if we were transferring money to

491
00:29:06,680 --> 00:29:09,680
Speaker 1: each other through our bank accounts or cards or whatever,

492
00:29:10,080 --> 00:29:11,840
Speaker 1: then our banks would have a record of it. But

493
00:29:11,880 --> 00:29:14,680
Speaker 1: these were cash transactions, weren't they. These were grubby twenty

494
00:29:14,680 --> 00:29:17,760
Speaker 1: pound notes being being handed over in pubs late at

495
00:29:17,880 --> 00:29:21,440
Speaker 1: night an idea. I just remember thinking, wow, that if

496
00:29:21,440 --> 00:29:24,000
Speaker 1: only there was a way of keeping track of all this,

497
00:29:24,480 --> 00:29:28,239
Speaker 1: of having a sort of godlike overview of it, and

498
00:29:28,280 --> 00:29:30,440
Speaker 1: then I would be vindicated and I would get the

499
00:29:30,520 --> 00:29:33,680
Speaker 1: hundreds of pounds that would due to me and everything

500
00:29:33,720 --> 00:29:36,160
Speaker 1: would be fine. And in that way, I think I

501
00:29:36,200 --> 00:29:38,400
Speaker 1: can said to be be said to be the father.

502
00:29:41,880 --> 00:29:43,360
Speaker 1: I think that's a good point to just have a

503
00:29:43,400 --> 00:29:46,680
Speaker 1: break and big stock. Let's let's have us quick first.

504
00:29:58,400 --> 00:30:01,280
Speaker 1: Let's take a moment to think of how amazing this

505
00:30:01,280 --> 00:30:04,959
Speaker 1: whole blockchain system is. Shall were much just a moment

506
00:30:05,000 --> 00:30:10,120
Speaker 1: because yeah, no, there's no one entity in charge. There

507
00:30:10,400 --> 00:30:14,200
Speaker 1: is there's no centralization, there's no single point of failure.

508
00:30:14,240 --> 00:30:18,680
Speaker 1: It's completely decentralized network. It creates a record that can't

509
00:30:18,720 --> 00:30:22,680
Speaker 1: be altered or disputed in any way. And the term

510
00:30:22,720 --> 00:30:26,080
Speaker 1: we often use here is censorship resistant. It can't be

511
00:30:26,160 --> 00:30:30,240
Speaker 1: it can't be tampered with. And it solves this double

512
00:30:30,280 --> 00:30:32,480
Speaker 1: spend problem, which, as we've talked about quite a lot,

513
00:30:33,000 --> 00:30:36,000
Speaker 1: is vital if you're going to use any sort of

514
00:30:36,080 --> 00:30:40,200
Speaker 1: digital asset, you can't have people spending the same asset twice.

515
00:30:40,440 --> 00:30:43,120
Speaker 1: So this is something that block These are all things

516
00:30:43,120 --> 00:30:47,080
Speaker 1: that blockchain has managed to do um and this is why,

517
00:30:48,280 --> 00:30:52,000
Speaker 1: this is why cryptocurrency is able to function. But here's

518
00:30:52,120 --> 00:30:56,480
Speaker 1: a question for you. So let's say that someone wanted

519
00:30:56,600 --> 00:31:00,240
Speaker 1: to attack a blockchain for some reason, and that would

520
00:31:00,480 --> 00:31:03,800
Speaker 1: probably be financial gain. I mean that's what that is

521
00:31:03,800 --> 00:31:07,440
Speaker 1: the obvious reason that springs to mind for for attacking

522
00:31:07,440 --> 00:31:11,520
Speaker 1: the bitcoin blockchain, say, to to try and basically get

523
00:31:11,560 --> 00:31:15,120
Speaker 1: more bitcoins for yourself to allocate you either to double

524
00:31:15,160 --> 00:31:17,920
Speaker 1: spend your bitcoins or to get hold of other people's

525
00:31:17,920 --> 00:31:22,840
Speaker 1: bitcoins to have to have bitcoins wrongly wrongly transferred to you,

526
00:31:23,280 --> 00:31:27,720
Speaker 1: any sort of financial gain like that. So you might ask, then, Mike,

527
00:31:28,120 --> 00:31:33,520
Speaker 1: what prevents someone from running multiple nodes and gaining more

528
00:31:33,600 --> 00:31:36,880
Speaker 1: control of the network that way, A node is is

529
00:31:37,000 --> 00:31:39,120
Speaker 1: very easy to run. All you need basically is a

530
00:31:39,120 --> 00:31:43,360
Speaker 1: computer that's running the bitcoin software. So if someone was

531
00:31:43,400 --> 00:31:47,280
Speaker 1: able to control a majority of nodes on the network,

532
00:31:47,360 --> 00:31:51,600
Speaker 1: they could have their notice. That's actually quite good. I

533
00:31:51,640 --> 00:31:54,760
Speaker 1: like that if there was some noted all out there

534
00:31:54,840 --> 00:31:58,040
Speaker 1: who could control the majority of the network, they could

535
00:31:58,040 --> 00:32:01,400
Speaker 1: have their fraudulent transactions confirm, and this would obviously corrupt

536
00:32:01,400 --> 00:32:06,760
Speaker 1: the whole blockchain. So people would need to control the nodes. Yeah, well,

537
00:32:06,760 --> 00:32:11,440
Speaker 1: technically speaking of the computing power, which is something that

538
00:32:11,440 --> 00:32:14,560
Speaker 1: we're going to dig into probably next episode, but yeah,

539
00:32:15,640 --> 00:32:18,000
Speaker 1: of of the network, if you like, in order to

540
00:32:18,640 --> 00:32:23,280
Speaker 1: in order to put these fraudulent transactions through. So this

541
00:32:23,280 --> 00:32:26,520
Speaker 1: this is something to bear in mind because although although

542
00:32:26,640 --> 00:32:30,280
Speaker 1: this is very unlikely to happen, it is theoretically possible.

543
00:32:30,360 --> 00:32:34,880
Speaker 1: It could theoretically be done that someone could commit enough

544
00:32:34,960 --> 00:32:39,560
Speaker 1: computing power to control of the network very very difficult.

545
00:32:39,600 --> 00:32:43,040
Speaker 1: This would have been easier in Bitcoin's early days because

546
00:32:43,080 --> 00:32:45,280
Speaker 1: now there are thousands of nodes on the network and

547
00:32:45,320 --> 00:32:49,920
Speaker 1: there are thousands of other nodes doing doing the committing

548
00:32:49,960 --> 00:32:52,800
Speaker 1: the majority of the computing power known as miners. In

549
00:32:52,840 --> 00:32:56,080
Speaker 1: Bitcoin's early days, when there are only a handful of

550
00:32:56,240 --> 00:32:58,680
Speaker 1: nodes on the network, then it would have been much

551
00:32:58,760 --> 00:33:02,120
Speaker 1: much easier to for one for one entity, for one person,

552
00:33:02,280 --> 00:33:06,080
Speaker 1: for one body, or anything like that, to to take

553
00:33:06,120 --> 00:33:10,160
Speaker 1: over the network and corrupt it. It's not so much

554
00:33:10,200 --> 00:33:12,640
Speaker 1: of a problem now, even though it is theoretically possible.

555
00:33:13,000 --> 00:33:16,080
Speaker 1: But this is something that Satoshi had to had to

556
00:33:16,080 --> 00:33:18,720
Speaker 1: contend with in Bitcoin's early days because it would kind

557
00:33:18,720 --> 00:33:22,280
Speaker 1: of it would kind of strangled at birth if if

558
00:33:22,320 --> 00:33:25,200
Speaker 1: this had been possible to do. Obviously, one way to

559
00:33:25,240 --> 00:33:27,560
Speaker 1: get around this sort of thing, one way to ensure

560
00:33:27,720 --> 00:33:32,040
Speaker 1: that a blockchain didn't have a majority a majority of

561
00:33:32,120 --> 00:33:36,400
Speaker 1: notes taken over a majority of notes, corrupting the network

562
00:33:36,680 --> 00:33:39,080
Speaker 1: would be to have a central authority keeping an eye

563
00:33:39,080 --> 00:33:41,800
Speaker 1: on all the nodes and authorizing each one and then

564
00:33:42,200 --> 00:33:44,680
Speaker 1: but this would of course destroyed the decentralized nature of

565
00:33:44,680 --> 00:33:46,720
Speaker 1: the network, so we kind of get back to square one.

566
00:33:47,280 --> 00:33:50,960
Speaker 1: So this is the issue that Satoshi Nakamoto managed to

567
00:33:51,000 --> 00:33:54,560
Speaker 1: overcome with bitcoin. So what he was able to do

568
00:33:54,760 --> 00:33:59,920
Speaker 1: was to devise basically a system of incentives and punishment

569
00:34:00,080 --> 00:34:02,840
Speaker 1: that would keep all the nodes on the network honest

570
00:34:03,800 --> 00:34:07,680
Speaker 1: and whilst at the same time um any that tried

571
00:34:07,720 --> 00:34:10,880
Speaker 1: to corrupt the network. It basically made that process pointless.

572
00:34:11,160 --> 00:34:14,000
Speaker 1: And this was all to avoid having to have that

573
00:34:14,120 --> 00:34:17,920
Speaker 1: centralized authority in place, that one that one person at

574
00:34:17,960 --> 00:34:20,880
Speaker 1: the top or in the middle of the corrupt Yeah,

575
00:34:21,120 --> 00:34:23,920
Speaker 1: so how is he able to make this work? Well,

576
00:34:25,400 --> 00:34:29,319
Speaker 1: we're going to get mildly technical, mildly, but I'll take

577
00:34:29,360 --> 00:34:33,040
Speaker 1: you through it. A certain type of node creates these

578
00:34:33,080 --> 00:34:37,160
Speaker 1: blocks on the blockchain, these batches of validated transactions, and

579
00:34:37,200 --> 00:34:40,960
Speaker 1: then adds them to the chain. Now, these nodes are

580
00:34:41,000 --> 00:34:45,279
Speaker 1: what are known as miners. Okay, and we hear about

581
00:34:45,320 --> 00:34:48,040
Speaker 1: bitcoin mining all the time, and we're gonna in the

582
00:34:48,120 --> 00:34:50,239
Speaker 1: next episode, we're going to dig into what that what

583
00:34:50,400 --> 00:34:54,479
Speaker 1: that is, But that is basically the creation that the

584
00:34:53,680 --> 00:34:58,520
Speaker 1: the process by which new bitcoins are created. Miners are

585
00:34:58,760 --> 00:35:02,839
Speaker 1: rewarded for doing this work. They are rewarded for assembling

586
00:35:02,840 --> 00:35:06,440
Speaker 1: the blocks of transactions and adding them to the network,

587
00:35:06,480 --> 00:35:09,520
Speaker 1: and they get rewarded in the coin native to the

588
00:35:09,520 --> 00:35:11,880
Speaker 1: blockchain that we're on, so in this case Bitcoin, So

589
00:35:11,920 --> 00:35:14,400
Speaker 1: a bitcoin miner gets rewarded for that from maintaining the

590
00:35:14,400 --> 00:35:18,359
Speaker 1: Bitcoin blockchain with you guessed it, bitcoins, okay, And this

591
00:35:18,400 --> 00:35:20,879
Speaker 1: is called a block reward. And again this is something

592
00:35:21,000 --> 00:35:24,720
Speaker 1: we'll touch on when we talk about mining. So these

593
00:35:24,760 --> 00:35:28,319
Speaker 1: bitcoin rewards are basically the way they're distributed very very

594
00:35:28,360 --> 00:35:31,920
Speaker 1: simply is through a lottery like system. That again is

595
00:35:31,960 --> 00:35:36,120
Speaker 1: something that mining that will explain when we talk about mining.

596
00:35:37,200 --> 00:35:40,799
Speaker 1: But this reward provides the incentive for them to do

597
00:35:40,920 --> 00:35:44,120
Speaker 1: the work because, as we'll see, they are having to

598
00:35:44,440 --> 00:35:47,000
Speaker 1: commit computing power in order to do this and they

599
00:35:47,000 --> 00:35:49,439
Speaker 1: need to be rewarded for that. Otherwise there's there's nothing

600
00:35:49,440 --> 00:35:53,240
Speaker 1: in it for them. So what stops them from trying

601
00:35:53,280 --> 00:35:57,120
Speaker 1: to earn more rewards by running multiple mining notes, which

602
00:35:57,200 --> 00:36:00,479
Speaker 1: could give them control of the network. Well, as I said,

603
00:36:00,760 --> 00:36:03,839
Speaker 1: all these miners they have to expend computing power in

604
00:36:04,000 --> 00:36:07,680
Speaker 1: order to earn the chance to win this bitcoin lottery,

605
00:36:07,760 --> 00:36:11,160
Speaker 1: if you like. Their lottery ticket is paid for in

606
00:36:11,280 --> 00:36:14,520
Speaker 1: computing power. So they do a little bit of work,

607
00:36:14,760 --> 00:36:17,120
Speaker 1: They put in the effort at the time, the energy

608
00:36:17,239 --> 00:36:22,520
Speaker 1: into processing these transactions, and as a reward, they get

609
00:36:22,640 --> 00:36:25,840
Speaker 1: entered into a lottery. And then every x amount of

610
00:36:25,880 --> 00:36:30,360
Speaker 1: minutes they get they earned some bitcoin, yes exactly, every

611
00:36:30,440 --> 00:36:33,560
Speaker 1: every well, yeah, it is literally a case of minutes,

612
00:36:33,600 --> 00:36:36,560
Speaker 1: and roughly it's every ten minutes on bitcoin, So roughly

613
00:36:36,600 --> 00:36:39,120
Speaker 1: every ten minutes on the Bitcoin network, a new block

614
00:36:39,200 --> 00:36:42,920
Speaker 1: is added to the blockchain and a block reward is

615
00:36:42,920 --> 00:36:46,080
Speaker 1: paid out, and that at the moment is six and

616
00:36:46,280 --> 00:36:49,680
Speaker 1: a quarter bitcoins, yeah, which if you do the maths,

617
00:36:50,000 --> 00:36:52,279
Speaker 1: it actually used to be a lot more. In bitcoin's

618
00:36:52,320 --> 00:36:57,280
Speaker 1: early days, it was fifty bitcoins, which was worth peanuts

619
00:36:57,360 --> 00:37:00,040
Speaker 1: then were I mean in bitcoins very early days it

620
00:37:00,080 --> 00:37:03,680
Speaker 1: was worth absolutely nothing, but now would obviously be worth

621
00:37:04,200 --> 00:37:08,680
Speaker 1: millions of dollars. And that block reward has halved over time.

622
00:37:09,400 --> 00:37:11,279
Speaker 1: And again this is something I'll talk about when we

623
00:37:11,280 --> 00:37:14,680
Speaker 1: talk about mining, um. But yes, so there is and

624
00:37:14,800 --> 00:37:17,399
Speaker 1: there is an incentive for the miners to do this work.

625
00:37:17,400 --> 00:37:19,560
Speaker 1: And yeah, as you say, they're committing its energy. Really

626
00:37:19,600 --> 00:37:23,040
Speaker 1: they're committing their commit their running their computers. They're using

627
00:37:23,040 --> 00:37:27,200
Speaker 1: this computing power. And this system is known as proof

628
00:37:27,360 --> 00:37:32,840
Speaker 1: of work. Okay, So proof of work is something was

629
00:37:32,920 --> 00:37:37,080
Speaker 1: that was actually developed a long time before Satoshi invented bitcoin. Now,

630
00:37:37,080 --> 00:37:39,400
Speaker 1: there were a number of other experiments back in the

631
00:37:39,520 --> 00:37:42,920
Speaker 1: nineties and early two thousands, so people have been trying

632
00:37:42,960 --> 00:37:45,839
Speaker 1: to create a peer to peer digital cash for quite

633
00:37:45,840 --> 00:37:48,560
Speaker 1: a long time. And again this is something we'll touch

634
00:37:48,640 --> 00:37:52,040
Speaker 1: on in another in another episode. But there were things

635
00:37:52,080 --> 00:37:57,160
Speaker 1: like hash cash and bit gold and various other projects

636
00:37:57,160 --> 00:37:59,799
Speaker 1: that tried to do this, but none of them could

637
00:38:00,080 --> 00:38:03,560
Speaker 1: quite Yeah, none of them could quite nail it. But

638
00:38:03,680 --> 00:38:06,560
Speaker 1: a big component of this, now, proof of work was

639
00:38:06,640 --> 00:38:10,320
Speaker 1: actually invented by was actually first used by a British

640
00:38:10,400 --> 00:38:14,040
Speaker 1: cryptographer called Adam Back. He came he came up with

641
00:38:14,080 --> 00:38:17,480
Speaker 1: the idea that this was the way in which computers

642
00:38:17,520 --> 00:38:22,480
Speaker 1: could be Computers could incent it could be rewarded for

643
00:38:22,480 --> 00:38:27,480
Speaker 1: for doing the grit yeah, doing the legaty. Yeah. So

644
00:38:27,520 --> 00:38:31,040
Speaker 1: what's Toti managed to do was pulled together a number

645
00:38:31,080 --> 00:38:34,239
Speaker 1: of features from previous experiments at creating a peer to

646
00:38:34,280 --> 00:38:37,720
Speaker 1: peer digital cash and actually devise a system that worked.

647
00:38:38,800 --> 00:38:42,319
Speaker 1: So this proof of work it actually plays a role

648
00:38:42,480 --> 00:38:46,120
Speaker 1: in keeping the network secure as well. And again that's

649
00:38:46,160 --> 00:38:48,399
Speaker 1: something that we come back to with money, and it's

650
00:38:48,400 --> 00:38:50,719
Speaker 1: related to the encryption part of it that we talked

651
00:38:50,719 --> 00:38:54,799
Speaker 1: about earlier. But proof of work eats a lot of

652
00:38:54,840 --> 00:38:57,560
Speaker 1: computing power and that that obviously has to be paid for.

653
00:38:57,920 --> 00:39:00,400
Speaker 1: You can't run a computer, You can't have a computer

654
00:39:00,520 --> 00:39:04,200
Speaker 1: doing all sorts of all sorts of calculations, running seven

655
00:39:05,360 --> 00:39:07,600
Speaker 1: and not pay for it. Your energy bill will go

656
00:39:07,680 --> 00:39:10,439
Speaker 1: through the roof. And this is something that we see

657
00:39:10,480 --> 00:39:13,480
Speaker 1: because this system has only expanded as bitcoin has got bigger,

658
00:39:13,719 --> 00:39:15,359
Speaker 1: and this is one of the reasons that so many

659
00:39:15,360 --> 00:39:19,160
Speaker 1: people have flagged up the fact that bitcoin eats so

660
00:39:19,239 --> 00:39:22,440
Speaker 1: much electricity because there are so many computers, there are

661
00:39:22,440 --> 00:39:27,360
Speaker 1: so many miners using this proof of work system. But

662
00:39:27,440 --> 00:39:29,840
Speaker 1: does that Is that not the same for any ledger?

663
00:39:30,000 --> 00:39:34,799
Speaker 1: So for you know, how banks store all that information

664
00:39:35,040 --> 00:39:39,600
Speaker 1: and the amount of different parties involved in the FIAT

665
00:39:39,640 --> 00:39:43,000
Speaker 1: sort of digital currency system. Is it not similar? Is it?

666
00:39:43,040 --> 00:39:46,240
Speaker 1: Is it more? Well, the nature of proof of work

667
00:39:46,840 --> 00:39:51,440
Speaker 1: is that that every single minor has to do it.

668
00:39:51,520 --> 00:39:56,960
Speaker 1: But only one gets the reward, So of the miners

669
00:39:57,000 --> 00:40:00,840
Speaker 1: are actually doing this heavy computer work with no reward.

670
00:40:00,920 --> 00:40:04,080
Speaker 1: It's kind of ultimately pointless because only one minor actually

671
00:40:04,080 --> 00:40:05,759
Speaker 1: wins it. It can be only one. There can be

672
00:40:05,800 --> 00:40:08,920
Speaker 1: only one exactly. But yes, with a center, I mean

673
00:40:08,960 --> 00:40:11,319
Speaker 1: it is true that with centralized databases and with things

674
00:40:11,320 --> 00:40:13,479
Speaker 1: like Visa's payment network and all this sort of stuff,

675
00:40:13,520 --> 00:40:15,839
Speaker 1: they do use Yeah, they do use a lot of electricity,

676
00:40:16,239 --> 00:40:19,399
Speaker 1: and data has to be stored on big servers, and

677
00:40:19,680 --> 00:40:22,720
Speaker 1: these servers have to be kept cool they kept running.

678
00:40:22,719 --> 00:40:25,360
Speaker 1: So yeah, I think it's fair to say that centralized

679
00:40:25,640 --> 00:40:30,200
Speaker 1: data storage is a big, big, big hog of the

680
00:40:30,280 --> 00:40:35,400
Speaker 1: old energy. Yeah. Yeah, but proof of work involves a

681
00:40:35,400 --> 00:40:41,560
Speaker 1: computer running millions, billions, even billions, and sometimes trillions of calculations.

682
00:40:41,600 --> 00:40:44,960
Speaker 1: So the actual computing work done is much much heavier,

683
00:40:45,040 --> 00:40:47,440
Speaker 1: is a much heavier load than it would be just

684
00:40:47,520 --> 00:40:49,440
Speaker 1: kind of running server with data on. But it's a

685
00:40:49,440 --> 00:40:53,560
Speaker 1: good point, yeah, because it's something too. It's something to

686
00:40:53,600 --> 00:40:55,880
Speaker 1: push back on when people say, oh, well bitcoin is

687
00:40:55,880 --> 00:40:58,520
Speaker 1: is a waste of electricity. It just because it sums

688
00:40:58,560 --> 00:41:01,040
Speaker 1: up the fact that actually anything we do, if we're

689
00:41:01,080 --> 00:41:05,160
Speaker 1: storing data, if we're running computers that we're using YouTube

690
00:41:05,719 --> 00:41:08,960
Speaker 1: or any of these systems that involves the use of energy.

691
00:41:09,120 --> 00:41:11,319
Speaker 1: There's a lot of stuff going on behind this, as

692
00:41:11,320 --> 00:41:15,560
Speaker 1: we saw last time with banking infrastructure and payment infrastructure

693
00:41:15,600 --> 00:41:17,439
Speaker 1: and things like this, there's tons of stuff running behind

694
00:41:17,480 --> 00:41:19,160
Speaker 1: the scene. This all needs to be powered, This all

695
00:41:19,160 --> 00:41:22,759
Speaker 1: needs to be protected and paid for. Yeah, and as

696
00:41:23,000 --> 00:41:25,520
Speaker 1: as we saw that that we pay for that, we

697
00:41:25,680 --> 00:41:27,839
Speaker 1: the consumer foot, the private foot the bill for that.

698
00:41:29,640 --> 00:41:33,240
Speaker 1: So let's move on. Then, if a if a minor

699
00:41:33,400 --> 00:41:36,200
Speaker 1: wants to gain control of the network, what they'll do

700
00:41:36,360 --> 00:41:38,399
Speaker 1: is that what they'll have to do is commit a

701
00:41:38,440 --> 00:41:41,960
Speaker 1: lot of computing power and therefore money in order to

702
00:41:42,000 --> 00:41:44,520
Speaker 1: do so. And this expense will be such that it

703
00:41:44,520 --> 00:41:47,760
Speaker 1: will almost certainly cancel out any financial gain the minor

704
00:41:47,800 --> 00:41:50,399
Speaker 1: would get from corrupting the network. Do you see, Because

705
00:41:50,440 --> 00:41:53,440
Speaker 1: they have had to use so much computing power in

706
00:41:53,560 --> 00:41:58,799
Speaker 1: order to be able to to gain of control that

707
00:41:59,160 --> 00:42:03,080
Speaker 1: there's no way that that they're that what they earned

708
00:42:03,120 --> 00:42:07,160
Speaker 1: from doing that would probably cover their costs. But it

709
00:42:07,160 --> 00:42:10,040
Speaker 1: gets worse, it gets worse for any sort of would

710
00:42:10,040 --> 00:42:12,719
Speaker 1: be fraudulent minor, because even if they were able to

711
00:42:12,800 --> 00:42:15,840
Speaker 1: force through their for fraudulent transactions, the rest of the

712
00:42:15,880 --> 00:42:19,600
Speaker 1: network would notice what they were trying to do, and

713
00:42:19,719 --> 00:42:22,680
Speaker 1: this would have the corresponding effect of then destroying the

714
00:42:22,760 --> 00:42:26,400
Speaker 1: integrity of the network, and that in turn would wipe

715
00:42:26,440 --> 00:42:31,040
Speaker 1: out the value of the fraudulent miners coins. Because because

716
00:42:31,040 --> 00:42:34,880
Speaker 1: the whole note yeah, yeah, because if you if bitcoin

717
00:42:35,000 --> 00:42:38,960
Speaker 1: is corrupted, if one minor manages to gain control and

718
00:42:39,040 --> 00:42:43,080
Speaker 1: corrupt the bitcoin network, and everyone loses confidence. So bitcoin

719
00:42:43,160 --> 00:42:46,239
Speaker 1: becomes worthless. So all the bitcoins that this miner was

720
00:42:46,280 --> 00:42:48,799
Speaker 1: either seeking to earn or maybe had earned before and

721
00:42:48,880 --> 00:42:52,080
Speaker 1: was holding, would themselves become worthless. It's like cutting off

722
00:42:52,120 --> 00:42:56,000
Speaker 1: your nose despite your own face, essentially exactly exactly only

723
00:42:56,040 --> 00:42:59,919
Speaker 1: with money, only when only with money, Yeah, exactly. It's

724
00:43:00,600 --> 00:43:03,799
Speaker 1: it's an ingenious it's an ingenious system of kind of

725
00:43:03,840 --> 00:43:07,560
Speaker 1: I guess, carrot and stick. Well yeah, so self regulation, yeah,

726
00:43:07,760 --> 00:43:12,200
Speaker 1: checks and balances, Yeah, these are all built into the system,

727
00:43:12,320 --> 00:43:15,520
Speaker 1: and the system maintains itself. But the key thing, as

728
00:43:15,560 --> 00:43:18,440
Speaker 1: we've seen, is that there is no one who either

729
00:43:18,560 --> 00:43:20,879
Speaker 1: can step in or would be needed to step in

730
00:43:21,480 --> 00:43:24,560
Speaker 1: if something were to go wrong. The network polices itself.

731
00:43:24,960 --> 00:43:27,960
Speaker 1: And this is what this is what's so clever about

732
00:43:28,000 --> 00:43:31,000
Speaker 1: what he achieved, He managed to get all these kind

733
00:43:31,000 --> 00:43:34,520
Speaker 1: of plate spinning. If you like, everything to everything about

734
00:43:34,520 --> 00:43:37,160
Speaker 1: the network, about the bitcoin network kind of supports it.

735
00:43:37,200 --> 00:43:39,520
Speaker 1: If you if you try and do something wrong, if

736
00:43:39,560 --> 00:43:43,120
Speaker 1: you try and fool the network in any way, Um,

737
00:43:43,560 --> 00:43:47,520
Speaker 1: then there are incentives and and punishments that will that

738
00:43:47,560 --> 00:43:49,360
Speaker 1: will make it not worth it. Do you see what

739
00:43:49,360 --> 00:43:55,400
Speaker 1: I mean? It's yeah, it polices itself. So Um, the

740
00:43:55,440 --> 00:43:59,080
Speaker 1: fraudulent miners, ill gotten bitcoins would be worthless. What would

741
00:43:59,120 --> 00:44:01,600
Speaker 1: they have gained from from what they were trying to do.

742
00:44:02,239 --> 00:44:03,719
Speaker 1: The only thing I could think of is maybe an

743
00:44:03,719 --> 00:44:06,480
Speaker 1: anarchist trying to do something like that, someone who just

744
00:44:06,480 --> 00:44:09,719
Speaker 1: wants to see the world burn. Yeah, yeah, No, that's

745
00:44:09,760 --> 00:44:13,000
Speaker 1: an interesting point. And I mean there is another similar

746
00:44:13,960 --> 00:44:16,160
Speaker 1: threat that you could that you could argue, what if

747
00:44:16,200 --> 00:44:20,399
Speaker 1: a government wanted to do because really someone threatened by

748
00:44:20,400 --> 00:44:26,320
Speaker 1: this another papal situation. Well, this has been talked about before,

749
00:44:28,040 --> 00:44:32,719
Speaker 1: the idea that maybe okay, there's no real financial incentive

750
00:44:32,760 --> 00:44:36,719
Speaker 1: to attack the bitcoin network. No one, no one could

751
00:44:36,760 --> 00:44:39,120
Speaker 1: be able to commit that sort of computing power, no

752
00:44:39,160 --> 00:44:41,320
Speaker 1: one would have the money, no one would have good

753
00:44:41,320 --> 00:44:43,880
Speaker 1: reason to do it. But what if someone as you

754
00:44:43,920 --> 00:44:46,560
Speaker 1: say just kind of wanted to destroy the network for

755
00:44:46,640 --> 00:44:49,359
Speaker 1: other reasons, not for they weren't looking for financial gain

756
00:44:49,400 --> 00:44:51,879
Speaker 1: at all. And yeah, that could be I guess someone

757
00:44:52,120 --> 00:44:57,920
Speaker 1: who just wanted to cause chaos, or more likely a

758
00:44:58,080 --> 00:45:01,680
Speaker 1: government who wanted to bring the network down. And that

759
00:45:01,920 --> 00:45:05,000
Speaker 1: I mean, there are only really two governments who could

760
00:45:05,000 --> 00:45:08,120
Speaker 1: possibly do this. The US government or the Chinese government

761
00:45:08,200 --> 00:45:12,239
Speaker 1: could theoretically do this, but China has made it a

762
00:45:12,239 --> 00:45:15,440
Speaker 1: lot more difficult because China for quite a long time,

763
00:45:15,520 --> 00:45:19,520
Speaker 1: even though um, even though China's government has kind of

764
00:45:19,640 --> 00:45:23,120
Speaker 1: banned bitcoin on many many occasions or tried to or

765
00:45:23,120 --> 00:45:25,720
Speaker 1: made it very difficult for Chinese citizens to hold bitcoin.

766
00:45:26,120 --> 00:45:28,839
Speaker 1: For a long time, a lot of bitcoin miners were

767
00:45:28,880 --> 00:45:33,560
Speaker 1: based in China, but as part of China's crackdown on

768
00:45:33,560 --> 00:45:36,320
Speaker 1: on mining, they have now been pushed out of the country.

769
00:45:37,120 --> 00:45:40,359
Speaker 1: And the problem with having so many bitcoin miners in

770
00:45:40,480 --> 00:45:44,960
Speaker 1: China meant that the bitcoin that the mining power was

771
00:45:45,040 --> 00:45:47,719
Speaker 1: being centralized, It was being concentrated in one place, and

772
00:45:47,760 --> 00:45:49,840
Speaker 1: this was something that a lot of people were worried about.

773
00:45:50,400 --> 00:45:53,719
Speaker 1: What if the Chinese government, which let's face it, could

774
00:45:53,840 --> 00:45:56,960
Speaker 1: do something authoritarian like this if it wanted to. I mean,

775
00:45:57,000 --> 00:46:00,480
Speaker 1: the Chinese government kind of doesn't really have anyone's stopping

776
00:46:00,520 --> 00:46:04,040
Speaker 1: it or what happened to those minors, Well, those miners

777
00:46:04,160 --> 00:46:07,040
Speaker 1: were because they were forced out of China. They've gone elsewhere,

778
00:46:07,040 --> 00:46:09,480
Speaker 1: and a lot of them have gone to the United States.

779
00:46:09,520 --> 00:46:13,759
Speaker 1: Basically they've gone where energy is cheaper. So a few

780
00:46:13,840 --> 00:46:18,040
Speaker 1: have moved into kind of Central Asia where there is

781
00:46:18,320 --> 00:46:21,640
Speaker 1: a lot of cheaper energy, but a lot have now

782
00:46:21,719 --> 00:46:23,680
Speaker 1: gone to the United States. In fact, I think it's

783
00:46:23,719 --> 00:46:26,840
Speaker 1: almost the case that the mining power that was in

784
00:46:26,960 --> 00:46:30,760
Speaker 1: China has now shifted almost wholesale over to the US,

785
00:46:30,840 --> 00:46:35,760
Speaker 1: where there's states like Texas are a lot more accommodating

786
00:46:36,080 --> 00:46:39,839
Speaker 1: for crypto minors um and they also use a lot

787
00:46:39,840 --> 00:46:43,120
Speaker 1: more renewable energy. This was the problem. This was another

788
00:46:43,160 --> 00:46:45,040
Speaker 1: problem in that a lot of these miners were using

789
00:46:45,160 --> 00:46:49,920
Speaker 1: Chinese coal power. Uh. And this is obviously there's no

790
00:46:49,960 --> 00:46:51,719
Speaker 1: way of there's no way of slicing this. You know,

791
00:46:51,880 --> 00:46:54,040
Speaker 1: that is bad for the environment. However much of a

792
00:46:54,080 --> 00:46:57,520
Speaker 1: bitcoin believer you are, however much you however much you've

793
00:46:57,560 --> 00:47:01,480
Speaker 1: supported and want bitcoin to thrive. If bitcoin mining is

794
00:47:01,520 --> 00:47:04,120
Speaker 1: being done through the burning of coal, that is bad.

795
00:47:04,800 --> 00:47:09,160
Speaker 1: But if it's being done through clean, renewable, safer energy.

796
00:47:09,480 --> 00:47:14,560
Speaker 1: Then that's much better. Um. So you could argue that

797
00:47:15,120 --> 00:47:18,880
Speaker 1: perhaps the focus has shifted now, it would China, I

798
00:47:18,960 --> 00:47:21,080
Speaker 1: don't think would be able to would be able to

799
00:47:21,080 --> 00:47:23,719
Speaker 1: do it now now that it doesn't have direct control

800
00:47:23,800 --> 00:47:27,000
Speaker 1: over so many miners. You could argue the US government

801
00:47:27,000 --> 00:47:30,040
Speaker 1: would want to do it, um, but it's hard to

802
00:47:30,080 --> 00:47:33,720
Speaker 1: see really. It would have to commit so much money

803
00:47:34,120 --> 00:47:38,239
Speaker 1: and it would be very difficult to do quietly. M

804
00:47:38,520 --> 00:47:41,239
Speaker 1: m um. That again, and I think I think this

805
00:47:41,320 --> 00:47:44,000
Speaker 1: is something that bitcoins managed to do over over the

806
00:47:44,040 --> 00:47:47,480
Speaker 1: thirteen years of its existence. It's managed to grow so big,

807
00:47:47,920 --> 00:47:51,160
Speaker 1: and there are so many miners and also other nodes

808
00:47:51,239 --> 00:47:54,160
Speaker 1: just running the software all across the world that it's

809
00:47:54,200 --> 00:47:59,640
Speaker 1: almost impossible for one single country to to take it over,

810
00:47:59,719 --> 00:48:02,040
Speaker 1: even if a lot of miners are concentrated in that

811
00:48:02,080 --> 00:48:05,080
Speaker 1: country like they are in the United States. Um. And

812
00:48:05,120 --> 00:48:08,799
Speaker 1: again it's this kind of system of rewards and incentives.

813
00:48:08,840 --> 00:48:13,200
Speaker 1: What would the US government really gain from shutting Bitcoin

814
00:48:13,280 --> 00:48:17,799
Speaker 1: down at this point or corrupting the network, especially as

815
00:48:17,800 --> 00:48:21,799
Speaker 1: so many US citizens are heavily invested in. All it

816
00:48:21,800 --> 00:48:27,040
Speaker 1: would really do is cause an enormous outcry pr disaster

817
00:48:27,239 --> 00:48:29,600
Speaker 1: it would be a pr disaster. Very difficult, I think

818
00:48:29,640 --> 00:48:34,400
Speaker 1: now to to imagine a situation in which any government

819
00:48:35,400 --> 00:48:39,520
Speaker 1: would want to go to all that effort for yeah,

820
00:48:39,520 --> 00:48:41,520
Speaker 1: what would be what would be the point? What would

821
00:48:41,520 --> 00:48:45,720
Speaker 1: be the reward? Just as the States losing? I suppose

822
00:48:45,760 --> 00:48:51,000
Speaker 1: it's just if they feel that the dollar is yeah, yeah,

823
00:48:51,000 --> 00:48:54,200
Speaker 1: which I mean the dollar is the dollar depends the

824
00:48:54,239 --> 00:48:57,120
Speaker 1: dollar hegemony throughout the world. The dollar as the sort

825
00:48:57,120 --> 00:49:01,360
Speaker 1: of world's de facto reserve currency is being threatened by crypto.

826
00:49:01,560 --> 00:49:03,960
Speaker 1: It's been threatened by bitcoin. And obviously we have countries

827
00:49:04,000 --> 00:49:07,080
Speaker 1: like El Salvador now which have which have adopted bitcoin

828
00:49:07,120 --> 00:49:10,359
Speaker 1: as legal tender. And this is not something that's gone

829
00:49:10,400 --> 00:49:14,759
Speaker 1: down particularly well with the US government. So I don't know.

830
00:49:14,800 --> 00:49:18,080
Speaker 1: Perhaps if more countries were to start adopting bitcoin, if

831
00:49:18,080 --> 00:49:20,719
Speaker 1: we were to start seeing its spread maybe through it

832
00:49:20,760 --> 00:49:23,160
Speaker 1: could be a victim of its own success. It could be.

833
00:49:23,239 --> 00:49:25,040
Speaker 1: But then surely what the miners not just moved to

834
00:49:25,080 --> 00:49:27,440
Speaker 1: a different country and then well, yeah, and this is again,

835
00:49:27,440 --> 00:49:29,919
Speaker 1: this is something we're seeing that because El Salvador has

836
00:49:30,360 --> 00:49:33,719
Speaker 1: adopted bitcoin as as as a legal tender, a lot

837
00:49:33,719 --> 00:49:37,120
Speaker 1: of miners have now moved there and by this point,

838
00:49:37,200 --> 00:49:39,760
Speaker 1: I think, Mike, I hope you agree. We have a

839
00:49:39,880 --> 00:49:43,880
Speaker 1: very simple overview of how a blockchain like Bitcoin's works.

840
00:49:44,760 --> 00:49:48,520
Speaker 1: A decentralized network of nodes and miners that are incentivized

841
00:49:48,800 --> 00:49:52,960
Speaker 1: to behave in an honest fashion. Um, if they didn't,

842
00:49:53,000 --> 00:49:55,040
Speaker 1: they gained nothing from being a part of the network,

843
00:49:55,920 --> 00:49:58,000
Speaker 1: and if any minor was to step out of line,

844
00:49:58,040 --> 00:50:00,640
Speaker 1: the penalties for doing so would just not be worth

845
00:50:00,640 --> 00:50:03,560
Speaker 1: the effort that they expended in trying to do that.

846
00:50:04,960 --> 00:50:09,360
Speaker 1: So the network is designed to keep itself honest. So

847
00:50:10,120 --> 00:50:13,320
Speaker 1: there are quite a few technical matters that we've maybe

848
00:50:13,440 --> 00:50:15,799
Speaker 1: talked about that maybe come up in conversation, but we

849
00:50:15,840 --> 00:50:19,400
Speaker 1: haven't yet addressed. So before we sign off, I just

850
00:50:19,440 --> 00:50:21,280
Speaker 1: want to I just want to give people a flavor

851
00:50:21,320 --> 00:50:23,520
Speaker 1: of what we're going to talk about in the next episode.

852
00:50:24,520 --> 00:50:27,040
Speaker 1: So we haven't looked at how these blocks are encrypted.

853
00:50:27,040 --> 00:50:30,120
Speaker 1: Do you remember early on I said, yeah, we need

854
00:50:30,160 --> 00:50:33,080
Speaker 1: to talk about that. We also need to talk about

855
00:50:33,120 --> 00:50:37,080
Speaker 1: how they get added to the blockchain. Yeah, it's it's

856
00:50:37,160 --> 00:50:39,719
Speaker 1: not as simple as I as I made out. Now,

857
00:50:39,760 --> 00:50:42,800
Speaker 1: we've talked a lot about mining, but what exactly is mining?

858
00:50:42,960 --> 00:50:45,000
Speaker 1: We've touched on it, but we haven't gone into detail,

859
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Speaker 1: and so we are going to answer these questions and

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00:50:49,200 --> 00:50:52,239
Speaker 1: a lot more in the next episode. Let's get technical.

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00:50:52,440 --> 00:50:56,280
Speaker 1: Let's get technical exactly. We're going to get really technical

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00:50:56,400 --> 00:51:00,239
Speaker 1: in the next episode. Are you are you ready for that? Sure? Yeah,

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00:51:00,880 --> 00:51:02,799
Speaker 1: it's going to be fun. Let's get the coffee there.

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00:51:02,920 --> 00:51:05,839
Speaker 1: Thanks for sticking with us, everyone, You've got lots more

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Speaker 1: very technical talk to look forward to in the next episode.

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Speaker 1: Thanks Mike, this has been fun. Cool, Take care of guys.

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Speaker 1: YouTube mad. For more podcasts from my Heart Radio, visit

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Speaker 1: the I Heart Radio app, Apple Podcasts, or wherever we

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00:51:28,600 --> 00:51:31,960
Speaker 1: get to the podcasts. The coin vierea podcast is a

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00:51:32,000 --> 00:52:02,239
Speaker 1: production of I Heart Radios. Don't Don't un