Session 2 Transcript

This is a transcript of our second academy session.

Hey everyone and welcome back to Cointelligence Academy.

We are super happy that you decided to join us for a second session.

And today we will be talking mostly about bitcoin mining and wallets.

As you can see right next to me we'll talk about how many bitcoin are there how many will be how Bitcoin

wallet looks like and how new bitcoin are created.

And for those of you who missed our first session.

My name is Raz.

I am Head of Research at Cointelligence and I am teaching this course at the Academy.

I've been researching crypto for the past three years and I'm glad to be with you guys for this journey.

I'd also like to take this opportunity to thank our sponsor PumaPay which is uh you can see it up top

there for allowing us to offer this course for everyone who wants to learn PumaPay is actually

the first comprehensive crypto payment solution for businesses and they combined the flexibility of

payment cards with the advantages of block chain technology.

We are very excited to be partnering with a company that genuinely wants to increase adoption of crypto

currencies and help many people pay less fees and have more control over their own money.

All right.

So what do you say we get started.

Let's talk a little bit about what we learned in the previous session and for you guys that were in

here.

That's going to be a small recap.

So we've learned the background to what led to the invention of Bitcoin with the 2008 financial crisis

that originated in the U.S. but affected the entire world and the global economy.

And it made a lot of people lose faith in banks and the traditional financial system.

So we also learned that Bitcoin was born out of this out of this crisis right.

It was made by a person called Satoshi Nakamoto.

He published a bitcoin White Paper in 2008.

He published it for a small group of cryptographers which are people who deal with encrypting data.

And since then it's been it's grown in and in a huge way.

Right.

Bitcoin is huge around the world right now a lot of people know about it and they had around 10 years

to do this.

This impressive growth.

So we also saw how bitcoin works on a technical level.

And what enables it to be a network that follows a protocol bitcoin we talked about this.

Bitcoin is first and foremost a protocol based network.

So after that only after that it's a value transaction system.

And finally we saw what a block chain is how it's built and how it is shared between everyone who uses

the network and the block chain.

The State of the network that the most people have at any given time is the true state of the network.

Right.

It's what most people agree on.

And we saw that transactions in bitcoin are grouped into blocks and in order to be added to the chain

of blocks you have to chain the new block to the block before it.

So that's a quick recap of everything we learned at the previous session our first session.

And I want to just jump right into what mining is.

So we've heard a lot about mining right.

It's a it's this weird name for something that you don't actually use pickaxes to mines.

So let's see what it is.

So let's talk about it.

Think about regular mining for a second before we we we jump in.

You take physical stuff like axes and you you throw them at at the earth to try and get some valuable

stuff out of the earth.

Right.

That's the most basic level of mining.

You you you just keep on hacking until you find something and you hope to find no one never told you

you know this place is going to have 10 grams of that and this place is going to have 100 grams of that.

So you generally just this trying stuff and hoping that it will come out and sometimes nothing comes

out and sometimes you hit the jackpot.

Right.

So how is it like in Bitcoin.

Well every bitcoin has to come from somewhere and Bitcoin are actually generated in order to generate

Bitcoin.

You have to to to follow a set of rules.

We talked about how Bitcoin is a network that participants in the network have to follow rules in order

to use it.

So we can't let just anyone make new bitcoin because then everyone will make as much Bitcoin as they

can and then it won't have any value right.

It will be like sand.

Sand doesn't have a lot of value.

You go to the beach there's a lot of sand and think about it.

If everyone can make gold in their home gold wouldn't be worth more than sand.

Right.

So mining is the process of creating this new bitcoin by solving computational problems.

And that's people use computers to operate programs operate software that are continuously solving computational

problems and that way they are mining they are creating new bitcoin.

So whenever someone wants to send a new transaction the transaction is created alongside a mathematical

problem that needs to be solved as long as it isn't solved.

Everyone in the network is waiting for the solution and each transaction is considered pending after

a miner comes in a person who's doing this mining after a miner comes in to the situation and uses their

computational power to solve the problem only then the transaction is considered confirmed and the bitcoin

is sent over.

So we were never new transactions are being broadcast in a network they are waiting to be mined they

are waiting to be confirmed and they sit in a place called the waiting room and in the technical aspect

of bitcoin this place is called the memory pool or the memorial.

You'll see many people talk about the memorial and that's essentially this waiting room that transactions

sit in to wait to be confirmed.

So in order to have for everyone to know that the miner didn't just confirm the transaction without

actually computing the solution they include along with the solution what's called a proof of work which

is a piece of data that everyone in the network can see and verify themselves so they can know that

the miner did in fact do the computational work required to confirm the transaction.

This way we can ensure no one is confirming as many transactions as they can write this this way.

We we we ensure that people aren't just saying yeah this transaction is confirmed this transaction is

confirmed without actually putting their computer to use and doing the work that's needed for everyone

to know that it happened.

So

that's about that.

And we've gone over the process but we talked about it.

It it seems a bit hard to understand at first.

I know.

And that's why we have this cute animation that will help us understand and we'll see it slowly because

it's super super crucial to understanding.

So in animation form this is how the mining process works.

So Alice we have to two persons we have Alice and Bob and they want to transact in Bitcoin.

Alice wants to send her Bitcoin over to Bob.

So in bitcoin this is this is how this process works.

So Alice initiates a transaction.

Right.

She broadcast to the network hey I want to send my Bitcoin over to Bob.

So with the transaction there is presented a mathematical problem we can see it here and this is not

the actual way they transact the problem looks but it's the easiest way I can explain mining for everyone

to understand.

So the transaction is presenting a problem to the network only then a miner comes in and tries to solve

that problem.

And how does he do it.

He just operates his computer.

The computer is working is generating

computational power it's using power it's using electricity to work and produce solutions to the problem.

Now here is the point where it's exactly like traditional mining because the miner doesn't do computations

like you do on a piece of paper right.

You don't follow steps the miner just randomly throws solutions at the problem exactly like me randomly

throwing an ax at the wall until you find something.

So the miner picks up the wall that the physical miner picks up the wall the bitcoin miner picks at

the software right just throws solutions.

And this is how it looks.

It threw a solution at the problem and we can see the solution doesn't fit right.

This one starts with an 0 7.

This one starts with an E three ends with an EFP.

This one ends with an eight fifty five.

It's not the same thing.

The software knows that.

So it discards what the miners sent.

It's nothing is done with it.

Okay.

The miner then tries again it throws another solution at the problem and again this time it's also not

the same solution.

Right.

So nothing happens right.

It's not the solution to the problem only in the third time the minor manages to throw a solution.

That is exactly right.

OK.

This if you look at it believe me I copied and pasted.

But if you look at a character by character it's the exact same thing.

And the network knows that.

So the transaction is only then confirmed and the Bitcoin is transferred over.

But let's slow that down and see what actually happens.

So the system recognizes the match between the problem and the solution and the transaction is confirmed.

The miner then receives a small fee out of the transaction.

Okay out of the bitcoin that Alice sent miner receives a small fee out of that and the transaction is

confirmed and the bitcoin that was sent reaches over to Bob.

Now I'm rewinding for a second to see the bitcoin here and in this state right.

As long as the transaction is not confirmed we are waiting for a miner to come in and confirm it from

the member all right.

Remember we talked about this waiting room.

That transaction is waiting to be confirmed.

So as long as the transaction is not confirmed it is pending.

It's in the memorial.

So at this situation the transaction is in the temple and after it was transferred over to Bob.

It's confirmed and we will talk more on that later in the course and we'll see different sorts of my

transaction fees and all that but this is the most basic way mining works.

OK so just to make sure everyone understands I'm gonna go over it again very very quickly

OK.

So we have Alice and Bob.

Alice wants to send bitcoin over to Bob the bitcoin is then broadcast to the net the transaction.

Excuse me the transaction is only then broadcast to the network and the transaction is waiting in the

men pool.

A miner comes in it's a bug right here but a miner.

Oh no it's not a bug it's the problem that the transaction presented.

So a miner comes in and tries to solve that problem and throws solutions at the problem until something

happens.

Right.

And the something that is happening is a match between what the miner through and the actual solution.

So only then the transaction is confirmed a fee goes over to the miner and the bitcoin is transferred

over to Bob.

So we talked about how a block is a group of transactions.

We talked about it in the last session and when miners mine an entire block.

When when this situation that we just saw it happens for a group of transactions right.

And a group of transactions as we said is a block.

So after a miner mines an entire block they broadcast it to the network alongside a declaration that

new bitcoin was minted out of thin air.

Right.

It didn't exist before but it is exists now.

That's what the miner is broadcasting and the bitcoin now belongs to the miner to the miner that did

the computational work that confirmed all of these transactions and included the proof that he did the

computational work which is called the proof of work.

So the bitcoin the miner broadcasts the block to the network and alongside it creates new bitcoin out

of thin air and sends them over to himself.

All of this process that I just described is called the block reward okay.

Currently currently it's the incentive for miners to use their electricity to buy all this hardware

to use all this computing power to generate new bitcoin.

Right.

You may have heard about the crazy time back end of 2017 where people ran over to buy graphics cards

which gamers were very upset about because it drove up prices.

That was a big mess but people use that to create money and the alternative for using this graphics

card for it for gaming was to use it for bitcoin which was just much more lucrative and much more created

much more revenue for everyone who did it.

So all over the world miners are using their hardware they're using very specific hardware it's machines

that their entire purpose is to mine bitCoin it's not computers that have windows installed on them

or Mac OS or anything.

It's these machines that they do only one thing and they the only thing that they do is mind Bitcoin.

So the Bitcoin network gives each new block that is mined and broadcast to the network.

If it followed the protocol correctly the Bitcoin network rewards it with new bitcoins that are made

out of thin air and the entire process of creating a block takes around 10 minutes on average Sometimes

it's 12 minutes sometimes it's 8 minutes on average it's around 10 minutes all the time in Saturdays

and holidays even in the Super Bowl it happens every time all day long.

Since 2009 New Bitcoin were being created every 10 minutes so let's let's see how how many new bitcoin

are being created.

And right now as we speak every 10 minutes.

Which means that it's going to be around 8 8 times right.

During the course of this this session.

There will be confirmed blocks and new bitcoin will be created and sent over to the minors.

And the block reward which we talked about right now which is what the minors create alongside the blocks.

It's right now 12 and a half Bitcoin.

So around every 10 minutes to 12 and a half Bitcoin are being created which is well around current prices.

I have a written it.

Well it's eight thousand three hundred dollars right now Bitcoin can't do the math very quickly but

it's a lot of money right.

It's around a hundred thousand dollars maybe more.

So that's happening every 10 minutes somewhere in the world Someone created this amount of money out

of thin air.

So there is a catch to this block reward system right.

It won't keep happening forever.

Every four years this amount this 12 and a half Bitcoin is being cut in half.

It's being slashed from its current position to half of it.

And the beginning one back in 2009 the first block reward that existed was 50 so 50 Bitcoin was created

every 10 minutes.

Right.

It seems crazy and and it is but it's only crazy in retrospect because back then people who used bitcoin

considered it a cool little experiment.

They didn't know it would be worth eight thousand ten thousand or twenty thousand dollars one day.

Right.

So this mechanism of block we would have things right.

Making the block reward slash it in half.

It's called the the block reward having and it is meant to regulate the bitcoin supply which is our

next topic.

So the next having event will be happening in August 2020 which is less than a year away.

Right.

We've just entered into October.

It's 10 months away.

It will be cut in half to six and a quarter.

Bitcoin per 10 minutes and disregard Bitcoin price for a second.

Don't try to compare it to dollars or euros or anything for a second just think about the amount of

bitcoin.

And with this mechanism that is being slashed every four years and it's slashed very very immediately

in a very very quick way.

Right.

One minute it's 12 and a half to 12 and a half.

Twelve and a half.

And the second it's it slashes It's six twenty five and four years later it's going to be three point

one to five.

Right.

So it's it's meant to create what is called a supply shock and it's it's we're getting it a little bit

into economics.

And I don't want to explain all that here but it's meant to be there it's meant to be once every four

years and it's meant to be very very very very shocking so from the beginning of Bitcoin like once where

when it first began the maximum number of Bitcoin that could ever be created.

And that is written into the protocol and the maximum amount will ever be twenty one million.

Never will there be more than twenty one million bitcoin so after we reach the amount of 21 million

Bitcoin new coins will stop existing right.

This this mechanism of block word will no longer happen.

And this thing has been coded into the protocol from the beginning.

I'm going to say something that can confuse you but I do think it's important.

So listen up this mechanism can be changed if people in the network want it to be changed it can be

changed but it will not.

People will not vote to change the amount of maximum bitcoin so it's safe to assume that there will

only ever be 21 million bitcoin.

Now I don't want to explain this this this sentence that I just said because it's two more hours of

explanations but 21 million Bitcoin is the maximum amount maximum amount it can be changed.

It won't be changed.

Why.

Because people just won't change it so you might ask and you might have already asked.

I'm just not seeing the live chat at the moment.

Why 21 million.

Why this number right.

Why not.

1 million.

1 billion.

Some.

Some nice number.

Why not a very ugly number right like five billion nine hundred million eight hundred and twenty two.

Right.

So there is an answer and it's not a very a very cool one or exciting one.

It's just it has no special significance.

The amount twenty one million just fit in very well with the mathematics around Bitcoin.

Like every four years and which is actually every two hundred and ten thousand blocks and a few other

numbers that just fit incorrectly with the entire system entire mechanism of Bitcoin and there is more

to know about why twenty one million Bitcoin.

And the only thing you should do if you're actually very interested in that is just Google why twenty

one million Bitcoin.

So we say that when the supply reaches 21 million there will no longer be new bitcoin.

And this is a point that is one of the most important points of today's session.

I want to two for you guys to understand about the scarcity of bitcoin scarcity.

It's not a easy word but it means that there is not a lot of something.

There is a limited amount of something.

How limited.

Well we already know 21 million is the.

The maximum amount that will ever ever be.

Right.

And put that aside for a second.

Think about something else.

How many U.S. dollars are in the world anyone knows that.

I'm not asking you.

I'm asking you if anyone in the world knows how many U.S. dollars are going around the globe.

The answer is no one knows for sure because even the authority that prints U.S. dollars the Federal

Reserve it has estimates it doesn't really know how many dollars are in the world and how many how much

gold is there in the world no one actually knows right because there is not a very efficient way to

track and keep track of all of the gold or even all of the dollars.

Think about Mexican cartels dealing in U.S. dollars.

It's it's outside the scope of law outside the scope of authority and no one can track how many fiat

money how many government issued money is in the world.

And the fact that bitcoin is software and everyone knows how much.

Not only will there ever be which is 21 million but how much is at any given moment right because everyone

has the block chain on their computer.

Everyone is sharing the same data it creates hard hard scarcity.

You'll see many times people say that bitcoin is scarce Bitcoin is hard money.

What is this hard word.

It means that it's only one sided.

There are no question marks with bitcoin.

Everyone knows everything that is a key component of Bitcoin.

So reaching this amount of 21 million will happen around the year 21 40.

It's crazy.

But think about it for a second.

Every four years the block reward is being halved.

Well at some point the black world is going to be zero point zero zero.

Right.

Very very small and this leads us to this.

Around the year 21 40 according to current estimates we don't know what will happen more than 100 years

into the future.

But this this is the current math.

So as of this moment in circulation around the world there are in existence a little more than 17 million

bitcoin and this I'm saying that not because of estimates like the dollar or gold or silver or any other

thing.

Actually the fact that more than 17 million Bitcoin exists a little more than that.

I can give you an exact number and we'll do that in a second.

But this is something that everyone who uses bitcoin knows and you can't hide that from anyone.

And you also can create bitcoin that are hidden that people don't know about their existence you can't

deal in what's it called a dark market of Bitcoin.

There is only one type of Bitcoin and that is bitcoin right.

It's two bit philosophical everything I'm talking about but it's these the core principles of what bitcoin

is and the value that it represents.

So that means if you give take the actual number believing I did and and you do the math.

So around 85 percent of bitcoin is already in circulation.

So a lot of people in the industry talk about early adopters adopting early.

But think about it more than 21 more than 25 percent of Bitcoin.

Actually it's it's the word is around.

But I've recently seen an article that says more than 95 percent.

So

the bitcoin that is already in circulation is the vast majority of Bitcoin that will ever be created.

So this is kind of a difficult situation.

OK.

And eighteen hundred new bitcoin are being minted each day.

That's what the current block reward of twelve and a half.

Remember in less than a year it will be cut in half and we've reached let me hide my camera for a second.

And we've reached the interesting graph of the day and it seems intimidating a little bit but we're

gonna go and walk you guys through it.

So this graph shows the bitcoin supply as a function of time.

Right.

How many bitcoins are there how many bitcoins were and how many bitcoins will be as time passes and

when you look at this axis that is supposed to represent time.

You don't see years here you see numbers like two three million and seven hundred and eighty thousand

or four point two million.

Right.

So these numbers don't represent time.

They represent blocks.

And when you see zero here and two hundred and ten thousand here these this is that amount of blocks

that that went through in this amount of time.

But since a block is on average 10 minutes you can just do the math quickly and understand the the the

way time is going on here.

So for our convenience I've added small years.

Right.

So we have 2009 here 2012 here 2016 here and this.

These years are this blue square on each of these things.

So in 2009 we're talking about the beginning of Bitcoin.

There weren't any bitcoin before bitcoin started.

Right that's that's a given.

So when Bitcoin started the block reward was at 50 and we see what the block reward was at each period

by looking at this axis right here.

So at the beginning the block where do you see it here was 50 Bitcoin per block 50 Bitcoin per 10 minutes.

And when we look at that this this blue line represents the time the block reward remained at 50.

So for four years which is this exact well actually three years if you deduct that but it's two hundred

and ten thousand blocks so for this period every new block was awarded 50 new bitcoin.

And that's where we the the red line comes in.

Right.

So the supply of Bitcoin which is represented by the red line goes from zero to 10 million in less than

four years from 2009 to 2012.

It's almost four years because this is January and this is December I think.

So

for this amount of time between zero and two hundred and ten thousand which is around four years 10

million Bitcoin was created.

Look at the the the the extreme.

I forgot the the mathematical property.

But look at it it's it's an extreme increase in supply.

But when it was Haft in 2012 to twenty five right when it was Haft the supply curve it's called the

curve.

That's what I needed to remember.

So the curve gets a little bit more less steep.

Right.

So when it reaches 2016 which was the last having from twenty five to twelve and a half.

And this is the timeline that we are currently and we are reaching the end of it the curve is getting

even less steep and in 2020 when it will be six and six point one to five it will be even less deep

and less deep and less deep and less steep.

So each four years and each reward each block reward having that happens the reward the bitcoin supply

curve is getting more and more approaching twenty one million.

So if we're here right and we we come to the bitcoin supply curve that's it sits very very accurately

what I said that there are a little over 17 million Bitcoin in existence.

So we are here on the curve look at it more than 85 percent of Bitcoin are already here are already

don't.

I don't want to lose the cursor are already minted are already switching hands on a day by day basis.

Right.

And and this is the best visual representation that I know of of the Bitcoin supply and I want to ask

you two questions right now and we as we talk about this.

So the first question what determines something's value.

You know we don't need that anymore so I'll bring my camera back what determines something's value in

the most basic form.

Supply and demand.

Right.

Anyone who's been in the first lesson of economics.

Supply and demand determines something's value in people's eyes.

So the fact that the bitcoin supply is predetermined which means everyone always knows that there will

never be more than 21 million.

And also everyone always knows how many bitcoin are there at any given time this fact this is the this

fact means that the only deciding factor about bitcoin's value is its demand because think about a demand

and supply supply and demand we have supply and we have supply in front of our eyes.

Look look at the graph.

We know what the supply is.

There are no question marks no hidden stuff about the supply.

We don't need to trust any authority not to print an insane amount of bitcoin because it needs to right

after the 2008 financial crisis the Federal Reserve printed insane amounts of money insane amounts of

dollars.

They call it quantitative easing right.

And they did that for various reasons but it it's what's called inflation.

And the other money that already existed was worth less because of it and in bitcoin you know for a

fact that none of this will ever happen because humans people don't determine what is happening on bitcoin

at every given second.

The rules determine the protocol determines and people just follow the protocol.

Right.

So this is a very very basic fact in Bitcoin.

And going back to the supply and demand thing if if we know what the supply is then the only deciding

factor is the demand.

Right.

And we can't anticipate or measure demand because it changes.

And it's it's what people think.

Right.

It's way when people want bitcoin but whether they want it more or they're what they want it less the

only deciding factor is the demand.

You'll see people refer to Bitcoin as deflationary.

And we are not hearing the word deflation a lot.

We are hearing the word inflation a lot because that's what's happening around the world.

In past few years even the word hyperinflation we have the Argentinean government printing insane amounts

of money.

Venezuela Iran a lot of places in the world are experiencing very accelerated inflation in Bitcoin.

Many people argue that Bitcoin is deflationary.

It is designed so that the supply is at a fixed position at twenty one million.

That's the maximum amount.

And so the only deciding factor is the demand.

And as demand goes up by people people need bitcoin for you for certain various reasons.

Right.

Everyone uses bitcoin for a different reason.

We know most of them use it because the they speculative they invest speculatively but as demand goes

up the value must go up.

Right.

That is the most basic premise of people who say that bitcoin is deflationary it means that the purchasing

power of bitcoin will increase in relation to other currencies.

This is the economic definition that was the first question.

It was a long one.

I know I'll ask another one.

Is gold deflationary.

I shouted a little bit.

Sorry about that.

Is gold deflationary.

Does anyone know how much gold is there in the world.

The answer is probably not.

Gold is being pulled out of the ground by actual mining right.

Physical mining and the inflation rate of gold is around 2 percent annually which means that constantly

new gold is being pulled out of the ground.

No one knows when it will stop.

And let me tell you a secret people are going to start mining asteroids soon.

I don't know if you've heard about that but it's it looks like it's happening so I don't want to ramble

on for for for forever but it means that even gold is not as scarce as Bitcoin gold doesn't have this

graph and we don't know that in 21 40.

There will be no more gold right.

Gold as far as we know can be continued to be pulled out of the ground or asteroids forever.

I don't know of any asset and I'm I'll be glad to hear from you guys but I don't know of any asset in

the world that has its scarcity very very strongly and without a doubt coded into it right.

The fact that bitcoin has its scarcity as part of its core properties that's one of the main reasons

that I like Bitcoin and a lot of other people like Bitcoin and that this real scarcity assures us that

no more bitcoin will be created and going back to the first thing we talked about was that the only

deciding factor of Bitcoin's value would be its demand.

Right because the supply it's out there everyone knows it.

It's not changing anytime soon.

It's been long I know but let continue.

It gets pretty very very easy from here.

So we're moving on to talk about Bitcoin wallets and how Bitcoin are stored.

So we did talk about that bitcoin is basically a list a ledger that records who owns how many bitcoin.

It's essentially a list of IOUs between the users of the network.

So in order to join the network and we said that also that all you have to do is to generate a wallet

and in order to generate a wallet.

Notice the terminology.

Notice that I'm using the word generate and not sign up for a wallet and I'll explain in a second.

But in order to join the network all you have to do is generate a wallet.

You don't need to provide any personal details.

You don't need to say who you are.

You don't need to say where you live and you don't need to say I don't know your phone number or your

email address.

So

you don't need to provide your email address.

You don't need any personal information.

And but going back to the terminology I used generating a wallet is being done by a mathematical function.

Remember the word cryptography which is a field in mathematics which Bitcoin uses to encrypt data.

Well there are functions that you can use to create wallets on your own and Bitcoin will accept these

wallets.

You can use bitcoin you can get Bitcoin sent over to your wallet if you generate a wallet by yourself.

Right.

Remember when we talked about Bitcoin is a protocol based network if you follow the protocol.

If you generate a wallet using the right mathematical functions your wallet is OK the network will respect

your wallet OK.

So when you generate a wallet using this function and we'll do that in just a minute your wallet is

is OK.

But you don't input into that function any other stuff any other data like name age phone number email

address.

You don't need to give anything out to bitcoin in order to participate.

All you need to do is generate a wallet using either free software or a mathematical function.

Your choice

you join the network you use your internet connection e so identities on the Bitcoin network are completely

completely separate from your real world identity and that's what we called pseudonyms any back in the

previous session for it's for people who remember.

So small recap.

You don't need anything to provide anything to create a wallet and it's only done using a mathematical

function.

So let's see what a wallet looks like.

So after you use that function to create a wallet it's made of two parts the first part is your private

key and the second part is your public address.

Private key looks like this very long string of numbers and letters both uppercase and lowercase and

this is exactly the same thing.

This QR code the both of these QR codes are taken from a wallet that I randomly generated that has zero

bitcoin on it.

But if you take this code scan it and and use a bitcoin wallet or bitcoin while it's software you can

see that you can have control over this wallet that I generated.

Why.

Because you have the private key and that's what we're going to talk about.

Now when you generate a wallet you have two things.

You have the private key and the public address.

Now the public address is public.

It can be public but the private key has to stay private.

Does it remind you of any other thing they use on the Internet like an account which has sort of the

e-mail address or the user name kind of like the public address and the private key which is your password.

Right.

So it does look very much like a regular account that you guys know already how to use.

But it's different on bitcoin mostly because you don't choose them.

They have to be they have to follow certain rules in mathematics in order to be eligible.

If I change this D to an F. It will work.

It's not going to be the same wallet.

It's not going to be a wallet at all because mathematics don't allow it.

It's it's a it's a very advanced course from here but it's just not going to work.

So two parts of a wallet private key.

Keep it private.

Don't let anyone else see it and public edges and the public address is crucial to the wallet.

If you want to get paid in Bitcoin if you want people to send over bitcoin to you.

So

public addresses are derived from the private key but it's only one sided.

And that means that if you have the private key you can use it.

Another function to create your public address and then you can share your public address right.

You are a person that is getting paid in Bitcoin so you share your public address with the person who

wants to pay you.

I've done the work I want to receive payment so I'm giving them my public address.

I am I'm saying here this is where you should pay.

This is where you should send the bitcoin and they send the Bitcoin over to this using a regular wallet

software.

Right.

They just copy this address paste it in their wallet software and send the amount of bitcoin that they

want over to you

I can share my public address and I need to share it if I want people to send bitcoin over to me.

But the private key the private key is what I use to send bitcoin out and that means when someone has

it they will send my bitcoin to their wallet.

Right because whenever someone has someone else other than you has your private key.

Nothing stops them from stealing your bitcoin.

Nothing stops them for using from using this private key to send the Bitcoin over to you.

Now I know some of you are saying wait so I have to input all this long string anytime I want to send

bitcoin it's not very efficient I should use I should go back to use regular digital wallets.

The answer is no you don't need to manage your private key and input at any time right.

Put in a password anytime you want to send a transaction it's not like that modern wallet software is

a very very very easy and managing in managing private keys.

You don't even come across with it when you want to send bitcoin you will just put in the public address

of the person you want to send to and it'll go right after you you insert some kind of fingerprint if

it's in your phone or something.

But it's very easy these days to send bitcoin much easier than a bank transfer.

Trust me.

So we said that the public address is derived from the public key.

But if you have someone's address you can't figure out their private key.

It's only one way and the address is your network identifier just like your username.

Right.

That's what we said.

You can share your public address if you want to get paid in Bitcoin.

You can't share your private key.

Once you show your private key your bitcoin are not safe anymore

so just remember if you have to keep only one thing secure.

It's the private key.

Don't let anyone else access it.

The most terrifying part of today's session wallets have no way to be reset if the keys are lost.

If someone transferred over Bitcoin from your wallet to sum to his wallet or to someone else if you've

lost your private key and you don't have any way to you don't you didn't keep a backup anywhere.

Your money is gone forever right.

Because if you lose this this private key you can't regenerate it right.

If you could regenerate it then someone else would just press generate generate generate generate all

day and generate your private key.

So when you lose your private keys you lose your Bitcoin.

This is very scary and I'm I'm deliberately scaring you guys because this is super important the fact

that you are in charge of your own money but no one else is in charge.

No one else but you that is also another core principle of bitcoin that is extremely important for you

to understand because that also means that no one else no one else ever will have control over your

money.

Your government can take away your bank account tomorrow right.

It's it's not generally happening.

It's not mostly happening but it could happen right.

There is a very small chance of that happening in Bitcoin.

No one no one no one can take away your bitcoin no matter what they try.

No matter what they do the only thing they can do is is physically point a gun to your head and say

and rob you write I know this is terrifying but it's also liberating.

Think about it.

You are truly the owner of your money I could talk forever about that but we got to move on with the

content.

So this is another this is another example of how Bitcoin while it looks like after you've printed it

and we'll talk about what a paper wallet is.

And this is one of the ways of paper while it looks like and so as we're short on time.

We will generate a wallet but we will do it quickly so pay attention.

All right.

I'm going to go over to a Web site called wallet generator dot com dot net sorry and they're very very

there are a lot of sites like that and it's already started doing weird stuff right.

So let's just refresh and start from the beginning.

It says down here in blue generating new address.

Move your mouse around to add some extra randomness.

So this is a very cool little game that they added in because this site knows that bitcoin is generated

using random numbers in a row in a function right in a mathematical function.

So when we talked about you could also put in some characters and we are six characters left and I don't

wanna move my my cursor right now because it'll finish but you see on the right it says Skip.

So you can let the site do it for you.

And I've moved my cursor extra randomness was added and a while it was created.

You see this is public address and this private key.

This is a wallet.

This is a paper.

This is a bitcoin wallet.

If someone sends over bitcoin right now to this address.

Right.

And QR code in QR form or in text form right here one d to the data it ends in one F D 3.

If someone sends over bitcoin to this address it will arrive this address this wallet will hold Bitcoin

see how it says secret and read like a scared you for four for a I don't know ten minutes right now

it is the private key.

If I have this private key I can send transactions from this wallet I'm not going to show you how to

use it in the software right now because we don't have time and it's not part of today's session but

paper wallet.

If I press it here then this is what I showed you on the on the presentation you can print this out

and this is the private key that we generated.

This is the public key.

You can print this out write some notes folded.

Right.

So so you have it secured safely somewhere bulk wallet.

You can create a bunch of addresses.

There is a ton of stuff to do here and there is only one of the Web sites that you can use to generate

wallets

so let's go back and talk some more about how wallets are what secures these wallets.

So I'm just going to I'm just going to tell you the question and the answer so I'm asking a question.

If the private keys is completely random like we saw what are the chances that I will generate a wallet

that has already been generated that someone already created and is keeping their bitcoin in it.

Right.

It's a possibility right if it's random.

Well the cryptography the mathematics that Bitcoin uses ensure the answer to this question which is

taken from a very cool Reddit comment which is to say that if all the land on the planet became as densely

populated as the most densely populated city in the world Manila in the Philippines and everyone every

one of these people generated 1000 addresses per day right.

Press this button this random generate or wallet button 10 or excuse me 1000 times per day.

This is the amount of years that it will take until on average.

Right.

We're not talking about extreme cases on average until one address one address is generated twice.

This is an example of the mathematics that is behind bitcoin.

And this is a very very cool right.

Very nice calculation that someone did just so it would sound cool but it is true if you're talking

mathematically and this is on average.

Right.

It could happen earlier.

The chances of it happening are infinitely close to zero.

So I think it's safe to say that in our lifetimes there wouldn't be one Wallet Generated twice it won't

happen

and the final topic for today is pseudonym pity and transparency in Bitcoin.

People call Bitcoin anonymous.

It is not.

It is pseudonymous.

And that means that all identities on the network are visible.

These public addresses that I showed you here

these public addresses this and this.

They're all free for everyone to see.

Everyone who uses the network is exposing exposing their public address everyone can see what's happening

on the network.

It is not anonymous.

It is pseudonymous which means these public addresses are out there.

Everyone knows that these public addresses are transacting in bitcoin but you cannot connect the address

to the person in real life.

It's also Bitcoin is also transparent which means that everyone who has the block chain can always all

see what's happening in there at any given time.

I use bitcoin but I'm not sending bitcoin right now.

I'm talking to you guys but people are sending bitcoin right now but I can see that I can see that people

are transacting in bitcoin.

I can see how much they are transferring and how much was transferred from the beginning of bitcoin

ever in 2009.

So this is a result of the Bitcoin ledger being public and this is a very very key component of Bitcoin.

And these two things go together hand-in-hand.

Bitcoin is is extremely transparent.

Everyone can see what's happening in the network at all times.

But I know it's frightening but when I when I when I act on the network I am using a pseudonym which

is my public address not my real name not my email address not my username and connecting the address

to the real world identity.

If you know how to use bitcoin correctly or there isn't a correct way but there are ways to use bitcoin

in which you completely disconnect your real world address real real world identity and your bitcoin

address by the way when you see me use the abbreviation BTC instead of the word bitcoin.

It's just the same thing

so the easiest way to actually see what a block what Bitcoin block looks like will be to look at a block

explorer and let's go over to block chain dot com which is a company called block chain dot com.

It's not the block chain.

It's just a company which is that's its name.

And here is a very popular blog explorer and a block explorer is software that you can use to see what's

happening on bitcoin and this will be our final topic for today because we're reaching an hour of content

and I know you guys are getting a little bit tired and want to ask questions but believe me you'll like

this.

This thing is cool as much as as far as numbers on a screen could be cool right.

So the bitcoin block explorer shows you everything that is happening on the Bitcoin network.

So the the the the home screen is just the latest blocks the latest happenings on the Bitcoin network.

And we have the height height is essentially that the number of the block in the are just numerical.

When you see five ninety seven seven ten and the before it is 7 0 9 7 0 8 7 0 7 is just counting one

up every 10 minutes.

It started as one.

Right.

And hash I don't want to get into that it's going to complicate things and mind mind is when was it

mined when it was broadcasted a network and a miner confirmed that all transactions on it are OK and

use their proof of work.

So this block was mined four minutes ago 20 minutes ago 22 minutes ago 34 minutes.

You see there the this is not looking like a 10 minute separation between each block.

But remember it's 10 minutes on average so the miner is what entity produced these blocks and are known

is that the block explorer doesn't know who produced these blocks but when you see stuff like F2 pool

BTC dot com you see and pull here via BTC.

These are different entities which are pooling a lot of computational power together to solve some of

these problems in mind blocks and they are called the mining pools and you can read about them if you

google what a mining pool is.

So let's go into a block and see how it looks like.

Right.

So I'm pressing on this block the latest one that we have lots of very confusing info.

I know the number of transactions that's how many transactions were in this block.

I don't have a lot to say about this numbers just the amount of transactions and it varies between a

block to block remember in the in the Q and A session of last last session we talked about well how

many transactions are in one block.

And I said it varies.

There is no fixed amount.

It used to be one megabyte.

That was the limit.

But right now it's it's calculated in wait and we see that here.

It's weight in K double u which is kilo weight units don't want to get into that.

It's very computer sciences and the timestamp here is when this bitcoin was mined was broadcast to the

chain as mined the output total is

well I need to explain the output is but this is how much bitcoin was transferred over using this well

not really transferred this is how much Bitcoin went through this block going into more detail than

that would be super complicated but when you hover over it you can see that it says that it converts

this amount of bitcoin to U.S. dollars and it uses that by using the current Bitcoin price which it

just pulls from certain exchanges.

But the amount of bitcoin that was involved in this block was almost sixty five million dollars in around

a 10 minute window.

Now you can estimate the transaction volume the actual bitcoin that changed hands or changed addresses

during this time and it's more than seven million dollars.

Right.

The transaction fees amounted to more than half a Bitcoin which is more than four hundred and three

four thousand three hundred dollars.

But remember this is not the only thing that goes to the miner.

Right.

It is paid to the miner.

But what is what is also paid to the miner is the black reward which is twelve and a half bitcoin so

the miner receives not only is it twelve I had twelve and a half bitcoin but also the transaction fees

that were generated because people sent over the transactions using with a fee.

Right.

So if we scroll down we'll see that the first transaction in a block every first transaction in the

block is it's called the Coinbase transaction and you might know the company Coinbase that's where they

got their their their name from.

And you see there are no inputs in an input is the sender of bitcoin.

Right.

Here we see an input on the next transaction we see an input and I don't know if you already recognize

this but this thing is a bitcoin address it's someone who sent over Bitcoin.

So the first transaction in a block didn't send over any bitcoin it just created this amount of bitcoin

and sent them over to this address.

Remember when we talked about the miner creating the block reward and sending it over to themselves.

This is what we're seeing here.

The miner mined this block and included this transaction which creates bitcoin out of thin air and sends

it over to the miner itself.

But you're going to say hey it's more than twelve and a half.

Right exactly.

It's twelve and a half plus the amount of fees that were here right.

This is this amount so you can scroll down just see the rest of the transactions happening in the block.

So we see this an address transferred over to these addresses this amount of bitcoin and you can see

that this address transferred over to this amount of address this amount of bitcoin.

And if we hover over it we see that in this transaction almost forty six thousand dollars were sent.

Now just for fun let's go into this transaction.

I'm going to do it by pressing on this transaction hash right here hashes this long string of numbers

and letters and we see one confirmation which means only one.

One successful block is on the chain

that this this transaction is included in one block that is on the chain and we see

that for this transaction for forty six thousand dollars.

The the value of forty six thousand dollars almost that was transacted.

The fee that was paid was nine point to six dollars.

Now this is very high.

This is a very high fee compared to Bitcoin transactions these days.

But let me see if I can get a Bitcoin transaction which transact and a lot of Bitcoin.

But for a very small fee.

So let's press this one.

This is eight dollars.

So this person transacted in close to 50000 pick.

Fifty thousand dollars worth of bitcoin and paid eight dollars for that.

You're not going to find this deal in any of your banks right well some.

But remember the amount that you transact has nothing to do with your transaction fee.

You can pay eight dollars and transact a billion dollars in Bitcoin.

All right.

So there is a ton of cool stuff that you can look around in this block explorer.

If I go back I can see some cool charts here like average value transacted.

Right.

So this is the

this is the average value transacted over a certain period.

Let's zoom in on the last month I just pressed and hold and help.

So on September 6th the value transacted was two hundred and sixty thousand bitcoin and a day later

it plummeted to eighty eight thousand.

Right.

Data on Bitcoin is extremely transparent just because it is out there everyone knows everything that's

happening.

So these companies are just and not even companies even regular people like you and I are making are

creating Web sites and just putting this data out there you can see the men pull sides right in the

in the next in the last few years.

They're the moments where the memorial was empty where we're very very very very little.

Always there are transactions waiting to be confirmed always.

And this is the amount of set of of transactions waiting to be confirmed.

Right now the temple sits at more than six million transactions

OK.

I think we played around this thing enough.

It's been very fun and I could go on forever but we got to finish some time and do some Q and A's.

Quickly I'm going to say that bitcoin is also open source which means it is software that everyone can

contribute to.

And in order to contribute to Bitcoin you have to propose what you want to contribute.

Using a bitcoin improvement proposal and you just submit it to the network people vote on it if they

want to include it or not.

And essentially it's a very democratic vote right.

If more than half of the people voted for for your improvement proposal it's going to get in.

And in reality Bitcoin is considered one of the most democratic networks today.

It's a very big experiment and it's as of now working in my opinion very very well.

So open source is a software term development term.

It's going to appeal more to people who are developing applications or anything really.

But Bitcoin is open source and this is what you need to know.

So let's recap what we've seen.

It's been a lot I know.

So we talked about how bitcoin is an open public network on which we transact value securely.

How do we secure it.

Mathematics cryptography this dense Manila.

What's the word.

This this example that I gave.

It's it's a real calculation and it's based on math.

So this Bitcoin Bitcoin is decentralised and immutable.

This is from the previous session.

Bitcoin is not owned by any company and no one can shut it down.

Right.

I can tell my citizens Hey stop using bitcoin but I can't block bitcoin.

I can't like a block Facebook Google YouTube anything

anyone with an Internet connection can use bitcoin if they just use the function to generate a wallet

which you don't even need an internet connection for right.

You can do the math on paper it will take you a few weeks probably but it's a mathematical function

to send it a transaction.

You gotta use your private key and a bitcoin wallet software and we talked about how it uses math it

uses cryptography to secure the value transaction and participants in a network are completely responsible

for their own funds.

Remember I said if you lose your private keys you lose your bitcoin the bitcoins are no longer yours.

They're someone else's as well.

And it's a race to whoever sends it out of this wallet the quickest.

So responsible responsibility.

Remember that's for.

For those of you who were in the previous session responsibility is key throughout this entire course

and throughout dealing with cryptocurrency in general.

So every participant in the network is completely responsible for their own funds.

If I want to confirm a transaction then a miner has to do a proof too to to do the work to do the computational

work include the proof that he did it broadcast it to the network and only then when a miner broadcast

an entire block it receives the reward.

The twelve and a half Bitcoin which is right now twelve and a half started at 50 next August will be

reduced to six point twenty five wallets are private keys and public addresses the public addresses

what you share the private keys what you keep yours away from any other eyes which are not yours and

you you share your public address to whomever you want to send you Bitcoin.

Bitcoin is also I think it's no it's not the last one.

So Bitcoin is pseudonymous which means the there is a very clear separation from your weird world identity

and your bitcoin identity which is your public actress.

Finally finally Bitcoin is also scarce inherently scarce it is coded into the protocol that it is limited

to a maximum amount of twenty one million coins that will ever ever be mined and with that will finish

today's session.

I want to thank you all for listening.

Follow me on Twitter follow Cointelligence on Twitter.

It's at Cointelligence and thank you so much for joining.

We will learn more about other crypto currencies next week and I'll see you in the next session.

Goodbye.

 

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