Hey everyone and welcome back to Cointelligence Academy.
We're very glad you're joining us for our third session in which we'll finally start to talk about what
happened after Bitcoin how the crypto market started to evolve and which other interesting crypto currencies
exist.
Once again my name is Raz.
I'm Head of Research at Cointelligence and I'm teaching this course at the academy.
I'd also like to take this opportunity to thank our sponsor Puma pay for allowing us to offer this course
for everyone who wants to learn Puma pay is the first comprehensive crypto payment solution for
businesses.
They combine the flexibility of payment cards with the advantages of blockchain technology.
We're 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 without further ado let's begin talking about the cryptocurrency market we'll start by taking a look
at what we've learned so far and so far we've only discussed bitcoin.
It was very important to get the basics of Bitcoin down before we continue to talk about the broader
and the bigger crypto market.
So we talked about what preceded Bitcoin and the background for its introduction.
Right.
The financial crisis of 2008 and the birth of Bitcoin that allowed people to be the masters of their
own money in their own finances.
We discussed how bitcoin was built by Satoshi Nakamoto which no one knows today who he is.
Right.
Many people claim to be him.
Many people claim to know who he is who even the group of people that presumably that person was.
No one knows who Satoshi is and if someone does know they're keeping it a very very they're keeping
this secret very very well.
So we also said how Bitcoin is a peer to peer decentralized network which means that no entities rule
over it.
And once transactions are made over the network they are finalized and they cannot be reversed.
We also discussed how Bitcoin uses cryptography to secure itself and cryptography as we've said is a
field in mathematics that deals with the encryption of data and in our second session we saw how miners
are securing the network and confirming transactions because they earn money from it and that the bitcoin
supply which will continue to increase until 21 million Bitcoin are in circulation although the Nate
rate of new coin minting is halved every four years.
Right now as we speak every new block that is being created is being with it are being minted 12 and
a half bitcoin for each block and there is approximately one block every 10 minutes on average.
So that's around twelve and a half.
Bitcoin being added to the total Bitcoin supply every 10 minutes and a this amount of block reward was
originally 50 Bitcoin per block it was halved to twenty five Bitcoin per block and then it was have
to once again to twelve and a half.
And we are supposed to be having the next block having should occur at around August 2020.
Right.
So less than a year from now we also talked about the supply curve of Bitcoin and how there will only
ever be 21 million Bitcoin like we said.
And we also saw how a basic wallet works what a basic wallet is is comprised of right the private key
and the public key the public key is your identifier on the network it is similar to your user name
on any other website and your private key is more like a password it's something that you should keep
in and this is the actual thing that gives you access to your bitcoins on the block chain whatever you
do never let anyone else access to your private key because then they have access to the coins themself
to your bitcoins.
And when someone else besides you has access to your bitcoin it's simply a race of who manages to get
them out first to a wallet that only they control.
Right.
In other words theft.
So keep your own private keys to yourself keep them private as their name implies and never ever share
them with anyone else unless of course you trust whatever person that is so we're gonna be talking today
about the beginning of the crypto market right.
The the market that is other than bitcoin and the background to its creation was that a few years into
bitcoins beginning as the time progressed and bitcoin was working for a while.
Some community members started thinking of new ways to use blocking technology to achieve goals that
are similar to Bitcoin goals alongside other goals as well.
That Bitcoin didn't originally have so the first set of ideas and the few first sets of ideas that were
introduced were conceptually very close to bitcoin.
If Bitcoin in the beginning aims to be more of a currency of a thing that people would use to transact
value then the original set of values and ideas that were introduced were conceptually close to that
since the ability to create a decentralized currency was never available before.
And that was a very very promising to many people in various industries not just the FinTech industry
right the financial technology.
So with the introduction of Bitcoin the introduction led many people to try and apply this technology
and these ideas that behind it which were radical at the time and are still considered radical today.
They led these people to apply them to other fields other than currency right.
This is the branching out of block chain technology.
Well how can we use distributed ledgers to facilitate better better operations in other industries.
And that's what many other coins tried to do when we moved on from the narrative of simply a currency
or value transaction.
So we'll discuss the first few ventures that took this approach and we call them alt coins alt coins
it's short for alternative coins and basically the definition for alt coin is any other decentralized
currency or digital currency which isn't Bitcoin right.
Every other cryptocurrency which is not bitcoin is an alt coin.
That's the basic definition.
So since Bitcoin is open source everyone can look at its code take its code modify it and build a new
application using code that is either exactly like bitcoins or modified from bitcoins.
Because as we said open source means hey the world this code is yours.
Just do whatever you want with it.
So that's exactly what light coin did.
And that's the first coin that we're gonna be talking about a light coin which exactly took the did
that it took bitcoin code and it branched out into its own thing.
So we'll begin talking about like coin and in 2011.
Charlie is a software developer that worked at Google and started gaining interest in Bitcoin.
Around that time 2011 now Charlie used many parts of its of Bitcoin's code to build the light coding
protocol and cryptocurrency remember there is a protocol and there is a cryptocurrency there are two
different things.
And he built like code in his spare time which then he released to the bitcoin talk forums in October
2011.
Charlie.
Charlie Lee said that he didn't mean for like going to compete with bitcoin but rather have it used
for smaller transactions since its properties were slightly more quick than Bitcoin.
And generally you could say that Bitcoin was more or less I mean like coin was more or less four times
faster than bitcoin will see in its technical properties how Litecoin is generally in many aspects four
times lighter than Bitcoin right as its name implies so in 2013 Charlie left Google to work for Coinbase
as a director which was one of the largest crypto companies at the time and still is today right.
Many of you probably know Coinbase and later after Charlie started working there Coinbase always also
added like going to its platform allowing people allowing Coinbase users to buy sell like coin trade
and everything that Coinbase offers.
And ultimately as you see right here the motto to light coin became to be the silver to Bitcoin gold
right.
And it progressed as the gold the digital gold narrative of bitcoin progressed and was built and meaning
this this Moto this slogan would mean that it would aim to become more of the peoples currency which
is used more for day to day transactions.
Right.
The narrative was and still is that if you use bitcoin for larger transactions and to store value over
a longer period of time than you would use like coin for smaller transactions like buying coffee or
paying for a haircut or a car wash.
Right.
So Bitcoin like coin developed alongside bitcoin and is still trying to become the silver to bitcoin.
Gold let's talk a little bit about the differences between light coin and bitcoin and we'll talk about
technical terms the block time unlike coin.
Remember that we said on Bitcoin it is around 10 minutes per Bic per per block so in light coin it's
on average two and a half minutes per block.
Right.
It's four times more often than bitcoin that allows to include more transactions in the same period
of time.
Right.
Because in that in the again this is all on average but in the same time that we have one bitcoin block
you have for like coin blocks.
Right.
So you can include more transactions and therefore reduce transaction fees and allow people to pay less
in transaction fees.
Now the second thing that was changed is the mining algorithm the consensus algorithm which was changed
from bitcoins original shot to 56 or S H A 256.
It was changed to an algorithm called script and script was introduced in order to try and kind of democratize
the mining industry or the mining operations around Bitcoin.
And the difference is that the script as opposed to SHA 256 it allows people.
It allowed people to use hardware they already have at home like computers and graphics cards to mine
Litecoin coin instead of using what Bitcoin users Bitcoin network miners were using which was A6 right
or A6 which is short for application specific integrated circuit and simple words.
It's a small computer that all it does is mine bitcoin.
Right.
It doesn't do anything else.
It doesn't have an operating system like Windows or Mac OS on it or Linux it just well it does have
some kind of operating system because you need to operate it but it's not a computer for personal use.
Right.
It's the only purpose of this machine that is to mind Bitcoin.
So the reason that script was introduced is to allow for more users to engage in the mining process
with it's still being profitable to them since then it didn't really work out.
And A6 manufacturers were starting to catch up because might like coin mining became so so so.
Forgot the word.
But it's lucrative right.
It became lucrative the likely mining became so lucrative that six manufacturers just simply started
manufacturing ASICS that are optimized for the scrypt algorithm.
So it's kind of a cat and mouse game.
Right.
So today Litecoin mining is dominated by ASICS it is still everything that we talked about the.
The mechanism is still proof of work right.
You submit a proof of work proof of computational work to the block chain and that's how users can validate
can verify that you actually did the work and confirmed the transaction.
The like coin maximum supply was raised four times from Bitcoin's original twenty one million to eighty
four million to adjust for the other four times scaling changes that were done in the protocol.
Right.
No other significant reason simply for to adjust for the changes and the Litecoin also benefited from
being a very early very early mover.
And today it is very large.
When talking about market cap and market cap is simply the value that Litecoin manages to capture in
the global market.
And that is achieved by mostly copying Bitcoin's movements as of September 2019 Litecoin all the light
coin in the world have theoretical value of four point six billion dollars.
If you value them in U.S. dollars right so as I've said Litecoin generally follows bitcoin's price
movements generally they're considered related for people who view the cryptocurrency market and not
just bitcoin and we'll also discuss the similarities between litecoin and bitcoin.
Starting with the having and the block reward having that we experience in like coin exactly like we
experience a bitcoin around every four years and the block reward is being carved in like coin from
whatever it was to half of what it was around every four years.
And currently the last having event was simply just last August not too long ago.
Depends on when you're watching this but it then dropped to twelve and a half like coin and it was twenty
five light coin before per block.
Now remember like coin blocks are on average four times as frequent as bitcoin blocks.
So in the around 10 minutes that it takes to create twelve and a half Bitcoin.
You have four times the block reward for the light coin because you can squeeze for like coin blocks
in around 10 minutes.
So you get currently 50 Bitcoin per excuse me 50 light coin generated per one bitcoin block per 12 and
a half Bitcoin generated.
So these mechanics are always changing because the having events are not synchronized in any way right.
It all depends on the individual block chain the way they progressed and the way time progresses.
So that's generally I wanted to keep the amounts here.
So also blocks in light coin are very very small.
I've talked about how the last having event occurred just last August and the since blocks are are very
small compared to Bitcoin and that is because not as many transactions compete on entering the next
block.
Right.
There isn't a demand for block space in late coin as much as there is in bitcoin since many people want
to transact on bitcoin more than they do want to transact online coin.
As a result transaction fees transaction fees remain very very small because you don't have a ton of
competition when you want to pay fees because as we've said in bitcoin the more you pay the sooner you
will get included in the next block.
So the competition is fierce in bitcoin and Litecoin not as much.
And finally to compare.
We have this pretty table that shows us the differences between Bitcoin and Litecoin in a nice way.
So average on average transaction cost.
Again this changes very frequently and it can have spikes for either up or down.
But on average in recent times bitcoin transaction cost.
Right.
Not transaction value not how much people transact in just how much does it cost in transaction fees.
So on Bitcoin it's around one and a half dollars.
And in like coin it's around four cents.
So a significant drop in cost when you transact online coin block time.
That is a more technical term that we've discussed and users don't really see it as much but in bitcoin
it's 10 minutes and like on it's two and a half minutes.
Basically it means that for four users if you're a bitcoin user and you want your transaction confirmed
and you pay as much fee as possible it will probably get confirmed in the next block which could be
10 minutes from now.
But in light coin if you pay a lot in transaction fees because you want to be included in the block
much faster you can be included in the next two and a half minutes.
So it's you could say when they all the other
every everything else is right then like coin could be four times faster than bitcoin.
Now for a block reward we have in bitcoin twelve and a half bitcoin which for a ten thousand dollar
Bitcoin it's one hundred and twenty five thousand dollars being generated around every 10 minutes and
then like coin you have something like nine hundred dollars being generated every Bitcoin every like
coin block.
But remember in the time that it takes to create one bitcoin block we can have for like coin blocks.
So you kind of have to multiply it again depends on which calculation you're trying to do.
This is just a general info maximum supply on bitcoin we have 21 million that's the amount of total
bitcoin that will ever ever be created.
And then like when we have 84 million right simply four times the supply of Bitcoin and the percentage
of supply already issued in both coin and bitcoin we have in bitcoin almost 86 percent of the supply
issued.
And in like coin seventy five percent.
So three quarters of all like coin that will ever exist already exists but in bitcoin we have much more
than that that are already existing.
Right.
Already circulating
so we've done talking about litecoin and I guess it's time to move on to Ethereum right Ethereum.
It's kind of a change in perspective because it's very much different from bitcoin.
It's very big.
People talk about ethereum more than they do about litecoin right now simply because there are more
movements going on and more developments.
And it's a different mindset going into ethereum.
So let's begin when talking about ethereum you have to start discussing its earliest and actual founder
which is Vitalik. Vitalik Buterin is a Russian Canadian programmer.
He became interested in bitcoin in 2011 after his dad introduced him to technical technology and he
co-founded Bitcoin magazine in 2012.
In late 2013 he published ethereum white paper after envisioning a system that would allow more flexibility
with programmable money.
We said that bitcoin is programmable money but for italic that wasn't enough.
And a lot of other people to the program ability of bitcoin wasn't enough.
They wanted more.
They wanted to have applications running on top of our money.
Sounds a bit crazy but let's continue to see what it means.
So ethereum was meant to be a platform that is built on a distributed ledger and maintained using block
chain technology very similar to Bitcoin right.
The same thing I said could be applied to bitcoin but ethereum's programmability would
be much higher and it would allow anyone to write and deploy code that deals with money in a decentralized
manner.
This is very important and it's also called smart contracts which are an idea that originated more than
20 years ago but it's only now seeing widespread use starting with the launch and the success of ethereum.
So smart contracts are as I've said basically programs small programs or any any size of programs that
can be executed in a decentralized way in a distributed way in which you can program certain actions
that you want to have with value with money with transacting this value.
So we'll get into what smart contracts are but the basic premises here is to make a network on which
you can transact in value and have it be much more programmable than bitcoin.
So for this platform to run for everything in its platform to operate users who want these applications
to run they need to pay for the miner to run them and so the miners are not only being paid for providing
the security of the network the proofs of work they're also being paid to run these applications using
their computers using their mining hardware.
So users pay for these application for running these applications using the networks native currency
which is called Ether right which is quite a difference from Bitcoin.
If you think about it because on bitcoin we have the Bitcoin network and we have the bitcoin asset but
on a theory.
The difference is much more much easier to spot because you have ethereum which is the network and
you have ether which is the currency which is a very smart move to even even to put even more emphasis
on the separation of the network and the currency so ether and networks native currency is also being
produced in a block reward fashion just like Bitcoin and like going.
So every new block the miner who mines that block gets new gets new either that are being minted so
this payment to run smart contracts and send transactions on the network is called the gas fee right.
So as it says here and it it's called guess just like in a car in order for the car to drive you get
a put gas in it.
Also same thing on ethereum.
In order for ethereum smart contract or a decentralized application in order for it to run you gotta
pay gas and this gas is paid in ether which is the network's native currency.
I know I'm repeating myself here but it's very important in order to understand so italic and a few
others who worked on the project they saw the need to to more to to have a more flexible Bitcoin quote
unquote right to have more flexibility with programmable money.
And they also saw that Bitcoin is not delivering this type of program ability because and this is not
a a minus for bitcoin.
It's because the strongest point of bitcoin is the fact that it is so hard it is so difficult to change.
So what Bitcoin excels in which is being a solid protocol that will never ever move and is being secured
by the toughest rules of mathematics either wanted to be to still to still have these traits and ethereum
wanted to still have these traits but have more flexibility with program ability for being programmable
money.
So the development on ethereum began in early 2014 and they raised funds through an ICO which stands
for initial coin offering meaning that they ask people to pay them with bitcoin in order to receive
the networks native currency either right when the network launches.
So when creating ethereum its creators said we're creating this network but in order for it for us
to create it we need money.
You got to create anything with money that's how the world works.
So give us Bitcoin pay us in bitcoin and we will pay you back in ether right we will give you ether
for your bitcoin in that way when the network launches you can use this ether to transact on the network
to you to create smart contracts to do whatever you want.
All right.
And that was the initial coin offering for ethereum which was one of the first initial coin offerings
or ICI owes happened in around 2014.
And essentially yes the fundraiser itself took place in July August 2014.
So essentially those that contributed to the sale essentially they bought ether at around 30 cents per
one ether and you have the numbers here so they raised this amount of bitcoin and this amount of of
corresponding dollars accounting for bitcoin dollars at the time.
And essentially if you do the math it amounts to around 30 cents per ether and for a price right now
of around one hundred and ninety dollars I don't know when you were watching us crypto is very volatile
but it's a it's a very very very impressive return on investment ROIC.
Right.
I don't know how how foreseeable it was back then but everything is much more easy in hindsight.
So let's talk a little bit about a theory Ms uses and use cases.
So a theory wants to be what it calls a world computer which means that people could run applications
on top of it instead of on their own computers.
Now this is this raises the question why would someone want to pay pay ether that is worth actual money
actual dollars.
What what would someone want to pay extra to run applications if they already have a computer.
Right.
If I'm going on Facebook that comment I'm not paying to use Facebook or YouTube or any other popular
app popular free app why should I have to pay to use it.
Applications on ethereum it's a less it's a worse user experience that I already have online right.
That's our that's our initial reaction to that
and the other in the other argument against Ethereum is even if I do want to use cloud computing cloud
computing platforms such as a double U.S. right Amazon a double U.S. or Microsoft Azure why should I
use a theory am instead of these established cloud networks and cloud platforms that have millions of
users and have very competitive pricing and are easy to use.
Why should I use ethereum and ethereum has a few key things that these other platforms will never ever
have as long as they remain what they are today.
And we'll begin by talking about censorship resistance censorship resistance and censorship the effect
that a network is censorship resistant.
It's being thrown around a lot.
But let's explain it.
And that means that no sovereign power such as like a nation state no sovereign power can tell ethereum
that it can't run certain code or censor parts of the network.
Right.
Because ethereum is not the ethereum company or the ethereum Foundation.
There isn't a theory and foundation but it's not in charge of what happens on ethereum on the network.
Right.
Because ethereum is it distributed ledger in a decentralized network no one has control over it.
Right.
If if you do believe it is decentralized then it means that no one has control over it and no one can
take down anything censor anything.
Right.
If the U.S. government disagrees with Mark Zucker Berg's actions on the Facebook platform it invites
the invites Zuckerberg to testify in front of Congress.
Right.
It happened but you can't invite anyone or or order anyone to take down anything that is on ethereal.
You can try but you won't have any luck.
No one has control over it.
It's out there right.
Why are torrents if some of you who know what torrents are peer to peer torrents and pirated torrents
right.
When people pirate movies pirate video games and they share it using torrents.
Why is it so hard to take down why is it blooming as an online network.
It's because no one can actually take that down.
No one can can can.
No one is has the ability or the power or the funding to take this entire thing down.
ethereum is similar again.
That's if you believe it is decentralized and that is what censorship resistant means.
The ability to be resistant to any sort of censorship because if if someone wants to censor you they
have no one to talk to.
The second trade is immutability and the fact that ethereum is immutable means that once something
has happened on the network it will stay like that forever and it cannot be changed.
And we know that we it's probably reminds you of bitcoin because in bitcoin when something is on the
block chain when a transaction is taken place it's there it's final.
It cannot be changed.
You cannot send a support ticket to the managing team and ask them Hey I sent this transaction by mistake
can you reverse it please.
Nothing.
You can't do any of that because immutability means once something happened it is final.
It cannot be changed.
I know it's it's frightening it's scary but it's essential to having these platforms operate in the
best way that they can.
This is the only way that they cannot operate in that manner and the decentralized nature of ethereum
also guarantees that because no central party has the authority to confirm or deny users from transacting
on the network.
And that ties in very much to the censorship resistant part.
And I'll repeat that sentence because it was it was a hard one because no central party has the authority
to confirm or deny users from transacting or than on the network and no one has control over the network.
Then there is no risk that this party could ever take over the network and start to dictate what can
or can't be done.
On the other hand right take this with a grain of salt because many people over the years have criticized
the ethereum and are still today criticizing ethereum saying that it is not really decentralized and
most of the mining power is in the hands of very few people and development is also handled by a very
small group of people.
And italic the guy who who created ethereum in the first place he is the most known among them.
Now these voices against a theory and they believe that ethereum only says it is decentralized but in
reality very few developers are actually working on it and outside suggestions from developers who aren't
part of the core team are ignored or pushed to the sidelines.
So there is a big discussion going around if ethereum is actually decentralized or not because there
is no one sided answer because there is no actual standard to what decentralised is.
There is no actual number or a key indicator that can tell you if ethereum is either yes decentralised
or no not decentralized.
And it's sort of an opinion thing and that's the one of the discussions going on now.
Very interesting and you can get into it further if you want to.
Now moving on with ethereums uses and use cases despite what we just said ethereum is generally much
more developer friendly than bitcoin is it has a ton of documentation available for people who want
to learn how to develop applications on top of it and there are many courses both online and in person
and in general it has the biggest developer community of any public block chain network.
Basically everyone can write and deploy their smart contracts on the network.
Right.
Developers can also deploy maps or decentralized apps make you see here which are either a smart contract
or an application that uses smart contracts or maybe it uses some sort of front end that is hosted on
some Web site but a backend that uses some smart contracts on ethereum the constellations are infinite.
But generally smart contracts are code that is built on top of ethereum and Depp's decentralized apps.
And from here on out I'm just going to call them Depp's taps are apps applications that you can use
using the Internet that make use of ethereum also ethereum wants to make to take the program ability
of money and the program ability of value which is different than money.
Money has value but value is not just money.
ethereum wants to take this this programability to a level that Bitcoin doesn't.
Which is to enable many uses for peoples funds for people's money for people's property which are not
available today because of the cumbersome infrastructure of the traditional financial system.
For example if I'm a person that lives that I'm from a country which is far far away and I've moved
far far away in order to work and send money back to my family.
Organizations such as Western Union who take up to 20 percent of what amount I want to send out now
I don't know if my numbers are as accurate as possible but that's one use case just off the top of my
head.
An example that you can use to program your value to program your money to be sent over the Internet
for much much cheaper.
Now ethereum also uses a new programming language which is developed the which was developed still being
developed specifically for ethereum which is called solidity and in syntax right the way it low it
looks like and being written down.
It's quite similar to the javascript language for those of you who are kind of familiar with programming
and programming languages.
So let's jump a little bit for a further into what smart contracts are and how they work.
So smart contracts are generally what their name implies whenever certain premade conditions are met
the contract automatically does what it is programmed to do right.
This ensures that the contract will indeed take place without the need to have a certain party that
guarantees it will take place like a lawyer.
Think about a traditional contract that you enter in with some other person.
Let's say you want to mow your lawn and you're leaving right you're flying off for a vacation.
So you want to leave someone in charge of your lawn but you don't want to give them money in advance
and you're flying out for a month so they can't wait around with with your payment.
They want to receive the payment as soon as they've finished mowing the lawn so you fly out but beforehand
you draft up a smart contract with the person that wants to mow your lawn right.
You say Okay I'm going to deposit one hundred dollars in this smart contract but it will only be available
to you it will only be sent over to you.
Once the lawn is mowed right.
I don't know how how correct I'm pronouncing it but once you've finished mowing the lawn you're going
to receive the payment automatically from the contract.
I'm going to be on my vacation I'm not going to worry about it.
You're going to start stop mowing the lawn and finish your day's work.
But the money will automatically be transferred over to you right.
This is one very simple and exemplary use case of a smart contract.
Two parties need to have something happen in the smart contract facilities that now are originally traditionally.
This was done by professionals right lawyers who made sure these things work.
But these simple these simple uses such as the one I have described there possible without lawyers as
we've seen right.
You don't.
It's a it's a very simple use for smart contract.
Now it can get much much more intricate than that and I've given an example here but the example I've
given I think signifies a better this was a very very basic example but smart contracts in decentralized
networks such as ethereum in general are more tailored towards the actions that the they the they are
doing financial mostly on ethereum and it's less comical than than the example I have described.
And so they are usable and they do have use cases and many people do use them.
Now the biggest promise of smart contracts on decentralized network effect that they minimize trust
right they minimize trust and they minimize risk for all parties involved because you're taking the
lawyer the professional out of the picture.
You don't have to trust them.
You don't only have to trust the code.
And generally I think code is is a bit more dependable than people.
Once of course you know there are no bugs in it.
But
there is the the example I've given it minimizes trust and risk because when the person that is mowing
the lawn needs to trust the other person.
If there wasn't a smart contract to give them the money when they returned from the vacation right now
they only have to trust the code.
And if the person who most alone knows the code it can look at the code and see for themselves that
it's fine.
Right.
It's it's going to work.
So you know you have to trust the platform trust the code.
You don't have to trust the people.
And that's how you minimize trust.
And consequently also minimize risk.
Now a little bit further down the decentralized apps rabbit hole.
So well it's it's it's a generally correct.
Say it has a sentence to say smart contracts evolved into depths but smart contracts are not depths
and depths are not smart contracts.
Basically taps are applications who make use of smart contracts smart contracts or simply pieces of
code who deploy certain actions using certain assets on ethereum.
When premed could prison conditions are met right.
When premade conditions are met so in two to to define it a decentralized application ADAP is an application
that uses one or more decentralized services at its back end and a smart contract can be a decentralized
service.
We won't get into the software development perspective but the meaning is that it runs on distributed
networks such as ethereum and thus is able to be decentralized.
Example like I've given Facebook or YouTube could be considered apps but they are not decentralized.
They are run on YouTube's or facebook servers using the back ends of these companies developed.
Now I'm gonna give you a few seconds to think about an app which is decentralized
Well the best application that I can give an example of which is decentralized is email right.
Email is an application that we use.
We go on the Internet.
We use our phones or computers and we send out a reply to email.
We forward it.
We archive it.
We do a lot of things with it.
This is an application.
This is something that you use but is there an email company.
Is there email dot com.
Probably is but there is no single entity that is in charge of email right and that makes email decentralized.
The Internet is also decentralized right.
There is no person no country no company in charge of the Internet so that's an example of decentralized
app which we are familiar with using.
Now in contrast to central applications like I've said like Facebook and YouTube dabs are developed
by teams and are able to run using the network rather than a dedicated server run by a centralized entity.
So in late 2017 this is an example of an actual dapp on ethereum that in late 2017 the dapp crypto kitties
became so popular so quickly that it completely blocked up the theory of network because so many people
were using it in theory and couldn't handle all of the transactions at once.
It's a DAP and that's what crypto kiddies does.
It lets you trade and breed digital cats sounds silly right.
But at the height of the craziness people actually traded these cats for more than one hundred thousand
dollars worth first for one digital cat.
It's a virtual cat right.
Just to make sure everyone understands it's not an actual cat.
It's simply a picture of a cat and a representation of a cat of value on top of ethereum.
It's silly I know but the fact that it happened the fact that people could transact in a decentralized
manner with something that they thought was worth a hundred thousand dollars back then they gave it
that value this was a proof of concept a sort of right that it could happen that people attribute this
type of value to decentralized assets.
Now I'm not going to go into if it was a bubble or not a bubble and there are many critics but it happened
and you can't take that away.
So moving on with Dapp's in ethereums short lifespan many depths were built and many are in operation today
and we are seeing increasing amounts of users use them.
There are taps on other block chain networks too but on a theory of most of the most used depths are
based around financial services.
And one example is maker Dow.
Make your Dow is a credit system basically and people use it to take out loans worth millions of dollars
in order to do that.
They have to lock up their funds so they can't use them until they've repaid their loan.
Sounds familiar.
It's a smart contract and right now there are more than 300 million dollars in locked funds just in
this credit system buy maker Dell.
Now this is an example but it's three hundred million dollars worth of assets that people are trusting
the code instead of either professionals and right now.
Another example are decentralized exchanges such as Khyber network uni swap.
They see almost 100 million sorry one million daily volume in dollars and decentralized exchanges are
simply exchanges in which you exchange one digital asset for another without a central party right.
You simply give and you get and it goes straight from the giver to the getter.
And it happens in a decentralized way and it is happening 24/7 even in holidays.
Today one of the top uses for Depp's and I'm not talking about a theory right now in theory it mostly
doesn't doesn't have gambling but one of the biggest uses is gambling.
Most of these apps are not on the theory.
They've moved on to other blogging platforms which are more gambling friendly.
But this is one of the biggest use cases for depths right now.
Just because it's a low hanging fruit as the expression goes so to pit ether against Bitcoin wouldn't
be so fair.
But you get to see what the differences are.
So we got to differentiate and again I'm stressing this either.
The asset on the ethereal network and you differentiate that between the bitcoin asset on the Bitcoin
network.
So in comparing a ether with bitcoin we have to understand that the two are very different like I've
said not only in how they are built in how their code looks but in the nature of their communities as
well because what drives these things the most as we've seen are communities.
So ethereum aims to create an ecosystem based around decentralized services.
These services require gas to function.
And if you remember we said that gas is paid in ether.
So whenever someone wants to run a dapp on ethereum they have to pay an ether for it to run in other
use for either is like we said as collateral in for example make her Dow.
You can look up your aether in order to take out a loan.
So ether it has more uses on the surface than Bitcoin has a theory.
It either is more flexible and it is quickly evolving to be more than just a token which people pass
around from one to another.
Now I want to pause here and say it can sound like I'm pushing ether right.
I'm saying hey ether has more value than Bitcoin.
This is not the case.
This is not what I'm saying.
And you can see that in the market.
People value Bitcoin more than they value either.
Now it's it's true that ether is pushing to have more uses than bitcoin just because it is more programmable
but it's not essential.
It's not necessarily going to have more value than bitcoin.
The value will be created and determined on the market.
And right now the market dictates that bitcoin has more value so also the ethereum development team is
working on right now working on upgrading the ethereum network to a completely new network will be called
ethereum 2.0 or eth 2.0.
eth is short for ethereum.
If if it's hard to pronounce which will be based on a new model of consensus called Proof of Stake as
opposed to proof of work.
Proof of work is what theory means is now.
It's what Bitcoin uses now it's what like Quinn uses now and proof of stake is a different type of consensus
algorithm that some networks already use and ethereum is transitioning into so short comparison in
the table between Bitcoin and ethereal.
So we said average transaction cost differs a lot but currently around one and a half dollars per bitcoin
transaction in ethereum it's around twelve cents.
And again this changes very frequently.
It could also be one cent can be less than that.
It could be more than twelve since but it's less than one and a half dollars.
That's for now.
Now as you've seen and probably notice I didn't talk about the block time in ethereum block time in ethereum
is super short.
Super quick 15 seconds as opposed to bitcoins 10 minutes and that's just because ethereum needs that
to be as programmable as it is right.
So new ether is being created being minted every block but it's differential it's it's it's it's it
comes it goes.
The amounts are go well with the amounts of block right.
You don't create or I don't know the numbers right now but you don't create a huge amount of ether with
every new block because you have so many blocks where you got to adjust that for the economics to work.
And right now they do work Bitcoin's maximum supply 21 million ether has no maximum supply there is
no roof that which when when ether gets there it will stop working and the basic most basic reason why
is because ether will always need to create new gas to pay with.
Now it's true that either is not being burnt while you when you pay gas it's being only being sent to
the miner but that's the way the supply works and as we've said the consensus mechanism in bitcoin is
proof of work and the algorithm is Sha 256 or OSHA which whenever whichever way you choose to pronounce
it in ethereum the consensus mechanism is proof of work.
They are transitioning to proof of stake and the algorithm.
Right now it's a bit complicated.
It's called eith hash or eat hash and it's true it's moving to probably there's a vote and a discussion
right now.
It's moving to what's called prog P.O. w prog proof of work not going to get into that super technical
beyond the scope of today's lesson but that's just on the tip of the iceberg.
So we get to discuss tokens on ethereum because that was one of ethereums biggest features and a
key feature on ethereum is the ability to mint tokens quickly easily and cheaply and what are tokens
exactly what is a token so a token is a certain representation of an asset on these networks.
And aside from that well with the with these this this definition it means that bitcoin and ether are
tokens as well right because bitcoin is an asset on the Bitcoin network and the ether is an asset on
the ethereal network and Bitcoin could be considered a token on the Bitcoin network and ether as a token
on the ether network but on ethereum you can create more tokens than just the native asset unlike in
bitcoin and since tokens can be programmed the uses for them are endless.
Basically it's whatever you can think of and people who create them can assign certain features to these
tokens certain properties it can create maps that accept certain tokens for certain actions but not
other tokens etc etc..
So possibilities are endless.
I know it's a bit abstract because it's the only first time I'm talking about this but essentially you
can create anything you want with any token that you want to create and tokens are built on ethereum
using network standards.
The most popular network standard is RC 20 right.
You have ya see seven twenty one thirteen thirty seven and these standards are C stands for Ethereum
request for comments and these standards specify what the token can or can't do and its properties right.
It describes what a token does how it's built how it's programmed and today there are very easy tools
for everyone to mint their own tokens with as cheap as really only a few dollars worth of ether and
it does matter.
You want to create a billion of your own tokens you can create them with a few dollars worth of ethereum
and there are currently more than two hundred thousand different tokens on ethereum and they are being
created in a super quick pace right.
So if everyone just creates tokens because they want to because they can.
The hard part is attributing value to these tokens
so a little bit about the ICO craze that went on with ethereum because we got to we got to talk about
it and we've discussed ICO for a few moments when talking about ethereums beginnings and ICO stands
for we said initial coin offering and that is when a project chooses to raise money by selling a digital
currency or digital asset.
And that is very similar.
Similar to a traditional IPO which is an initial public offering in which accomplice a company sells
its shares to the public for the first time and most ICOs were done using tokens that project's
created on ethereum.
Moving back a little bit in history the first ICO was for Mastercoin in 2013.
Since then it's changed its name to omni.
It's a protocol on top of Bitcoin.
And the most significant one afterwords was the ethereum ICO as we said.
And since it suddenly became super easy to raise money over the Internet and before regulators across
the world had time to catch up to the technology starting around May 2017.
Many ICOs started taking place on ethereum which raised incredible amounts of money but had very little
to show for it.
Right.
People just paid tons of money for promises that other people made for them.
Because these companies created tokens they said this is the token that is going to be the next whatever
x right next to Amazon and X YouTube.
And that's how we're gonna build this product.
That's how we're going to work.
This is our roadmap for the next three four years.
But basically most of them never delivered.
Most of them sold dreams for a lot of money raised incredible amounts of money but never went out with
any significant products.
And that is pretty sad because incredible amounts of money were being raised and we'll see that in a
second on a chart.
But for example iOS or IOS where everyone pronounces it differently had an ICO of it was very long
it was a more than a year of raising money but it totaled to four point two billion dollars worth of
funds raised.
What it all was over.
Right.
And it's it's crazy to think that.
But people raised billions of dollars to to build applications and the hype the bubble was so big was
so intense that the crash that was soon thereafter.
Right.
That was the crash that followed because project failed to deliver on their promises.
It was pretty spectacular as well.
So that's that's what we get into the ugly side of this ICL craze.
So these projects they painted a picture of a utopian future.
Like I said we're gonna decentralize everything we're gonna make everything a token normal fees everyone
will transact without central banks.
But it was too good to be true.
It was I don't know if I'm saying way ahead of its time because it's still didn't happen and no one
guarantees that it will.
But they sold dreams and without any any real backing they were making promises they couldn't keep.
And since most of the public that went on to invest in these ISOs were not educated investors many threw
their money at a dream that was sold to them using just good marketing materials but nothing more than
that.
And these people did not have the tools to do proper due diligence.
They felt the prices would continue to go up forever known in the investing world as euphoria.
Right a bubble and that signals that there is there is sort of a bubble.
The expectation of prices just rising forever without any connection to reality.
Now scammers from outside they saw that people are throwing their money at stuff they know nothing about.
And couple that with the fact that these networks are immutable right.
When something happened it happened it's final all right.
I've sent money to it to a scammer.
They're not going to send it back to me and I have no one to cry to no one to ask for help.
They quickly they jumped on the opportunity as soon as they saw it and combined with the fact.
Oh like I said the immutability it became incredibly hard to distinguish what Project is trying to raise
money for a real product and what is a scam that will this take your money and disappear.
And this is one of the things that we do here at coin elegance and we we work hard to figure out what's
a scam and what's real.
Who are who what what people are just creating nice marketing materials to get your money from your
pocket to their pocket and that's that's what happened in 2017 and another fuel for the fire was that
regulators across the world were not ready to face that.
We're not ready this for this sudden demand for raising money through a decentralized way and through
very fragile legislative models.
If if anyone even had a legislative model to operate in right some some companies some projects just
sold tokens online and never told anyone never paid taxes never never consulted their lawyers.
Which is a bad business decision.
So all of that and many other factors just quickly just brought the hammer on the icy CEOs.
It was a very very short lived.
It was very very hectic and a ton of hype when it happened but it simply didn't last.
And it couldn't last forever just because it was so well kind of ahead of its time but we're still the
jury's still out.
If this method of raising money will ever be possible again because since then the regulators have swooped
in and you know introduced regulations and the ISO market if it will recover it will not be the same
as it was in 2017 if it will recover.
So a bit of a graphic demonstration of that.
And we have this chart of it's the total market cap of the entire crypto market from around the beginning
of September 2018 sorry 2017 and all the way to the end of 2018.
So it's more than a it's around a year and a little a year and a quarter of of time represented on this
scale.
Right.
When you see that that's May 2018.
Right here is January 2018 and this is September 2017.
So this huge huge run up and this is from around 100 billion dollars total market worth all the way
to 800 billion dollars.
Right.
Or already only shy of a trillion dollar market at its peak but in January right here I don't want to
scroll over it.
So give me this banner in January right here.
It crashed so quickly and that is just because it had all the properties of a bubble.
Right.
A quick run up and a quick crash and this is all this all happened very quickly.
And that continued to happen.
And you know there are ups and downs here and we're talking about the entire crypto market.
It happened throughout the entirety of 2018.
But notice the general trend is down.
Right.
And it went back not to the bottom right not to 100 billion but right here is around one hundred and
fifty billion at its lowest point since then we've gone up since then until now we're at around 250
right now to 50 billion.
So it's around here but compared to what it was at its peak at its most quote unquote bubbly behavior.
It's it's very far from these levels.
And that's not a bad thing right because that represented a utopia something that is very far from reality
and that represented hope.
But people through throughout this period they figure it out you get it back the hope you got to show
people stuff stuff other than promising than empty promises.
All right.
So
talking a little bit about ethereums present and future.
Well two years after the crazy 2017 market and ethereum today is a platform that is seeing increased
usage increased development and many gaps in services built on the platform most notably the defined
movement which is decentralized finance and ethereal is facing accelerated competition from other projects
that wants to eat up that want to eat up its market share.
These platforms include iOS like we talked about Tron finance chain Cosmo's algo Rand and there are
tons more platforms that are aiming to take ethereums not only its crown as the most valuable smart contract
network but also take away market share from it.
So of course we've said that and of course if Helium has the first mover advantage in the fact that
it's been in the market for a few years already and a large team in a large development community.
But it will have to compete harder than it did right.
It had the the luxury to be alone in the market until now.
But right now people are starting to wake up and compete with Europe and it will have to compete fiercely
and harder than it did so far to maintain its position in the market.
So we are very close to the end of the session.
And let's recap what we've talked about today.
So Bitcoin's early success made many people start to think of other implementations for blocking technology
and they started building new networks that make use of this technology.
These networks had different designs and different models of consensus and some didn't even wish to
become decentralized.
It's important to state here that many people immediately assume that a block chain is automatically
decentralized when this is not the case.
When you ask someone Hey what's the biggest what's the biggest promise of the block chain.
And they immediately answer decentralization.
It's not true.
A blocking does not automatically decentralize the block chain as a way to store data as a function
of time.
Right.
What happened during the time that this block was created and then what happened the time that would
the next block and the next block and the next block.
It's simply a function of time.
Right.
BLOCK chains are not automatically decentralized networks could be decentralized and that block chain
enables that but is not always it's not always the case that block chain based network is decentralized
like coin as we saw Litecoin was built on the theory that Bitcoin could benefit from having a currency
more tailored towards everyday transactions.
Right.
The silver to Bitcoin is gold in the theory room is a brand new idea that puts the emphasis on the program
ability of this new form of digital money and because it allowed for the easy creation of tokens many
projects use that raise money on ISOs that created a huge bubble that eventually popped in early 2018.
Today ethereum is moving forward.
It's past past recovering from from the from the crash and people care less in ethereum about prices
and more on creating valuable applications to make that the networks usable.
And to have as many taps as possible that are useful to people and provide value to people.
And part of this is the open finance movement the decentralized finance movement so guys thank you so
much for listening.
It's been a great session.
We talked in length about the beginnings of the cryptocurrency market and next week we will continue
to look at the bigger crypto market and we'll zoom out even further to see the entire market in some
metrics about the market.
We'll see how we analyze it how we gain information about it and which sources of information are reliable.
So I very much hope you enjoyed today's session go in our Web site intelligence.
Dot com go on the Academy wave web page.
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I very much hope to see you in our next session.
And bye bye.