Bitcoin: How Cryptocurrencies Work


Say there’s a coin that’s currently worth
hundreds of U.S. dollars, but it’s not made of gold, or platinum, or any precious metal. In fact, it’s not the kind of coin you can
hold in your hand or stick in a piggy bank. It’s a digital currency, which means it
only exists electronically. I’m talking about bitcoin. Bitcoin doesn’t work like most money. It isn’t attached to a state or government,
so it doesn’t have a central issuing authority or regulatory body. Basically, that means there’s no organization
deciding when to make more bitcoins, figuring out how many to produce, keeping track of
where they are, or investigating fraud. So how does bitcoin work as a currency, or
have any value at all? Well, bitcoin wouldn’t exist without a whole
network of people and a little thing called cryptography. In fact, it’s sometimes described as the
world’s first cryptocurrency. And here’s how it works. Bitcoin is a fully digital currency, and you
can exchange bitcoins between computers in a worldwide peer-to-peer network. The whole point of most peer-to-peer networks
is sharing stuff, like letting people make copies of super legal music or movies to download. If bitcoin is a digital currency, what’s
stopping you from making a bunch of counterfeit copies and becoming fabulously wealthy? Well, unlike a mp3 or a video file, a bitcoin
isn’t a string of data that can be duplicated. A bitcoin is actually an entry on a huge,
global ledger called the blockchain, for reasons we’ll get to in a minute. The blockchain records every bitcoin transaction
that has ever happened. And, as of late 2016, the complete ledger
is about 107 gigabytes of data. So when you send someone bitcoins, it’s
not like you’re sending them a bunch of files. Instead, you’re basically writing the exchange
down on that big ledger – something like, “Michael sends Hank 5 bitcoins.” Now, maybe you’re thinking, “But, wait. You said bitcoin doesn’t have a central
authority to keep track of everything!” Even though the blockchain is a central record,
there’s no official group of people who update the ledger and keep track of everybody’s
money like a bank does – it’s decentralized. In fact, anybody can volunteer to keep the
blockchain up to date with all the new transactions. And a ton of people do. It all works because there are lots of people
keeping track of the same thing, to make sure all transactions are accurate. Like, imagine you’re playing a game of poker
with some pals, but none of you have poker chips, and you left your cash at home. There’s no money on the table, so a few
of you get out some notebooks, and start writing down who bets how much, who wins, and who
loses. You don’t completely trust anyone else,
so everyone keeps their ledgers separately. And at the end of every hand, you all compare
what you’ve written down. That way, if someone makes a mistake, or tries
to cheat and snag some extra money for themselves, that discrepancy is caught. After a couple hands, you might fill up a
page of your notebook with notes about the money movement. You can think of each page as a “block of
transactions.” Eventually, your notebook will have pages
and pages of information – a chain of those blocks. Hence: blockchain. Now, if thousands of people are separately
maintaining the bitcoin blockchain, how are all the ledgers kept in sync? To stick with our poker analogy: think of
the entire bitcoin peer-to-peer network as a really huge poker table with millions of
people. Some are just exchanging money, but lots of
volunteers are keeping ledgers. So when you want to send or receive money,
you have to announce it to everyone at the table, so the people keeping track can update
their ledgers. So for every transaction, you’re announcing
a couple of things to the bitcoin network: your account number, the account number of
the person you’re sending bitcoins to, and how many bitcoins you want to send. And all of the users who are keeping copies
of the blockchain will add your transaction to the current block. Having a bunch of people keep track of transactions
seems like a pretty good security measure. But if all it takes to send bitcoins is a
couple of account numbers, that seems like it might be a security problem. It’s a huge problem with regular money – just
think about all the ways criminals try to steal other people’s credit card information. And with bitcoin, there’s no central bank
to notice anything weird going on to shut down fraud, like if it looked like suddenly
you spent your entire life savings on beef jerky. So what’s stopping Hank from pretending
he’s me and just sending himself all of my bitcoins? Bitcoins are kept pretty safe thanks to cryptography,
which is why it’s considered a cryptocurrency. Specifically, bitcoin stays secure because
of keys, which are basically chunks of information that can be used to make mathematical guarantees
about messages, like “hey, this is really from me!” When you create an account on the bitcoin
network, which you might have heard called a “wallet,” that account is linked to
two unique keys: a private key, and a public key. In this case, the private key can take some
data and basically mark it, also known as signing it, so that other people can verify
those signatures later if they want. So let’s say I want to send a message to
the network that says, “Michael sends 3 bitcoins to Olivia.” I sign that message using my private key,
which only I have access to, and nobody else can replicate. Then, I send that signed message out to the
bitcoin network, and everyone can use my public key to make sure my signature checks out. That way, everyone keeping track of all the
bitcoin trading knows to add my transaction to their copy of the blockchain. In other words, if the public key works, that’s
proof that the message was signed by my private key and is something I wanted to send. Unlike a handwritten signature, or a credit
card number, this proof of identity isn’t something that can be faked by a scam artist. The “who” part of each transaction is
obviously important, to make sure the right people are swapping bitcoins. But the “when” matters, as well. If you had a thousand dollars in your bank
account, for example, and tried to buy two things for a thousand dollars each, the bank
would honor the first purchase and deny the second one. If the bank didn’t do that, you’d be able
to spend the same money multiple times. Which … might sound awesome, but it’s
also terrible. A financial system can’t work like that,
because no one would get paid. So if I only have enough money to pay Olivia
or Hank, but I try to pay them both, there’s a check built into the bitcoin system. Both the bitcoin network and your wallet automatically
check your previous transactions to make sure you have enough bitcoins to send in the first
place. But there’s another problem that might happen
with timing: Because lots of people are keeping copies
of the blockchain all over the world, network delays mean that you won’t always receive
the transaction requests in the same order. So now you’ve got a bunch of people with
a bunch of slightly different blocks to pick from, but none of them are necessarily wrong. Okay, bitcoin. How do you solve that problem? Turns out, it’s by actually solving problems. Math problems. To add a block of transactions to the chain,
each person maintaining a ledger has to solve a special kind of math problem created by
a cryptographic hash function. A hash function is an algorithm that takes
an input of any size, and turns it into an output with a fixed size. For example, let’s say you had this string
of numbers as your input And our example hash function says to add
all of the numbers together. So, in this case, the output would be 10. What makes hash functions really good for
cryptography is that when you’re given an input, it’s really easy to find the output. But it’s really hard to take an output and
figure out the original input. Even in this super simple example, there are
lots of strings of numbers that add up to 10. The only way to figure out that the input
was ‘1-2-3-4’ is to just guess until you get it right. Now, the hash function that bitcoin uses is
called SHA256, which stands for Secure Hash Algorithm 256-bit. And it was originally developed by the United
States National Security Agency. Computers that were specifically designed
to solve SHA256 hash problems take, on average, about ten minutes to guess the solution to
each one. That means they’re churning through billions
and billions of guesses before they get it right. Whoever solves the hash first gets to add
the next block of transactions to the blockchain, which then generates a new math problem that
needs to be solved. If multiple people make blocks at roughly
the same time, then the network picks one to keep building upon, which becomes the longest,
and most trusted chain. And any transactions in those alternate branches
of the chain get put back into a pool to be added onto later blocks. These volunteers spend thousands of dollars
on special computers built to solve SHA256 problems, and run their electricity bills
up sky high to keep those machines running. But why? What do they get out of maintaining the blockchain? Is it just community service? Well, bitcoin actually has a built-in system
to reward them. Today, every time you win the race to add
a block to the blockchain, 12 and a half new bitcoins are created out of thin air, and
awarded to your account. In fact, you might know the bitcoin ledger-keepers
by another name: miners. That’s because keeping the blockchain updated
is like swinging a proverbial pickaxe at those hash problems, hoping to strike it rich. When bitcoins were first created in 2009,
they didn’t really have any perceived value. Tens of bitcoins would have been worth the
same as a bunch of pennies. As of November 10th, 2016, though, one bitcoin
is worth 708 US dollars. So 12 and a half bitcoins are worth 8,850
dollars. That’s a nice chunk of change! Every single bitcoin that exists was created
to reward a bitcoin miner. Besides the big payout when they add a new
block of transactions, miners are also essentially tipped a very small amount for each transaction
they add to the ledger. It’s also worth noting that every 210,000
blocks, the number of coins generated when a new block is added goes down by half. So what started as a reward of 50 bitcoins
decreased to 25, then 12 and a half. It’ll only be around 6 bitcoins in a couple
more years, and keep decreasing. Eventually, there will be so many transactions
in a block, that it’ll still be worthwhile for miners to mostly be paid in tips. According to current projections, the last
bitcoin – probably around the 21 millionth coin – will be mined in the year 2140. This decreasing number of bitcoins is actually
modelled off the rate at which things like gold are dug out of the earth. And the idea is that keeping the supply of
bitcoins limited will raise their value over time. So, is investing in bitcoin a good idea? Now that’s… not really a SciShow kind
of question. Bitcoin is still volatile, and experimental. A lot of people love it, and a lot of people
think it’s doomed to fail. We just think it’s an interesting idea,
and it makes us wonder what cryptography might do for us next. Thanks for watching this episode of SciShow,
brought to you by our patrons on Patreon. If you want to help support this show, just
go to patreon.com/scishow. And don’t forget to go to youtube.com/scishow
and subscribe!

100 Replies to “Bitcoin: How Cryptocurrencies Work

  1. I am currently using his Platform to earn trading bitcoin. You can literally take $500 & turn it into 50k in 70 trades if you do 15% of $500 per trades. It’s been done & done consistently year after year. I know people that trust his system and it worked for them.
    Telegram @jimfx

  2. Hello guys, Pi is a new digital currency being developed by a group of Stanford PhDs. For a limited time, you can join the beta to earn Pi and help grow the network. To join my Pi group, follow this link https://minepi.com/whiskyjohnnyoh and use my username (whiskyjohnnyoh) as your invitation code and start earning more.
    Don't forget to message me there! 🤙🏻

  3. To surmise, crypto are fast becoming a highly traded commodity and cryptocurrency trading is very volatile. Gone are the days in which a person could buy Bitcoin for under $20 per coin but there is still money to be made. Learning to day trade Crypto can still turn a tidy profit if one follows trends and becomes well versed in the specifics of each coin. So, go out, be patient and diligent, and make money! I've been trading cryptocurrencies for 2 years now and I can say that over $200 billion dollars was made worldwide and has made millions of traders rich. I trade LTC, BTC, ETH, BCH, BCC etc. I can guide and assist you with any information you may need to invest in these new and unpopular crypto and digital currencies that are making waves at the moment. Contact Kramer my tutor @ ([email protected]).

  4. Max Neil Li Lung, has made trading and investing in forex stock , bitcoin easier and profitable with his strategy as an expert and his manage investment scheme that has helped me in making profits on a daily basis with a daily withdrawals. I advise newbies to search his strategy up on (GOOGLE SEARCH) to reach him.

  5. Once I thought to invest in bitcoins in 2018 but here in India RBI denied to accept the bitcoin's concept therefore I called back my decision.

  6. Don't worry Go to https://vindax.com/?ref=623f270da85f8e2863a3a8510f4489fa or https://crex24.com/?refid=4dmmag7ukhlholk4wnji Where you can purchase Bitcoin2 for about $1.38 each before the crowd finds out.Get at least 20 BTC2's

  7. i am here to pass this information to you i have a friend he's into hacking of bitcoins, he can mine btc and generate more of it. contact him on whatsapp + 1 8 4 5 6 0 5 9 0 2 4

  8. For future reference: Bought decent amount of Bitcoin in 2012 at $14.65. Sold some at $18,400 for Tether in 2017. Bought some more at $3,500 in 2018. Bought some more at $5,250 in April 2019. Bought some more at $5,700 in May 2019. Bought some more at $7,000 in May 2019. Bought some more at $7,300 in May 2019. Bought some more at $7,700 in May 2019. Bought some more at $8,000 in June 2019. Bought some more at $10,500 in July 2019. Bought some more at $12,000 in July 2019. Bought some more at $9,700 in August 2019. Bought some more at $8,075 in September 2019. (October 2019 edit) Bought a decent amount more at $7,500 in October 2019. (November 2019 edit) Bought a decent amount more at $9,100 in November 2019. Selling in 2021 and re-buying in 2022. (Coming back to edit from time to time.)

  9. Contact john_mcneese_on Instagram or mail him on [email protected](he does not take upfront payment) if you need help about forex trading , Bitcoin hacking your PayPal,credit score fix, bank account,western union hack,money gram,credit card hack,instagram verification, facebook and many more..
    His fast and reliable .

  10. Tested and qualify to work on your bitcoin script and she can recover your loss or hack account. Contact via +1(626)3863155

  11. This professional lady hacker also did it for me, it work through her services.via +1 62 63 86 31 55 she founded me 3.0997 btc to my wallet

  12. what hour of the day is considered the start hour and the stop hour? for tracking purpose for profit and loss or tax reporting purposes there must be one.? for trading crypto currency. I cant find the answer. please help thank you.

  13. Nice video you have here, and I am sure many people will understand the concept of what cryptocurrency in general through here. If after watching several videos you don't fully understand what cryptocurrency is or what trading cryptocurrency is then you need a mentor who will enlighten you with the concept on a one on one mentorship and not public mentorship.

    2017, I was a novice in the cryptocurrency space, I was not even with a positive motion towards it because I see it as one thing that doesn't have value, but my in-depth study in it made me understand what it is about and the benefit it holds for the economy.

    We are approaching a major world economic recession and anybody not having bitcoin as a primary backup before then will surely have themselves to blame when the recession hit the world economy.

    Now is the time to prepare ahead of the upcoming recession and the best easy and profitable way to get that done is buying up to 10BTC, which I know many people can't get that currently, but I will advise everyone to take hold of a pro trader Miss Helena trading signals and strategies. Her strategy is top-notch, and she will reveal to you what most of those big goons in the space are keeping from you.

    Start preparing your financial freedom today by contacting Miss Helena through [email protected] and WhatsApp +447427424057

  14. @Hack_Tham on Instagram got me 7Btc within an hour
    He really saved me from my financial problems and all my debts are covered

  15. This video was really comprehensive in nature coupled with the amazing concept on which bitcoin is Worth knowing. Through blockchain, Yusra Global has also come on the board. Find out more; https://yusra.global
    Twitter: https://twitter.com/YusraGlobal

  16. So bitcoin works like the giant stone coins of that one island nation? Itstead of a coin passing hands, its just ownership of the coin.

  17. What I find strange with Bitcoin is that it has no inherent value. A house represents someone's assembly of gathered materials and the time taken to build a house. But no useful work is represented by cryptocurrencies. Can someone offer me a different perspective?

  18. Look at my baby grow an grow. #Bitcoin
    I wrote the outline "How to create, store and trade your #WorkEffort" BUT wile working on it in 2003 my computet mysteriously locks up. I then took it to a computer repar shop owne by a Chinese Student who was attend the area college. He was baffled and couldn't get it to reopen. He then ask me what was I working on and I told him.
    Creating money but "not" out of thin air like the US Treasury, but with work effort you proformed. I then broke down how it works and how we keep track of who trading and spending and creating. I then warned him that people with traditional mone will not like this and will come for whomever release it into the US economy.
    We made a traded for a working computer. The Chinese repair man while in the bastment of his small shop on Big Ben blv in St.Louis county told me he will release it but not under his name. He then told me he will take his new wife to be last name when he returns to China to get married. Then I'll let it go!
    The only thing wrong is that all of the currency (MONEY)need to be compounded in one placed in one bank to intice more people to join.
    "STOP SPENDING THE CASH"
    Fix this and it will be a wildfire and explode!
    Your welcome world 🌎 #TLA #STLA #STL. "Work for $ trade with #Bitcoin

  19. Cloud 2.0 , new crypto currency wallet 😍Earn 10% monthly income by just holding your crypto currencies .. referal income 100% in 1st level www.cloudtokenwallet.com . Use referal code :- 4807537656 .

    More details whatsapp :- 7025496467

  20. Mine Pi from your phone 🙂 you can check all the videos on youtube 🙂 minepi.com/nino221 you can use my invite code nino221 if you like 🙂

  21. All the crypto naysayers don't know the biggest frauds are the central banks. And we need to capitalize on crypto before they do.

  22. i don't give financial advice but i can tell you bitcoin is a gold mine… i changed my life trading.. with the help of Mrs Nancy Berman Epstein an expert she made me my first million this year…..she handles my investments and she's quite known in the U.S

  23. There is so much content on the internet regarding trading that it is overwhelming, mrs Barbara strategy gave me everything I needed and the perfect basis to begin trading, I really value her emphasis on minimizing risk because this is something I haven't seen other websites and tutorials. It's not how much you make but how much you keep

  24. minepi.com/Cameronjames06 I’ve been using this app for a few months and I hope it pays off hasn’t hit the market yet. You have to have an invite code to join. About to hit a million people 🙂

  25. The world is gradually changing and there’s so much positivity in bitcoin investment.. those who are bold enough to invest now would smile later with so much profit… start now with @logan___fx and start accumulating your profits…
    WhatsApp: +1 (903) 385 4866

  26. hey everyone if you are interested to learn about bitcoin and invest in it. click the link below and start learning and investing on bitcoins. best offer you will ever get.

    https://www.digistore24.com/redir/198261/samiullah/

  27. Pi is a new #cryptocurrency that has quickly risen to a million holders. . For a limited time, you can join the beta to earn Pi free on your phone and help grow the network. To join Pi, link minepi.com/mindlessself and use my username (mindlessself) as your invitation code.

  28. There is always light at the end of the tunnel, I have made up my mind decide to give up on bitcoin script after I was scammed five (5) times until I met a bitcoin guru called Mr. Crystal he gave me a working script immediately he confirm my payment and the script earn me (0.8)BTC every 24 hours, I personally recommend him too you all you can contact him via his email [email protected] or +17787844770 on whatsapp

  29. There is always light at the end of the tunnel, I have made up my mind decide to give up on bitcoin script after I was scammed five (5) times until I met a bitcoin guru called Mr. Crystal he gave me a working script immediately he confirm my payment and the script earn me (0.8)BTC every 24 hours, I personally recommend him too you all you can contact him via his email [email protected] or +17787844770 on whatsapp

  30. I have a friend and have financial problems for the cost of a broken leg surgery, I hope your help to help donate my friend

    1. BTC 3NDubzGJ1wZ92P1RkamFpJ6JihvYDg2PBY

    2. ETH 0xca62e7da5010c376578214925af2a06c5403bfcc

    3. BCH
    bitcoincash:qzyu0vatxy6dawxn28lgnctqyjuhpe2mqvfc0s54we

    4. LTC
    MVMmnSkxvP7Dougc8VoPHaDCnFukE6EV21

    5. BSV
    1JcMyuXqwY8zVKiSYCvDRb15Ui7biaAgs2

    6. DASH XwMQqpg6bCL9QtEbDdtgTCEmLjeF8fWAfp

    7. XZC
    aD77jxNYKkEJxhWoPayMUyF9n25DxYbmrz

  31. Great video, i watched this in early 2018. it has been a bumpy ride for me since late in 2017 but i have nearly always made the right decisions without regrets on crypto currencies. Maybe i am just more of an investor than a trader. Holding long term is a major strategy to earn off crypto but only for the smart, intuitive and patient.

  32. With bitcoin, where there is potentially a drop as experienced lately, it should be seen as a potential to buy and just as anticipated, we have our reversal and a new target above the $10,000 resistance. We are now experiencing the current reversal to an uptrend which in reality was long overdue and as far as this recent dump was concerned, Sebastian Wigman has made me realize how profitable it is to trade with the right patterns/signal system which he provides at an accuracy hardly seen in the crypto space. I will buy a few more bitcoins maybe about 2 or 3 and see what gets me through trading because in the last 3 weeks, my portfolio has grown by 400% thanks to Erik's signals. I highly appreciate his services and also recommend him ( (WhatsApp +447426071628 and Telegram @Bigwhale2 ) for all crypto related inquiries

  33. The problem is cryptocurrency doesn't work. It was supposed to take over small secure transactions which failed horribly. Also it's more of a collectible than it is something with intrinsic value. This is the problem that it's had since its inception.

  34. Hi guys there are two apps that let you mine cryptocurrencies. One is called Pi and you can use my referral code to get some bonus earnings minepi.com/KLOX. Use the name KLOX after downloading for referral. The other is called Electroneum and referral code to get some bonus here is 845497. The best part of these apps is they let you mine for free and they don't drain your battery because they use cloud mining. There is nothing to lose here. You just go into the app click one button and you start mining in the background you don't have to be on the app or online after clicking the button.

  35. Hello. Encryption practitioners have developed a new cryptocurrency that does not consume energy because it works on a server. It is of course at an early stage but it is very promising. And because it is in its early stages it gives a good degree of coinage to those who do "minning". It is also the only one running on mobile. It has not yet entered the exchanges but at some point it will. You only enter by invitation. You need a verification phone. In essence, this is done to attract more people. If someone comes in with my code, the coin rate will go up. The more I attract, the better for me. Enter the application and enter the invitation code – Nas1990 -. Try it, you never know what happens. It may get value it may not.

    The application in the play store is called Pi network. Also because it is in the beginning it gives up quite fast and as many people come in it will decrease the mining just as it did with bitcoin.

    It's not spam. No scam, Before downloading and verification look it up on google, youtube, etc.

  36. My advise out there is for you to be wise and careful before you invest in any Bitcoin or ICO minning site.

    I don't confide in a portion of this intermediaries any longer.
    I got introduced into this bitcoin mining about 2 year now and i most admit, it has really changed my life. I lost $34,500 to an bitcoin investment scam some months back. I was devastated because that was my whole savings, it really shattered me, i was depressed. I tried everything to get my funds back but i could not,I lost all expectation. I told a friend about it and he told me about a Private investigator who helped him recover his lost bitcoin wallet,

    I didn't believe it anyway but i decided to give it a try. All i can say is i was lucky because he helped me recover my lost funds.
    I didn't know how he did it and i was very happy.

    So my advice to anyone out there who has lost money to this scumbags, do not give up. There is hope on the horizon.

    check out there website anonymouxinvestigator [dot] com

Leave a Reply

Your email address will not be published. Required fields are marked *