WEBVTT 00:00.910 --> 00:07.660 Now in general, unless you're using cash when you make a payment, this payment is processed and is 00:07.660 --> 00:13.930 transferred from one account to another using one or more financial institutions or banks. 00:14.290 --> 00:19.780 The same goes when you go online and buy something, even if you buy with PayPal or some other method. 00:19.810 --> 00:25.090 Again, there is usually one or more financial institution to process that payment. 00:25.600 --> 00:31.930 So as you can see, this is a centralized structure where one entity is managing payments. 00:31.930 --> 00:38.560 And we're also interested in that entity to manage our security, the security of our account and our 00:38.560 --> 00:39.340 privacy. 00:39.580 --> 00:46.930 Now, no matter how well you trust this company or this bank, as we seen before, centralized structures 00:46.930 --> 00:49.720 are just inherently not private. 00:49.990 --> 00:55.450 The reason for this is because all of the information is stored in one single place. 00:55.450 --> 01:00.850 So even if you trust this company and trust everything about it, what about the employees that work 01:00.850 --> 01:01.910 at this place? 01:01.930 --> 01:05.080 What about hackers that manage to gain access to it? 01:05.110 --> 01:11.350 What about other agencies that force this entity to have backdoors or to give them access? 01:11.350 --> 01:13.420 And the list goes on and on and on. 01:13.570 --> 01:18.310 Simply the idea of keeping everything in one place is not private. 01:18.970 --> 01:27.030 The alternative to this is to use cryptocurrency, which is not controlled or managed by a single entity. 01:27.040 --> 01:33.790 So previously we had the money, which is the cash which is stored in a bank or some financial institution 01:33.790 --> 01:35.770 that manages that currency. 01:36.070 --> 01:43.300 When it comes to cryptocurrency, it eliminates the need to a middleman or to an entity that manages 01:43.300 --> 01:44.290 this currency. 01:45.140 --> 01:51.430 Instead, it relies on decentralized peer to peer structure known as blockchain. 01:52.210 --> 01:59.350 Now, to understand how this works, let's have an example where David wants to send money to John to 01:59.350 --> 01:59.890 do this. 01:59.890 --> 02:04.540 The first thing David will do is he'll create a crypto wallet. 02:04.600 --> 02:08.830 You can think of this similar to creating a pjp account. 02:09.250 --> 02:15.760 So the wallet will be associated with two keys, a private key and a public key. 02:16.420 --> 02:23.770 And let's say David wants to transfer one coin to his friend John, so he generates a message or a request 02:23.770 --> 02:25.660 similar to this right here. 02:26.020 --> 02:33.860 And he'll sign this request with his private key, which will generate a signature or a fingerprint. 02:33.880 --> 02:40.250 So again, this is very similar to when we used to sign messages with our private key with PGP. 02:40.270 --> 02:47.380 And the reason why this is done to make sure that whoever inspects this message or this request will 02:47.380 --> 02:54.520 note that this request to transfer one coin from David's account is actually generated by David because 02:54.520 --> 02:57.160 David will never share his private key. 02:57.860 --> 03:05.390 Now, once this is signed, David will also include his public key so that it can be used to verify 03:05.390 --> 03:06.410 the signature. 03:06.440 --> 03:12.830 Again, similar to what we spoke about in the encryption section of this course, the public key is 03:12.830 --> 03:20.360 mathematically related to the private key, and therefore it can be used to verify the signature without 03:20.360 --> 03:23.360 revealing information about the private key. 03:23.660 --> 03:30.590 So when this message is inspected by anybody, they can use the public key to verify the signature. 03:30.590 --> 03:35.700 And if it checks out, we will know that this message was actually generated by David. 03:35.720 --> 03:40.760 Therefore, we can process the transfer of one coin from David to John. 03:41.420 --> 03:49.010 So once this message is generated on David's end, David will send this message to the cryptocurrency 03:49.010 --> 03:49.790 network. 03:50.510 --> 03:58.400 Now, this network is basically a number of computers, usually of high specs that keep a copy of all 03:58.400 --> 04:02.180 transactions done using this cryptocurrency. 04:02.870 --> 04:10.310 These computers are usually referred to as miners because they get paid coins for maintaining the ledger 04:10.310 --> 04:12.530 or this record of transactions. 04:13.490 --> 04:21.470 Now, this record of transactions is known as a blockchain, so it's a public record that contains all 04:21.470 --> 04:24.710 transactions made with this cryptocurrency. 04:24.710 --> 04:32.870 And each miner, each computer on the cryptocurrency network contains a copy of all of these transactions. 04:32.870 --> 04:35.690 So it contains a copy of the blockchain. 04:36.650 --> 04:40.280 So David's message is sent to the currency network. 04:40.370 --> 04:46.250 It will get verified, and if it checks out, it will be added to the blockchain. 04:46.250 --> 04:53.720 So this message will be added as a new block to the existing blockchain stored by each one of these 04:53.720 --> 04:55.370 computers or miners. 04:56.560 --> 05:02.530 So right here I have a zoomed in diagram of the blockchain, so each one of the miners of the computers 05:02.530 --> 05:10.510 contains a copy of this, and you can think of each one of these blocks as a transaction that happened 05:10.510 --> 05:11.530 in the past. 05:12.130 --> 05:18.100 The latest one being the one that David just generated in which he transferred a coin to John. 05:18.100 --> 05:23.320 But the others are just other transactions that have been done in the past. 05:24.040 --> 05:28.390 So as you can see, this is a decentralized structure. 05:28.390 --> 05:32.620 It is not owned by anybody and not controlled by anybody. 05:32.620 --> 05:39.520 Anyone can join this network and use their computer for mining so anyone can download a copy of this 05:39.520 --> 05:45.040 blockchain and start mining and start helping maintain this cryptocurrency network. 05:45.710 --> 05:51.830 Now we can also see that this implementation is private because I'm using names in here. 05:51.830 --> 05:56.960 So I'm saying we're transferring one coin from David to John or here from Bob to Alice. 05:56.960 --> 06:00.350 But in reality, real names are not used. 06:00.350 --> 06:07.010 Instead, wallet addresses are used, so the contents of the blocks, even though they're public, you'll 06:07.010 --> 06:13.580 see the content of it saying it's transferring from a long address to another long address. 06:13.580 --> 06:20.150 And as long as the users are used in proper OPSEC, keeping their real identity separate from their 06:20.150 --> 06:27.260 fake identity, connecting using the Tor network and using all of the tips and methods that we discussed 06:27.260 --> 06:30.920 to stay private and as anonymous as possible. 06:30.920 --> 06:35.000 These addresses will not link to their real identities. 06:35.600 --> 06:42.950 With that being said, the fact that the whole ledger or the whole blockchain is public means that we 06:42.950 --> 06:47.480 can read all of the transactions done using this cryptocurrency. 06:47.480 --> 06:55.100 Therefore, even though these addresses don't link to real identities, we can analyze a specific address 06:55.100 --> 06:58.820 and see all of the transactions it got involved in. 06:58.820 --> 07:04.760 So we can see all of the money that left this address and all of the money that entered this address, 07:04.790 --> 07:11.240 therefore, will even be able to calculate the current balance in this specific account. 07:11.690 --> 07:16.000 Now you can obviously just create multiple addresses to get around this. 07:16.010 --> 07:22.670 There are also other methods to increase anonymity and privacy and make it hard to see where money is 07:22.670 --> 07:24.770 going and where it's leaving from. 07:24.770 --> 07:31.700 And you can simply just use a more private cryptocurrency like Monero, which we'll talk about later 07:31.700 --> 07:32.870 on in the course. 07:33.410 --> 07:40.340 For now, I just wanted to give you a basic understanding on how cryptocurrencies work, and this is 07:40.340 --> 07:45.260 pretty much how Bitcoin works, which is the most popular cryptocurrency.