The only thing I don't understand is how the value of the coin is determined. Who decided it was worth more or less than a dollar and how does that change?
So what happens when quantum computing comes along that will make it effortlessly fast for anyone with one to compute the hash for the blockchain so computational complexity alone cannot be used as a trust metric?
Agreed, but I believe the math used to sign and verify is the same as the math used to encrypt and decrypt, from public / private key cryptography. My goal was just to explain what math is used, but I might be incorrect in the exact usage. A private key is used to create a signature from a hash of the message, whereas I believe a private key is normally used to decrypt a message. So I might be using encrypt & decrypt backwards, but I do believe that the math in signing is the same as encryption / decryption. Thanks for the potential correction and any further clarification.
CuriousInventor I think the explanation is fine when you consider the scope of this video, a non-technical explanation of how Bitcoin works. But for correctness you may need to say that (the type of math of) encryption and decryption is used to sign and verify transactions for integrity and non-repudiation. Signatures are made by encrypting the hash of the data with the signer's private key and they are appended to the data itself. Verification is achieved by decrypting the signature with the signer's pyblic key and comparing that with the hash of the plain data.
RockPolish I haven't actually researched this, so I could be wrong, but here's how I suspect it works. Solving a block is the equivalent of guessing a random number. If the random number was between 1 and 1000, one minor might check 1-100, then next 2-200, etc. The more numbers you check before someone finds the solution, the greater the share of the reward you get.
RockPolish I'm not sure I know what you mean there. The more hashes you do, the more likely you are find a successful hash that meets the current difficulty criteria (is below a certain value). Put differently, the more guesses you take from a deck of cards, the more likely you are to find a particular card. There's no somewhat matching, it's either a match or not.
Hang on, so after 2140 there will be no reward to maintain the network? Then why would anyone bother doing it? Would the people investing money into these servers not just quit right away causing the whole system to collapse and the value of the money be completely lost?
Even now, there are tiny transaction fees when you send Bitcoin, it is expected, that in 150 years, the volume of transaction fees alone will keep miners working.
Senders already must include fees to get a transaction added to the ledger quickly. These fees are also given to the miners / maintainers. The amount of those fees is a function of supply and demand between people creating transactions and miners / maintainers. Those fees will be the sole incentive after new money stops being created, which, will be reduced gradually over time, not suddenly.
artifactingreality There will never be a shortage of miners. Remember that originally each node was meant to be a miner. Competition drove a mining tech race so that now miners are very specialized. But the value of bitcoin does not come from mining. The value, like all other forms of money, comes from it's usefulness in the marketplace.
Splendid! As a highly respected moderator on r/Bitcoin, I am proud this video can help the non-reddit, average, perhaps even Christian people to understand this euphoric future currency! To the Moon! Down with fiat! Sincerely, Mr. Nach
I STILL can't fully grasp how this actually works or benefits me over just using "normal" money the way I currently use it, which is either spending physical cash or spending it digitally online. Also; something about it just makes me wary. Like it promises to offer a more "fair" monetary system than the current one that's controlled by banks and governments etc, where the richer get ever richer and the rest of us struggle day to day to ever get ahead, BUT I am suspicious that it's really just been created by some genius who's devised a way for him/her to get rich, along with a few of the lucky ones who get in first or figure out how to use the system to their advantage, while everyone else just gets caught up in another system designed to tie them into slowly but surely making someone else rich while they never really make any meaningful amount of money. It feels like I'm missing something, something that isn't obvious but that in a fair system really should to totally transparent and easily/fully understandable (certainly after it's been explained), which is exactly how people get tricked into being part of something designed to take advantage of their optimistic ignorance. Is this really not just another way for a few early birds or those in positions of power (large groups working together and backed by more money than anyone else so they can mine more than everyone else etc) to get rich and everyone else who comes late to the party and who can't afford to do mass mining to ultimately help the lucky few get ever more rich while hoping in vain that they can somehow get rich themselves but in reality they never actually will and will instead be in exactly the same position they always are, which is struggling to get ahead in the world while the "elites' get ever more rich at their expense? I mean; as just one example of something that does't sit quite right with me; How can I possibly have a number/key or digital "signature' that no one could ever just hack my computer and steal then use for their own gain? It's a bold claim to say "that only the true account owner knows" when talking about anything that works online on the Internet. I mean surely I have to store that key somewhere, if I'm ever going to be able to remember it (given how long and random it looks), and surely most people are going to store it on their computer (so they don't have to keep entering it every time) and even if they don't store it there; well surely they have to type it via their keyboard at times, which itself could be tracked via sophisticated keypress hacking type software or whatever. Not that I'm suggesting traditional online banking and spending is any more secure than this but I'm just curious and cautious. Why do I get that feeling in my gut that something isn't quite right about all of this? I mean how the hell can no one in the world know who actually created Bitcoin??? That's just suspicious right there.
***** But, just regarding Bitcoin, I'm still coming back to: If someone wanted to hack my computer (and whatever else they need to hack in order to spend my Bitcoins) and spend my Bitcoins then they could. Just like the could for any digital type of currency. Neither my physical nor digital money has ever being stollen in my life, and the process of using either physical money or digital money has never been something I've thought was particularly difficult or time consuming, so, again, how does using Bitcoin really benefit me? If I already have the ability to access physical money, and I already have a bank account that lets me use things like debit cards or pay via digital money on sites like Amazon and every single other place/service that uses money, then why should I feel compelled to step into some other monetary system I really don't understand in the slightest? If it's not totally transparent, from a high level end user point of view, and it doesn't really offer any obvious advantages over the current system of money I've been forced to use all my life--it can't even be used to pay for everything that normal money is used for (because presumably most system still don't even support Bitcoin transactions)--then I still don't get why I'd feel compelled to suddenly start using Bitcoin. if it made everything cheaper, allowed be to avoid insidious government taxes, gave me better interest than banks, took power away from the banks and governments but a not downside/disadvantage/risk to me, and that kind of thing, then I'd at least have some good reasons to consider it as an alternative.
If no money will be created after 2140, why will miners be active and who will manage the ledger and provide proof of work for valid transactions, if they get nothing in return
The only thing I don't understand is how the value of the coin is determined. Who decided it was worth more or less than a dollar and how does that change?
This is the best explanation of the Bitcoin process.
Best video.
All of your Bitcoin videos are extremely helpful; I've used them to show my friends and family how Bitcoin works!
This is bz far the best (non-)technical explanation of how Bitcoin works for people who are not technical! Awesome!
but how do you add money to bitcoin?
So what happens when quantum computing comes along that will make it effortlessly fast for anyone with one to compute the hash for the blockchain so computational complexity alone cannot be used as a trust metric?
Question. After 2140 no more bitcoins will be created. So, who and why will be motivated to validate transactions (via ledgers).
Well.... How do you exchange it to real dollars or any other currency?
Who decides what kind of puzzle has to be solved and who adds the small amount to the solvers balance?
Nice video, i'm starting to understand how bitcoins works
Great video!
One correction though: transactions are not encrypted and decrypted, they are just signed.
Agreed, but I believe the math used to sign and verify is the same as the math used to encrypt and decrypt, from public / private key cryptography. My goal was just to explain what math is used, but I might be incorrect in the exact usage. A private key is used to create a signature from a hash of the message, whereas I believe a private key is normally used to decrypt a message. So I might be using encrypt & decrypt backwards, but I do believe that the math in signing is the same as encryption / decryption. Thanks for the potential correction and any further clarification.
CuriousInventor I think the explanation is fine when you consider the scope of this video, a non-technical explanation of how Bitcoin works.
But for correctness you may need to say that (the type of math of) encryption and decryption is used to sign and verify transactions for integrity and non-repudiation.
Signatures are made by encrypting the hash of the data with the signer's private key and they are appended to the data itself. Verification is achieved by decrypting the signature with the signer's pyblic key and comparing that with the hash of the plain data.
Justenkarin Merks-Roebroek Thanks for the extra clarification. I'll think about how to revise or put an asterisks overlay in it.
What's the incentive to maintain the system after 2150 when no more money is created?
very helpful and accessible! thanks
Very nicely done !
Good explanation!
Could you explain what a share is and why/how alot of shares can make a solution for a block?
This video doesn't mention shares, are you talking about mining pools?
CuriousInventor Yes, they serve as a measurement by the amount of work done by the miner but how exactly do they help creating a block?
RockPolish I haven't actually researched this, so I could be wrong, but here's how I suspect it works. Solving a block is the equivalent of guessing a random number. If the random number was between 1 and 1000, one minor might check 1-100, then next 2-200, etc. The more numbers you check before someone finds the solution, the greater the share of the reward you get.
And you are more likely to find something whose hash somewhat matches what you need if you have done more hashes then?
That seems about right. Thanks
RockPolish I'm not sure I know what you mean there. The more hashes you do, the more likely you are find a successful hash that meets the current difficulty criteria (is below a certain value). Put differently, the more guesses you take from a deck of cards, the more likely you are to find a particular card. There's no somewhat matching, it's either a match or not.
so then who will maintain the ledger after 2140 when the financial incentive is gone?
*****
thanks
Wait do paypal accpet Bitcoin?
Fantastic explaination
Thank You for the nice explanation!
really nice, thx!
Hang on, so after 2140 there will be no reward to maintain the network? Then why would anyone bother doing it? Would the people investing money into these servers not just quit right away causing the whole system to collapse and the value of the money be completely lost?
Even now, there are tiny transaction fees when you send Bitcoin, it is expected, that in 150 years, the volume of transaction fees alone will keep miners working.
Senders already must include fees to get a transaction added to the ledger quickly. These fees are also given to the miners / maintainers. The amount of those fees is a function of supply and demand between people creating transactions and miners / maintainers. Those fees will be the sole incentive after new money stops being created, which, will be reduced gradually over time, not suddenly.
CuriousInventor
Oh I see, I watched your other video where it explained about transactions being processed in order of how big the fee is. Seems cool.
artifactingreality Right, it will eventually match supply and demand based on the halving 'diminishing returns for pure mining' returns.
artifactingreality There will never be a shortage of miners. Remember that originally each node was meant to be a miner. Competition drove a mining tech race so that now miners are very specialized. But the value of bitcoin does not come from mining. The value, like all other forms of money, comes from it's usefulness in the marketplace.
great!!!
I feel bad for the one guy who has only 1 satoshi.
Splendid! As a highly respected moderator on r/Bitcoin, I am proud this video can help the non-reddit, average, perhaps even Christian people to understand this euphoric future currency! To the Moon! Down with fiat!
Sincerely,
Mr. Nach
I STILL can't fully grasp how this actually works or benefits me over just using "normal" money the way I currently use it, which is either spending physical cash or spending it digitally online.
Also; something about it just makes me wary. Like it promises to offer a more "fair" monetary system than the current one that's controlled by banks and governments etc, where the richer get ever richer and the rest of us struggle day to day to ever get ahead, BUT I am suspicious that it's really just been created by some genius who's devised a way for him/her to get rich, along with a few of the lucky ones who get in first or figure out how to use the system to their advantage, while everyone else just gets caught up in another system designed to tie them into slowly but surely making someone else rich while they never really make any meaningful amount of money.
It feels like I'm missing something, something that isn't obvious but that in a fair system really should to totally transparent and easily/fully understandable (certainly after it's been explained), which is exactly how people get tricked into being part of something designed to take advantage of their optimistic ignorance.
Is this really not just another way for a few early birds or those in positions of power (large groups working together and backed by more money than anyone else so they can mine more than everyone else etc) to get rich and everyone else who comes late to the party and who can't afford to do mass mining to ultimately help the lucky few get ever more rich while hoping in vain that they can somehow get rich themselves but in reality they never actually will and will instead be in exactly the same position they always are, which is struggling to get ahead in the world while the "elites' get ever more rich at their expense?
I mean; as just one example of something that does't sit quite right with me; How can I possibly have a number/key or digital "signature' that no one could ever just hack my computer and steal then use for their own gain? It's a bold claim to say "that only the true account owner knows" when talking about anything that works online on the Internet. I mean surely I have to store that key somewhere, if I'm ever going to be able to remember it (given how long and random it looks), and surely most people are going to store it on their computer (so they don't have to keep entering it every time) and even if they don't store it there; well surely they have to type it via their keyboard at times, which itself could be tracked via sophisticated keypress hacking type software or whatever. Not that I'm suggesting traditional online banking and spending is any more secure than this but I'm just curious and cautious.
Why do I get that feeling in my gut that something isn't quite right about all of this?
I mean how the hell can no one in the world know who actually created Bitcoin??? That's just suspicious right there.
***** But, just regarding Bitcoin, I'm still coming back to: If someone wanted to hack my computer (and whatever else they need to hack in order to spend my Bitcoins) and spend my Bitcoins then they could. Just like the could for any digital type of currency.
Neither my physical nor digital money has ever being stollen in my life, and the process of using either physical money or digital money has never been something I've thought was particularly difficult or time consuming, so, again, how does using Bitcoin really benefit me?
If I already have the ability to access physical money, and I already have a bank account that lets me use things like debit cards or pay via digital money on sites like Amazon and every single other place/service that uses money, then why should I feel compelled to step into some other monetary system I really don't understand in the slightest?
If it's not totally transparent, from a high level end user point of view, and it doesn't really offer any obvious advantages over the current system of money I've been forced to use all my life--it can't even be used to pay for everything that normal money is used for (because presumably most system still don't even support Bitcoin transactions)--then I still don't get why I'd feel compelled to suddenly start using Bitcoin.
if it made everything cheaper, allowed be to avoid insidious government taxes, gave me better interest than banks, took power away from the banks and governments but a not downside/disadvantage/risk to me, and that kind of thing, then I'd at least have some good reasons to consider it as an alternative.
If no money will be created after 2140, why will miners be active and who will manage the ledger and provide proof of work for valid transactions, if they get nothing in return
After he said "creating money out of thin air" I quit.