What is Blockchain technology?
Is it “the next big thing”?
Are you missing out 
on a once in a lifetime opportunity 
when some startup wants you to invest
 in thier blockchain based venture?
Well stick around, 
in this episode 
of Crypto Whiteboard Tuesday 
we’ll answer these questions and more.
Hi, I’m Nate Martin
 from 99Bitcoins.com 
and welcome
 to Crypto Whiteboard Tuesday 
where we take
 complex cryptocurrency topics, 
break them down and translate them
 into plain English.
Before we begin, 
don’t forget to subscribe to the channel 
and click the bell 
so you’ll immediately get notified 
when a new video comes out.
Today’s topic is the Blockchain 
and the exciting world 
of blockchain technology.
Hopefully by the end of this video 
you’ll understand exactly 
what blockchain technology is 
and why it’s really hard
 to seperate it from Bitcoin.
Before we understand 
how Blockchain technology works, 
we need to understand what problems
 it was designed to solve, 
so let’s take a step back 
and let me ask you a question...
How do we tell if something
 is fake or real in today’s world?
For example, 
a dollar bill, a driver’s license
 or a vote in the election.
How do we determine 
whether it’s valid or not?
The answer?
We keep a record of it.
For example, 
each dollar bill has a serial number 
that is recorded by the bank.
Your driver’s license number 
is recorded by the DMV 
and voting records are used to track 
who voted and who didn’t, 
so the same person
 won’t be able to vote twice.
Whenever you want to verify
 that a document is legit, 
you just look it up 
with the relevant authority.
We even have Notaries, 
people who are licensed
 by the government 
to act as witnesses to attest and record 
the validity of pieces of information 
or identities.
You’ll notice there’s one thing 
that all of these mechanisms 
have in common - 
they are all centralized, 
which means there’s a central authority, 
whether it’s a bank, state office, 
or person that has the power to issue 
and validate information.
These central authorities
 have a lot of power, 
and as you know 
power may sometimes corrupt.
So what happens 
if one of these authorities 
wants to change the facts 
or even maybe change history a little bit?
This my sound far fetched, 
but even our world history 
is just a record kept by historians 
in a centralized manner.
The phrase 
“History is written by the victors” 
tells us that facts 
can sometimes be distorted 
by those in power.
If you don’t think that’s possible, 
here’s a real life example.
Today, most money is just a record 
of who owes what to whom.
Due to the subprime crisis in 2008, 
almost a thousand companies in the US 
received over 630 billion dollars 
that never existed before.
Other companies had debts 
completely removed.
Some would argue this bailout 
was justified, 
but you can’t deny that someone 
decided to change the records 
of how much money 
was owned and owed.
This is why Bitcoin was born.
It was the first form of money 
that removes the need 
for a central authority.
Its records are kept by everyone, 
not just by central banks.
And when everyone is keeping track 
and verifying the facts, 
well, that means that you can no longer 
change the ledger of transactions 
whenever something doesn’t add up
 or because it’s more convenient.
You actually have to start being accountable.
But money isn’t the only place
 where decentralization can play a role.
Do you remember those
 big encyclopedia books 
we used to rely on when it came to research?
Encyclopedia Britannica employed 
a hundred full time editors 
and over 4,000 contributors 
to publish what we considered to be 
the authority on knowledge.
Just imagine the power
 the editors of these books had 
in deciding what was worth mentioning, 
condemning, condoning or ignoring.
Well, the last volume 
of encyclopedia Britannica 
was published in 2010.
Today, 
information is much more decentralized 
with over 130 thousand active editors 
that maintain different Wikipedia pages.
The risk of any of them
 “going rogue” unnoticed 
is much smaller 
since each edit is public 
and can be verified by anyone.
Decentralization reduces the risk 
for corruption, fraud and manipulation.
Blockchain technology 
is a new and innovative way 
to implement decentralization.
In a nutshell, 
Blockchain technology is a solution 
for the problem of centralization.
It’s a system for keeping records
 by everybody, 
without any need for a central authority - 
a decentralized way
 of maintaining a ledger 
that is practically impossible to falsify.
I mean, when so many eyes 
are watching and verifying everything 
that’s being done, 
it’s really hard
 to break the rules unnoticed.
You might be wondering 
why is it called Blockchain?
Well, imagine we’re maintaining 
a shared ledger 
with many pages of records.
Each page begins with a sort of summary 
of the page before it.
If you change 
a part of the previous page, 
you’ll also have to change 
the summary on the current page.
So the pages are actually linked,
 or chained together.
In technological terms, 
pages are called blocks.
And since each block is linked
 to the data of the previous block, 
we have a chain of blocks,
or a blockchain.
Many people think 
that Satoshi Nakamoto, 
the mysterious inventor of Bitcoin, 
created Blockchain technology.
Technically he only created the first 
real life implementation of it - 
Bitcoin.
In fact, that word blockchain 
is never even mentioned 
in Satoshi’s original whitepaper.
The closest he comes
 to saying Blockchain is 
“chain of blocks”.
Now that you know 
what blockchain technology is, 
we still have two major questions 
to answer - 
how does it actually work, 
and is blockchain 
going to change our future?
Let’s start with the first question.
Another way to ask this question 
would be - 
how do I create a system 
that allows the creation, verification 
and updating of records by everybody?
Well, there are four elements 
a blockchain needs 
to actually have a life of its own.
The first thing required 
to support a blockchain 
is a peer-to-peer network - 
A network of computers, 
also known as nodes, 
that are equally privileged.
It’s open to anyone and everyone.
This is basically what we already
 have today with the Internet.
We need this network 
so that we will be able to communicate 
and share with each other remotely.
The second ingredient is cryptography.
Cryptography is the art 
of secure communication 
in a hostile environment.
It allows me to verify messages 
and prove the authenticity
 of my own messages, 
even when malicious players
 are around.
We need cryptography
 because of the first element.
Remember, 
I said anyone can participate
 in this network - 
including bad actors.
It’s great that I can communicate, 
but I also need to make sure 
my communication comes through
 unaltered.
The third element 
is a consensus algorithm.
You can switch the technical word
 “algorithm” 
with the word “rule”.
This means we need to agree 
about rules on how we add a new page, 
also known as a block,
 to our records.
There are many types
 of consensus rules, 
in Bitcoin’s case 
we use a consensus algorithm 
known as Proof of Work.
This algorithm states that 
in order for someone to earn the right
 to add a new page to our ledger 
they need to find a solution
 to a math problem, 
which requires computational power 
to solve.
Computers around the network 
run calculations to solve the math problem 
and in doing so, 
consume a lot of energy.
In other words they do a lot of work.
That’s why when one of them
 finds the number 
that solves the problem 
and displays it to the network, 
they’re basically displaying 
a “proof of work”.
Think of it as the node’s way of saying: 
“Hey, I spent quite a bit of energy here
 in solving this problem first, 
so I’m entitled to write the next page”.
As I mentioned before, 
there are other consensus algorithms 
that don’t require so much energy, 
this is just the algorithm type 
that the Bitcoin blockchain employs.
There are pros and cons 
to different algorithms, 
but in order to run a decentralized ledger 
you’ll need to choose one, 
otherwise it will be really hard 
to reach a consensus 
with so many people in the network.
Finally, our last element
 is punishment and reward.
This element is actually derived 
from game theory 
and it makes sure that 
it will be in people’s best interest 
to always follow the rules.
So far, 
we’ve set up a network 
that has a way to communicate securely, 
and follows a set of rules
 for reaching consensus.
Now we’ll glue these elements together 
by giving a reward to people
 that help us maintain our records 
and add new pages.
This reward is a token, or coin, 
that is awarded each time 
a consensus has been reached 
and a new block is added to our chain.
On the other hand, 
bad actors who try to trick 
or manipulate the system 
will end up losing the money
 they spent on computational power 
or their coins can be taken away 
from them.
In the end, 
the important thing to remember is that 
the punishment and reward system 
works on psychological behaviour.
It turns the rules of the system 
from something you need to follow 
into something you’ll want to follow, 
since it will be in your best interest
 to do so.
This was just 
a very high level explanation 
of what a blockchain consists of.
If you want to dig a little deeper
 into this process, 
check out our video on Bitcoin mining, 
part of our 7 day crash course 
on Bitcoin.
So there you have it, 
the four elements for creating 
blockchain technology - 
a peer to peer network, cryptography,
 a consensus algorithm 
and punishment and reward.
However, there is a fifth element,
 that can’t really be synthesized...
market adoption.
I mean, we can have 
a group of five people 
sharing a ledger 
with a consensus algorithm 
but it doesn’t really make it
 decentralized, 
since not enough people 
are a part of the system.
Moreover, if there’s no adoption, 
there’s not really any value to our coin 
and the fourth element of punishment
 and reward 
isn’t very effective.
Only once you achieve critical mass 
in the number of users, 
does a blockchain become 
truly decentralized 
and therefore immutable.
And at that point, 
the coin of that blockchain 
usually begins to appreciate in value.
It’s hard to say what triggers 
mass scale market adoption.
In Bitcoin’s case 
things actually started
 through use on the dark web, 
where people used Bitcoin 
to pay for drugs and other illegal stuff.
But since then, 
more people have begun to research 
Bitcoin and blockchain, 
and have seen the benefits they offer; 
either in practice,
 or as an investment.
So there you have it, 
the five elements of a truly open, 
public, decentralized blockchain.
Up until today 
there are only a handful of blockchains 
that have over 1,000
 truly independent participants, 
and as such can be considered 
as decentralized - 
Bitcoin, Ethereum and Monero 
to name a few.
If you’re thinking that it sounds 
like a lot of hard work 
to put a blockchain in motion, 
you’re absolutely right.
But this is where Ethereum comes in.
Ethereum is a Do It Yourself blockchain 
where all of these five elements
 are already in motion.
All you need to do is build 
the right solution on top of it.
But that’s a whole different 
whiteboard episode 
you can check out later on.
Now let’s move on to another term
 you may have heard - 
a private, or closed blockchain.
This term refers to companies
 that screen and limit the players 
who can participate in their blockchain.
It’s a bit like how the Internet, 
which is open to everybody and anybody, 
is different from an Intranet - 
an internal network 
of company computers.
While I assume some companies 
will find value 
in running private blockchains 
to improve their internal processes, 
it’s far from anything exciting 
inasmuch as it has nothing to do with
 decentralization.
To emphasize this a bit more 
let’s compare open, public blockchains
 to closed, private ones.
A public blockchain is open to everybody, 
it’s transnational and borderless.
It’s censorship resistant, 
and it doesn’t require any 3rd party.
It’s also neutral - 
there’s no such thing as a “good”, 
“bad”, “illegal” or “legal” transaction, 
there’s only a “valid” or “invalid” one.
A private blockchain on the other hand, 
is limited to authorized participants only, 
and it's governed by a handful of entities.
In the words of Andreas Antonopoulos, 
in most cases of private blockchains 
you don’t really need a blockchain, 
you can just share a spreadsheet 
between the participants.
The whole idea of blockchain
 was to decentralize a process 
through the general public, 
and that’s exactly the opposite 
of what a private blockchain does.
The features of a public blockchain, 
on the other hand, 
create enormous benefits.
There’s no single point of failure.
The records are immutable, 
also known as tamper proof.
And finally, 
it’s censorship resistant 
so you can’t really remove a record
 or stop it from getting published - 
as long as it follows the consensus rules.
Before we end today’s lesson 
we still have
 one major question to answer - 
Is blockchain technology 
the next big thing?
I assume you may have heard 
of different startups 
that are using blockchain technology
 to solve some sort of a problem.
In most cases 
when I hear of such a company 
I ask two questions:
First, are they using a public
 or private blockchain?
Since if they're not using
 a public blockchain 
there’s not really anything 
very disruptive here.
Second, do they even need a blockchain?
If you remember
 in the beginning of this lesson, 
we talked about the dangers 
of centralization.
But these dangers are only meaningful
 if there’s a lot at stake.
For example, 
the queue to the pharmacy is managed 
in a centralized manner 
but I don’t really care
 since there’s not a lot at stake 
and it’s actually more efficient that way.
Blockchain technology
 is very good at decentralizing, 
but it’s also very inefficient,
 slow and energy consuming.
For example, 
Bitcoin’s network 
takes 10 minutes on average 
to confirm a transaction.
Not the ideal waiting time
 for buying a cup of coffee at a 7-11.
The only reason
 to choose Blockchain technology 
as your solution is if your problem
 is actually centralization.
If you don’t need to decentralize
 something, 
you probably don’t need to use 
blockchain technology 
and are better off
 with some centralized solution.
In fact it will probably work better.
To sum it up, 
Blockchain technology 
is truly disruptive, 
but at the moment 
only a handful of use cases
 really require it.
So the real question is this: 
at the current moment, 
is our world ready for more complex 
blockchain implementation 
than what Bitcoin already offers?
In the early 2000s, 
there were a lot of Amazons, 
Googles and Facebooks 
that never caught on 
for the changes they presented...
Today, 
many of these blockchain startups
 face the same fate.
That’s it for today’s episode
 of Crypto Whiteboard Tuesday.
Hopefully by now you understand 
what Blockchain technology is - 
an open, censorship resistant method
 for managing records by everybody, 
hence making them
 practically impossible to falsify.
It’s a solution to the problems centralization presents.
I also hope that whenever you hear
 the term “blockchain technology” 
in the future 
you’ll know to take it with a grain of salt 
and ask the right questions.
You may still have some questions.
If so, 
just leave them
 in the comment section below.
And if you’re watching this video 
on YouTube, 
and enjoy what you’ve seen, 
don’t forget to hit the like button.
Then make sure to subscribe 
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and click that bell so you’ll be notified 
as soon as we post new episodes.
Thanks for joining me 
here at the Whiteboard.
For 99bitcoins.com, 
I’m Nate Martin, 
and I’ll see you… in a bit.
