 blockchain. In this video we will be teaching on blockchain basis. Distributed database that manages and stores data. Its power and innovative qualities reside in containing some unique characteristics and novel processes. Let's explore those. First things first. With blockchain there is no central database. There is no central control. Participants in a blockchain based application such as a cryptocurrency interact with an identical copy of the supporting database that is distributed over many computers. We refer to these computers as nodes. In the early days of bitcoin it wasn't unusual for every user to have the entire supporting blockchain on their device. It's still the case today that many users of a blockchain based system will store a full copy of the database because of an application requirement or the role on the network or their personal preference. Today many blockchains particularly cryptocurrencies have evolved such that many users simply interact with a provider that hosts a copy of the relevant blockchain. Let's look at the steps of how a bitcoin transaction is processed over the decentralized network. I'm going to use the example of Carlos sending Serena one bitcoin as payment. Of course we assume that Carlos has one or more bitcoins already assigned to him. He may have purchased them using fit currencies such as US dollars or someone may have paid him previously with bitcoin. So let's begin. Carlos broadcasts his transaction request to the entire network. The transaction contains his intention to give one bitcoin to Serena. The fact that all participants can see all transactions elevates integrity. After all it's hard to cheat when everything is visible and everyone is watching. Next a set of network participants those with a special role called a miner work to validate the transaction. It's this process that ultimately eliminates the double spend problem discussed earlier and ensures a high degree of security in the system. If the miners reach consensus that the transaction is valid it is approved and added to the identical blockchain databases on the network. If a node is offline once it comes online any new transactions will be automatically added to bring it up to date. Okay that's the essential mechanics but as you can imagine there's a lot of detail still to unpack. First all participants in the network have a set of keys a public key and a private key. A public key is the equivalent of an address. When Carlos sends one bitcoin to Serena he specifies her public key as the destination for the money. The private key is used to uniquely sign any transaction that is broadcast. That means that when Carlos broadcasts his request it's signed with his private key. What this looks like to others on the network is that there's a transaction signed with unique private key directed to a public key. Since all transactions are typically inspectable by anyone unless they've made it obvious both Carlos and Serena are generally unknown to the rest of the network. You can think of these keys as the way transactions are assigned and how a person proves they are associated with and can access specific transactions. Next let's briefly explore what miners do and why they do what they do. On a blockchain network new transactions are being continuously broadcast by many participants. These transactions are approved in batches and added to the blockchain database. Let me show you with these blocks that I have here. When each batch or block of data is added it is uniquely tied through mathematics to the previous block in the sequence or chain of blocks in the database. In this way we get the term blockchain. This math means that fraudulently interfering with any previous block in the chain will fail because all subsequent blocks being dependent would be computationally impossible and will reject the interference. This mathematical dependency is achieved by a math problem that miners spend considerable computing power and in turn electrical power to compete and solve. The process of work to solve the math problem and thus ensure that only data blocks are added is called proof of work. It's proof that work was expended to approve transactions. Once the math problem is solved it's broadcast to the other miners who quickly test it and agree. In other words approval is by consensus. Why do miners bother to do this work? Because they are rewarded with bitcoin for their efforts. That's their incentive. In a neat twist this is also how new bitcoin is introduced. Proof of work requires significant effort and ensures that only valid transactions are approved by consensus. This is a strong disincentive for bad behavior. In summary blockchain achieves its trustless, secure architecture through network decentralization, transaction dependency and proof of work. These three core dimensions were described in Satoshi's 2008 bitcoin paper and proved to be the winning combination to enable a whole new way to manage transactions in a distributed ledger without a central authority. Even with the rapid growth of blockchain technology in a variety of applications and industries cryptocurrency still dominates its use. However beyond the use of cryptocurrency as a form of digital money, cryptos short for cryptocurrency and a derivative called crypto tokens form the basis for some fascinating and important innovation. I'll begin with a quick overview of the current crypto market. Bitcoin was the first cryptocurrency and continues to be the largest and most impactful. Its success provided the basis for thousands of spin-off cryptocurrencies. We call these altcoins short for alternative coins. Many are in fact based on the bitcoin codebase which being open source allows anyone to copy and modify the code. This makes it easy for literally anyone to create their own cryptocurrency. Some cryptos exist to compete with bitcoin but also to serve specific needs and applications. For example cryptos are used to support cross-border payments making it easier and faster to send money between two countries with different national currencies. Cryptos are also used as a mechanism for raising capital. While bitcoin is the cryptocurrency leader both in terms of market capitalization and usage the second most popular is a cryptocurrency called ether. Ether runs on a blockchain platform called ethereum which supports both a crypto and a system for application development. Unlike bitcoin we know the actual person who created ethereum. It was created in 2013 by a Russian Canadian called Vitalik Buterin. Ethereum uses the decentralized architecture of blockchain technology to turn its network into a computer. Each connected device collectively makes up the ethereum virtual machine or EVM. This EVM is low cost, scales massively, avoids downtime and has security baked into all its functions. Solutions can be built using its proprietary programming language called solidity. Examples of ethereum applications called dApps include sophisticated banking services, marketplaces for digital art, crowdfunding and games. Ethereum's crypto ether is used as the funding mechanism for computational resources utilized on the network and to pay any transaction fees required by dApps. Another type of cryptocurrency that runs on a blockchain is called a crypto token. Cryptos, sometimes referred to as crypto coins, are the equivalent of cash but crypto tokens can be used to represent many other types of value. Two popular forms of crypto tokens are security tokens and utility tokens. Security tokens can be used to represent whole or fractional ownership of any asset that already has value such as real estate, a car or corporate stock. For example, a person could own a token that represents a 5% share of a boat. Utility tokens give users access to a future product or service. For example, a startup issues utility tokens to users to raise money and later users utilize the tokens to use the startup service. The crypto coin and token space continue to introduce new concepts and innovation at a rapid rate. As time passes, the technology becomes more mature and confidence in use increases. That said, it is still a risky domain from the perspectives of stability, reliability and market acceptance. The unique nature of cryptocurrency, which largely operates outside the confines of existing financial systems and local and international regulations, is presenting challenges to governments and regulators. Some countries are embracing crypto currencies, while others are banning them. It is also easy for me to focus on the positives of crypto, of which there are many. But it is important to recognize that it is also used for nefarious uses such as ransomware and buying and selling contraband on the dark web. Cryptos will continue to represent a massive use case for blockchain technology for the foreseeable future, as other valuable uses also emerge. Whatever your journey looks like in the blockchain space, expect cryptos to play a key role.