Bitcoin Explained in the Bitcoin Basics Workshop CBP Prep [Free Workshop Extras - See Description]

You know he is one of the leading minds in this space, considered an expert by both the industry and the mainstream media. He is one of the best-known educators on Bitcoin and the author of all four books, including Bitcoin Mastery, which is considered one. one of the best technical books available on the market, he is a fellow at the University of Nicosia where he taught eight sessions of the

free

Bitcoin course, massively open online courses, he is a co-host of let's talk Bitcoin, the longest running English speaking podcast in Bitcoin. space, he has testified before the Senate of Canada and Australia and the impacts of Bitcoin regulation.

He is a strategist, a strategist, a visionary, a sought-after public speaker and board member of the C-4 organization that brought us all here today. He invented the Bitcoin Diet which involves discovering Bitcoin, studying it for 18 hours a day, forgetting to eat, losing 26 pounds and then recovering, it's not a diet he recommends but it's innovative nonetheless and has inspired many in the space, this industry has changed significantly because of the impact he has had and he will inspire many of us, he has inspired many people already here to quit their day jobs and look for a full time job in the Bitcoin industry so consider yourself warned and help me welcome Andreas Antonopoulos, that was a beautiful introduction, thank you very much, darling, everyone.

Well, welcome everyone. I'm going to move away from the microphone on the podium so I can move a little bit and I'm also going to try to move here to the front, if that's okay with the cameras, let me know if that's okay. and oh yeah, it's fantastic, so welcome, we're going to do the certified Bitcoin professional

prep

aration course. Now this is not all you need to cover for your CVP exam; Specifically, there will be additional sessions at this conference, including Derk's session on cryptography.

basics

that you will see later today and others where you can supplement the education of it, as well as a study guide on the crypto consortium website, this will give you about 80% of what we need to cover.

I accept questions throughout the session, just raise your hand. if you have a question, I'll repeat it on all of them, continue with the presentation, we won't do Q&A at the end, we'll just mix it up because I'd like to explain things as we go and do. "I'm sure we've covered everything comfortably. Everyone is ready to learn. Apply. Grow or just learn. Mike. Let's see if it works. Let's cover the history of Bitcoin keys, addresses, units, issuance, blockchain explorers and all the rest of the stuff you see on this slide. We have an hour and a half, so there's plenty of time for questions as we go along.

The first and most important caveat is not to send cryptocurrency to the addresses in this presentation. burned the private keys on purpose, despite the presence this morning, people have sent more than two Bitcoin to addresses in my book that were lost forever or if you like to receive gifts for the rest of the economy through the deflation, so you probably know the mythology and history of Bitcoin and where this amazing technology and invention came from. It all started in October 2008, when Satoshi Nakamoto published a white paper about a cyberpunk mail. On the list, we now know that when Satoshi published this article, they had already been working on the software.

Satoshi wrote the article after writing the software, once they were convinced the software would work, but the article was published first, so you may find an interesting little historical tidbit. Note that when I talk about Satoshi Nakamoto I mean Satoshi because this is not necessarily a plural noun, it is a determinate pronoun, so because Satoshi could be masculine Satoshi could be feminine Satoshi could be non-binary Satoshi could be alien Satoshi could be a group of people Satoshi could be the name of a committee or project that we don't know doesn't matter at all in January the software was released and on January 3rd the first block, the Genesis block, was mined.

Interesting fact also the Genesis block. It was not mined with the client it was mined using some other software effectively manually mined using a custom script and it is included in every piece of software that Vic uses there is a copy of the Genesis block and its fingerprints that is what

bitcoin

is

bitcoin

is a blockchain originating from that Genesis block seven days later, how Finney, a world-renowned cartographer who sadly passed away two years ago, joins the network and starts mining at this point there are two miners on the network, so at In terms of decentralization, the Bitcoin network is much more decentralized.

Nowadays, when people say, oh, it's too centralized, there are only a few miners. Well, at first it was one that was centralized, then there were two that were a little less centralized, and in fact, if you look at it historically, they were becoming more decentralized over time, almost ten months later. In October 2009, the first fiat trade that was recorded was on an exchange where $1 bought a thousand Bitcoin presumably from a miner and then almost five months later or six months later, Lahani's Pizza ik came out and said: I would like to do a commercial transaction to establish a reference value for Bitcoin in a commercial setting and Laszlo Hahn still arranged for someone to buy pizza with Bitcoin, now this does not mean that he got Domino's pizza to accept Bitcoin, no, there is a much simpler transaction to the one who convinced someone.

They use their credit cards to call Domino Pizza and deliver two pizzas to Lazlo's house and in exchange Lhasa sent 10,000 Bitcoin to ten thousand Bitcoin for two pizzas, which now makes them the most expensive pizzas ever purchased in the history of The humanity. Laszlo regrets it but without commercial activity like that we would not have the network we have today in December 2010, just two years after first appearing on the scene, Satoshi Nakamoto posts the last message and disappears Satoshi Nakamoto has not reappeared since several other people appeared claiming to be Satoshi Nakamoto and by not providing the most basic and simplest evidence of what it is to sign a message using one of the keys in the first blocks, what it is to sign a message, we are using one of the keys in the first blocks.

Does it prove that someone is Satoshi Nakamoto? No, it proves that someone has the keys that Satoshi Nakamoto used to mine and that they may have been acquired through different means. What that proves is that they could be Satoshi Nakamoto, but if they don't sign a message with one of the keys in the Genesis block, what does that prove that they're not Satoshi Nakamoto because Occam's razor? The simple answer is probably correct now that the word Bitcoin means many different things and therefore some of the confusion that arises in the space comes from vocabulary Bitcoin is a network bitcoin is a blockchain bitcoin is a currency bitcoin is a bitcoin system is an invention bitcoin is a technical document bitcoin is not a company bitcoin is not a registered trademark that currency is not an organization bitcoin is a disorganization very powerful disorganization if you see it with a capital B, usually or sometimes that means the network, the system itself, a decentralized peer-to-peer network that creates consensus without the need for a central authority, which is Bitcoin, the proper name of the system, capital B, right, Bitcoin with a capital B.

The lowercase B is a currency, so money is called Bitcoin with a lowercase B, it is not bitcoins, because Bitcoin is applied for both singular and plural purposes. I have a lot of Bitcoin or I don't have Bitcoin. I have a Bitcoin. I have three Bitcoin. Nowhere do I say bitcoins if you write Bitcoin with a bi space T space IOC M welcome to this space please don't write an article for your newspaper but it's too obvious that you just joined blockchain blockchain is a component of the technological infrastructure of Bitcoin, the system component is not the most important component is not the most revolutionary component in fact that technology pre-existed in fact most of the technologies used in Bitcoin pre-existed hashes hash trees cryptography public key cryptography digital signatures proof of work all of these things existed before the invention of Bitcoin is to take all of these things together and leverage proof of work as a consensus mechanism that allows us to control a blockchain in a decentralized way when no one has ultimate control over it.

Can a consensus algorithm be built other than proof of work? If possible? you build a blockchain that is not decentralized and does not use proof of work. Yes, the blockchain is not the most interesting technology in Bitcoin and this is often misunderstood. Blockchain is like the transmission in your car, very important, absolutely necessary to keep moving, but no one said it. Oh, finally, with the invention of the internal combustion engine in the automobile, we now have the ability to build transmission-based vehicles. No one said I like cars, but I'm more interested in the technology behind car transmissions in the blockchain space.

Many people make the statements well bitcoins interesting but BOTS means I haven't understood it yet bitcoins interesting but I'm more interested in the technology behind the Bitcoin blockchains these newfangled cars are interesting but I'm more interested in the revolutionary technology behind the inflatable pneumatic automobiles yes We could combine inflatable tires with the traditional and stable propulsion mechanism of horses. We could really do something interesting. We'll continue through the rest of this course based on some key user stories. This is a technique I use in my books. To help move the narrative forests so that we can understand, ultimately, this technology is about people, right, money is a social structure and these blockchain systems, these networks are social structures that technology enables and therefore , people are important in this particular case, we are going to use three people Alice Bob and Catalina Alice lives in Europe, she is new to Bitcoin, in this course we will see her with her first Bitcoin and we will talk about how it works and then we will use it to buy a book from a US publisher called Bob Bob.

She lives in the US. She has an online bookstore and has many customers outside the US who make payments in different currencies, including Bitcoin. Catalina is an Argentine web developer with clients all over the world and one of her clients is Bob and now we will follow her. her stories throughout this book, we will use these stories to illustrate three different transactions, how those transactions work, what they are made of and we will gradually explore the various technologies behind Bitcoin using these transactions as reference, first of all, Alice uses cash to buy. Bitcoin from a Bitcoin ATM, then Alice uses Bitcoin to buy a book from Bob's webstore and what a great choice of book.

Bob then uses Bitcoin to pay Catalina's bill for web design, so let's start with Alice buying Bitcoin at a Bitcoin ATM. How many here have you used? Bitcoin ATM is always good, I'm stuck, I feel great, so how do you get your first Bitcoin? That's a question that comes up a lot, especially among newbies, and the common answer most people will say is, oh, go and sign up. an account on this exchange and they mention an exchange and use your bank account or credit card to buy Bitcoin, that is an acceptable answer, it is not a good answer, so let's look at some good answers, first and foremost, winning pays In Bitcoin, most people don't even think about this, what are the benefits of using your labor, the products you make, the services you offer, the skills you have to earn cryptocurrency?

This doesn't just apply to Bitcoin of course but to any money forum, the huge benefit of earning cryptocurrency instead of buying it is privacy if you go and offer someone a haircut or drive a taxi or wash your car or You paint a picture or set up a web server and get paid in Bitcoin, are they going to ask for your driver's license? passport birth certificates grandmother's maiden name social security number passport number proof that you are not Iranian no you are going to do the work you will be paid in cryptocurrency so you just earned your first crypto and it is private it is a transaction private trading between two people, privacy matters, secondly, what is the exchange fee you pay when you earn Bitcoin zero.

That is the best exchange for you to pay zero. No one will charge you a fee; In fact, in many countries, you might get a premium for it. You don't always have to be self-employed to do this, many companies offer the opportunity to receive payments directly in cryptocurrency, either as a full salary or as part of your salary. I currently employ eleven people, some as employees, others as contractors, several of them are partially paid. or completely in cryptocurrencies, some Bitcoin, some ether, somecombination of the two bitter US dollars in the mix, maybe some euro, just mix it all up and pay your people so they can earn in various ways, even as part of their salary, there are companies too. that can help you do it even if your employer has no idea what this Bitcoin thing you keep talking about is, so what they can do is become a payroll provider where, just like you, they take part of your payroll and allocates it to savings. accounts or into our retirement accounts and you are your employer and are willing to deposit into a different bank account.

Well, some of these providers will take it and instantly convert it to Bitcoin and send it to you so your employer doesn't even know about it. that they pay you in cryptocurrencies, you just convert them every time, that comes with an exchange fee and all the identity requirements, of course you can buy cryptocurrencies on an exchange and that's one way to do it, you can buy Bitcoin. from a Bitcoin ATM using cash in Europe and many countries around the worldBitcoin ATMs are completely anonymous, you don't need to provide any ID to buy or sell Bitcoin, some of them are a way you can send Bitcoin and it spits out money in effective, very useful if you are a tourist in the foreign country, much better. way to get cash in the local currency and then use an exchange house in the US. 99 percent of Bitcoin ATMs will require you to identify yourself by providing some type of identification document and will charge you quite a bit, this is due to state regulations on money transmission.

You can also buy directly using cash only from the right people and you. They can do this using an intermediary service like local bitcoins and what they will do is make sure that the bitcoin is in escrow so that neither party can keep the money and not pay the other party. Now, obviously, meeting someone at Starbucks to exchange some amounts of cash to exchange it for magic internet money can be risky, right? You want to do this in a public space exactly the same way you would if you were buying or selling something on Craigslist or Ebay and you met the other person in person, right, don't go to an alley, you know, one of the best places to exchange cryptocurrencies is a police station or a bank.

Do not care. In fact, some police stations across the country have Craigslist zones you can go to. directly to the camera is not to make your transaction next to the police station so that everyone feels safe, you can use one of and you can finally exchange your belongings for Bitcoin, sell your car for Bitcoin, has anyone done that? Yes, I sold a Mini Cooper at 11:00 p.m. on a Saturday night when all the banks were closed to a person who was out of state at the time in a completely different state paying his cousin to buy the car three confirmations here are the keys that were enough for me so his house for Bitcoin, okay, so what Alice is going to do is use one of these techniques to get Bitcoin and the preferred technique that she's going to use is a Bitcoin ATM.

Now we remind you that Alice is in Europe, so she is going to use euros and she is going to put 80 euros in cash, let's say for 20 euro bills and she is going to put them in this little machine that you see, it has a little slot to put the cash in and then she will receive from Bitcoin ATM zero point zero two six. eight four five Bitcoin what I did on these slides that was the exchange rate we're going to talk about that's in just a second all clear so far okay quick notes because I noticed some of you are trying to take notes or take pictures of the slides the slides are available in bit points Lee bar all lowercase i'm a CBP

prep

I'm a CBP prep the publicly viewable ones and go to that link download them on google slides and by the way CC by-sa attribution/share alike creative commons as long as I link Back to the originals, you can do whatever you want with these, you can publish them, you can sell them, you can create webinars, you can do whatever you want, everyone is clear that everyone has that bit of tense bar, I'm a CBP preparation, so this is the bitcoin. vending machine on the left side you see four pictures of 20 euro bills, which I'm pretty sure it's illegal in many countries to take pictures of money and put them in this light, but there you have it, they're not real money, but Alice is using real money and she puts that real money into the ATM and the ATM spits out Bitcoin, how does it spit out Bitcoin?

On the right side, you see that little transparent partition, there are LED lights and a camera, and that's the mechanism. which this ATM uses to read a QR code from Alice's smartphone, so it is a passive device, the way it sends Bitcoin is by reading Alice's destination address through that camera, so Alice shows it to the ATM a Bitcoin address which we will talk about in a moment. and that way the ATM will complete the transaction by sending that Bitcoin to that Bitcoin address, so how much bitcoin is 80 euros? How do we know how much bitcoin is 80 euros?

How can anyone know what the value of Bitcoin is? How many dollars is 80? euros today, does anyone know how you would find out? Look at the exchange rate, okay Google, 80 euros in Bitcoin is equivalent to 0.01 bitcoins, so we can find out quite easily. That's not magic technology. How does Google know that there is an exchange and that Bitcoin is not? It doesn't really have a price, people talk about the price of Bitcoin or the value of Bitcoin, but the thing is that commodities have prices, a banana has a price, a Bitcoin has no price, it has an exchange rate because it is money , not the money.

Money has a price, money has an exchange rate, right, you don't say how much a euro costs, right, you say what the exchange rate is between a euro and a dollar. Here is a site that can help us find that information. Between average and calm, there are many places. like this, you can go to a specific exchange and ask them what the current price is. Here you can see G Dax crack and bitstamp, which is Coinbase BitFenix, and they all announce a price or exchange rate for Bitcoin. Do you notice anything about these are the different prices or exchange rates which is correct all of them very good there is no single price the price is something that is determined in real time in different markets based on the activities of cryptocurrency buyers and sellers They trade them in real time, so what makes the average Bitcoin calm?

It's there in the name. All those numbers are needed. Any coke. It is a volume-weighted moving weighted average. What does weighted volume mean? Well, if someone trades one Bitcoin on Coinbase for a certain price and someone else trades a hundred Bitcoin on bitstamp for another price whose price matters more than 100 Bitcoin, right, volume matters, you should be able to change the average of an entire market with a small volume , so volume weighted means that each of the averages is multiplied by the volume of transactions or exchanges that occur on each exchange to arrive at an overall price average, many different sites do this coin market capitalization coin capitalization i/o average of Bitcoin and of course the exchanges have a pretty good view of what is happening in your area or country in that market there can be significant discrepancies between regions in some countries people will find that Bitcoin is more expensive.

I often get this question and people ask me why Bitcoin is 20% more expensive in India. Bitcoin is not 20%. % more expensive in India rupees have a 20% discount in India the reason you can't buy Bitcoin at the same price as in the United States is because once you buy it with rupees the person who sold you that Bitcoin can't export it those rupees from India and you can export Bitcoin, which means their money is less portable and your money is more portable and when you exchange less portable money for more portable money, the person who gets the less portable money demands a premium right, does Does that make sense?

As? you know, that's true, very simple, you go to India and you say how much a Bitcoin costs and they give you a price in rupees and then you say oh no, no, how much is this in dollars? I have cash and then they give you exactly the same thing. price as it is on Coinbase in the US. If you have dollars in India, the price you will get for Bitcoin is the dollar price, which shows that it is actually the rupees that are at a 20% discount and not Bitcoin, which is 20% higher. Does this make sense to everyone? and you can do those experiments with different securities or systems, you could buy Bitcoin with gold in India and believe me, you would get a really good price for it, that's how price discovery happens.

You've all heard the expression price discovery, right? many are okay, why do we use the term price discovery? Price discovery is used as a term in economics due to the assumption that everything that has any kind of value has a price or exchange rate that is not set by markets but is discovered by markets. So markets are a mechanism for finding out what the real value of something is. How much is a banana worth to you? If you create a market for bananas, the market will find out on average how much a banana is worth in whatever you are trading.

That's why we talk about price discovery because in economics the idea is that the market doesn't tell you what the price is because the market is setting the price, the market is trying to find out what the real value of this thing is. and the way markets do this is by observing market movements. Has anyone seen this graph before? This is called an order book chart. Now, what this chart shows here is right in the middle, it's the price at which the most recent trade is made right there. I don't have a laser pointer, so I'm going to use my shadow puppet system for 3740 five US dollars.

Here an exchange occurred where some of the people who were selling and some of the people who were buying and were green met each other and were happy to make a trade, the lighting you see going up to the right in red are all the people's orders that they are trying to sell Bitcoin and the price at which they want to sell that Bitcoin no, somehow here you see that little peak approximately three thousand seven hundred and eighty dollars, someone is willing to sell 30 Bitcoin, so someone placed an order on this exchange and said: I will sell you 30 Bitcoin for three thousand seven hundred and eighty, who is going to buy that?

Well, now I do, in retrospect. That day in that market no one was willing to buy that, how do you know? Because this is where the purchase orders are. Anyone else doing well at 3710. I'm willing to buy. Who is going to sell me? Nobody, so there is a difference of opinion. This difference of opinion is called a differential, right? It is the differential between waters known as the offer price and the sale price. If I am selling Bitcoin, I ask, so my order is called a sell order and if you are buying Bitcoin, you are bidding to buy Bitcoin and your order is called a bid.

This is how stock markets work. This is how BOM markets work. This is how commodity markets work. If you want to buy pork belly, you say: I am willing to buy ten tons of pork belly. for $30 and someone else says: I would sell it to you, but I want you to know thirty-two dollars. As the market moves, people change their orders and change their prices until they find a buyer, so the current price of any commodity in an open market is the average of the prices that people actually agreed upon and negotiated during the last time period, so if many orders were filled at a specific price, that is what will appear there, so this is the average market price for the last trading period.

They could do that average in a matter of minutes, seconds or whatever, depending on the volume. Everyone clarifies any questions so far. Now we know how everyone knows the exchange rate at the moment. The ATM is connected to the Internet in order to fulfill Alice's exchange. Automatic cashier. You are going to go online and use some price provider, it could be a site like Bitcoin Average Comm which takes the price from many exchanges, it is an average or it could be an exchange price specific to the country in which the ATM is operated . which would make sense because that exchange probably represents the local markets price discovery visa fee the local markets currency whatever 80 euros for one Bitcoin being three thousand euros means Alice receives 0.0 blah-blah-blah -blah-blah-blah, yes, then how?

Does Alice receive the Bitcoin we talked about earlier? There is a low camera there looking to take a photo of a Bitcoin address. Now, at this point, if you're new to this space, this is all very, very confusing because there's a lot of terminology.you've probably heard the term key and you've heard the term address and then you've probably heard some adjectives like public private and those are usually combined with those other two keywords private public key public address bitcoin address public bitcoin address what are these things? Public key cryptography is the basis for all of these things, but it's very, very confusing at first.

It's a pretty esoteric area of ​​mathematics, so what we're going to do is use an analogy. Well, think of a series. of lockers in a public space, maybe it's a bus station or a train station or the main square of your city and lining the walls there are all these safes and these safes have a PIN code, there's a little keypad pink code on the front The other thing that is unique about these locked boxes is that they all have a small slot on the top and that slot means that you can put something in the safe.

Yeah, okay, if you drop something in the safe, who can open it? Whoever has the pin. Yeah, okay, how many safe deposit boxes can one person have all? How many people can access a single safe deposit box? Millions, you could have millions of people who have the same PIN number for the same safe deposit box and everyone can open it. You could have a company. represents thousands of clients that has a safe deposit box and a PIN number and maintains that safe deposit box on behalf of its thousands of clients, so if I say that there are a million safe deposit boxes in Bitcoin that have money, how many people are using Bitcoin, we have no idea the next time you read that article that says Bitcoin ownership is concentrated among It's not better, it's with a clickbait headline that tugs at your heartstrings to make you feel appalled by this. unequal distribution of income addresses not people people are not addresses safe deposit boxes can be owned by millions or a single person could own millions of safe deposit boxes so again we have these boxes, they are in a station this image is not perfect because it is missing Something really interesting is that, how does a Bitcoin work?

All safe deposit boxes are transparent. You can actually see inside if there is money there and you can count it from the outside of the box. You can't touch it, you can't open it, but I can see it's there and that's the fundamental technology of Bitcoin. There's one more little detail: you see that label, that white label in the top right corner of the box, all the boxes are fine. numbered, not really sorry, it's this label; that's lockbox number two, so in a blockchain system that would be the address. the address is a public identification number, simply that's what an address is a number that tells you which safe deposit box you need to use when Alice exchanges Euro currency for Bitcoin cryptocurrency, what she is saying like the ATM by showing a code QR is my safe deposit box number three, the ATMs then put Bitcoin through the public slot into that safe deposit box and now Alice, being the only one who has the PIN code of that safe deposit box, can access that safe deposit box. safe deposit box.

There are really only two components we care about: the address that identifies which safe deposit box people should put money into that you control, and the PIN number that controls the safe deposit box that allows you to spend from there. The PIN number is the private key and the lockbox number is a Bitcoin address. Any questions so far if you saw these lock boxes at a public train station and they were transparent and there was money inside them you're probably thinking I need to get myself one of those pins so the first question that comes to mind is: can I find out the pin number from the number on the front? the lockbox doesn't, if we want the system to be secure, so a Bitcoin address doesn't tell you anything about the private key, it's a very important consideration, can you ever find the private key from the Bitcoin address?

No, they cannot have a mathematical relationship, but that mathematical relationship is a way in which the Bitcoin address is generated from the private key, not the other way around. You can't go back. Almost everything in cryptography is based on this fundamental idea which can be summarized as there is no going back, also known as one-way functions. math, any questions, okay, how else would you discover a PIN? Excellent brute force and what that means is you get close to the pink encoder you're going to see if they're really stupid one two three four five okay that didn't work beep beep zero zero zero zero zero no that didn't work either now how many are the PIN numbers in 256 bit Bitcoin and for those of you who are not computer scientists, what does that mean in seventy seven digit decimal pins, 77 digit pins so you can try nein nein nein nein nein nein nein nein nein nein nein nein nein nein nein nein nein 77 times in the end you have a callus on your finger your hand hurts and you didn't get the pin and now you have it to try again, how long would it take you to try all the possible combinations of a number of 77 digits?

Our brains are not good at doing this because these numbers have no physical equivalent unless you start talking about cosmology 10^77 or a number with 77 digits is the same number as the number of atoms atoms in the entire visible universe each star you see every piece of matter on earth in our Sun in our solar system in the galaxy in all the galaxies in the entire universe and you count the smallest little piece of matter that is an atom and you can include it in a 77 digit number, so what? How long would it take forever? Well, in practical terms we talk about a Bitcoin address being a number and that number identifies Alice's safe deposit box in the giant set of safe deposit boxes that there are now.

What did I say at the beginning of this presentation? Don't send money to this one. This is a real Bitcoin address. You can scan that QR code. Please don't send him money. This is a form of Bitcoin address. It starts with a 3. We'll talk about that a little later and a series of letters follows. I said earlier that a Bitcoin address is a number and now you see this and it seems like meaningless text why the reason is that it is a number which it is not. It is convenient to encode in decimal, so how big would this number be if you wrote it in decimal, that is, from 0 to 9 digits? 0 1 2 3 4 5 6 7 8 9 Using only those digits, how long would this number be? 77 characters instead of 36 long characters why because if you also use letters you can write things in a more compact way this system of letters and numbers is called base 58 it is called base 58 because it is a system of 58 sedessa mul that is not a real word means it is a system where each digit of the number is represented by one of 58 characters, not ten, so it is not decimal, it is not hexadecimal, as you may have heard of hexadecimal.

Hexadecimal uses 16 characters to represent numbers, not 10 like in correct decibels and base 58 uses 58 characters, why 58? -26 lowercase plus 26 lowercase would be 52 plus 10 numeric digits would be 62 four are missing, the reason four are missing is because certain characters will actually cause problems, for example a lowercase L and an uppercase o are often confused with 0 and 1 respectively, so By using a 58-based system and removing those characters that may be ambiguous or easily confused, it makes it easier for humans to read this and transcribe it accurately. It is never necessary to read or write it. I've been in Bitcoin since 2012.

I can count maybe two or three times that I've had to type a Bitcoin address on a keyboard very carefully because we use QR codes to do the same thing. A QR code is simply a barcode, and if you scan that barcode, what does it contain? this just this sometimes has a little prefix Bitcoin colon and then that just to help the system identify what it is. Any questions so far, does everyone hate computer scientists for inventing base 58 and not explaining it in high school? Okay, okay, it's a little confusing. but trust me, this is a number, it is simply written with different digits from zero to nine to make it more compact, so Alice shows the code to the ATM, the ATM photographs the QR code and extracts the data inside the codes QR, which you can do with any QR.

The code reader does not have to be Bitcoin-specific and in return receives a Bitcoin address that is in the QR code. If you use your camera on your phone, not a Bitcoin wallet, just your camera, just the camera app on Android, it's called a lens and it reads. barcodes I think on the iPhone it's automatically, you just tap the barcode and then Oh shadow, get out of the way, then you go and scan this fine and I have Bitcoin: 3 7 blah blah blah blah blah, It's just the barcodes, there's nothing magical. about this this is what I'm trying to prove that there is nothing magical about the barcode, the barcode is just a way of writing that Bitcoin address so that a computer can read it very, very easily, one of the Good things about barcode technology is that there is more information in those dots than is needed to encode them, so even if some of them are missing or smudged or the ink has faded, the cameras can still read the underlying information and they can reconstruct it from the rest of the points, which is useful, because otherwise it doesn't scan well, so the Bitcoin ATM sends Bitcoin to Alice.

What do we mean when we say send Bitcoin to Alice? Well, it doesn't send and it doesn't send Alice and it doesn't send Bitcoin. So that sentence is completely wrong, as we will see now, we use it as people to communicate the action that makes sense to us. The ATM sent Bitcoin to Allison, only the ATM didn't send it because Bitcoin doesn't move. Bitcoin is always on the Bitcoin network is not in my pocket, it is not on my phone, it is not in the wallet, it is always on the blockchain and what the Bitcoin ATM sends is not to Alice, but it sends two three 7l r vh JJ d HD e o q just a Bitcoin ATM.

I know that Alice's pillow has to belong to Alice. I want you to think carefully about this right now. Let's say I want to buy a t-shirt and there is a store that accepts Bitcoin. I go to the store with my phone. I say buy. I put this t-shirt in the cart, pay with Bitcoin great, what does the store show me a Bitcoin address? Okay, so I walk up to an ATM, show the Bitcoin address, put in cash, and just pay for the t-shirt. shirt I'm not even going to send me the Bitcoin, does the Bitcoin ATM know any difference?

My cousin in Bogotá needs some cash to buy a motorcycle. They text me his Bitcoin address. I put it in a QR code. I go to the ATM and show them. the Bitcoin address where I put cash I send money to my cousin in Bogotá. Does Bitcoin ATM know anything different? The address does not have to belong to that person. Yes, an artist is playing on stage with his guitar. He has a QR code. I'm in the audience. I take a photo of the QR code on the guitar. I walk out of the concert. I go to a Bitcoin ATM.

I show the photo to the Bitcoin ATM. I put money. I just contributed to that artist, so think about this a bit: Bitcoin. The ATM is not sending money to Alice. The Bitcoin ATM is building a transaction to pay the Bitcoin address that Alice showed, which may or may not belong to Alice and there is an amount there of 0.026 eight four five Bitcoin. Actually, that's not true. The Bitcoin ATM actually sending two million six hundred and eighty-four thousand five hundred Satoshi because Bitcoin does not exist anywhere on the Bitcoin network on the Bitcoin blockchain in the Bitcoin system is there such a thing as a unit of Bitcoin?

Everything is from Satoshi. What is a Satoshi? Satoshi is the smallest unit, but it is also the only unit that actually exists. Everything in the system is measured in Satoshi. If I say the Bitcoin ATM cent, 0.02 Bitcoin, that is technically incorrect. The Bitcoin ATM divided the amount by one hundred million Satoshi to show you that. They were 0.02 Bitcoin but in reality he sent two million Satoshi the only unit that exists in the system is the Satoshi everything is stored as Satoshi one Bitcoin is one hundred million Satoshi how many Bitcoin will be mined in the Bitcoin network no one none because there are no Bitcoin 21 quadrillion of Satoshi is the upper limit that will never be reached.

The Bitcoin network will mine less than twenty-one quadrillion Satoshi at the end of its operation. It makes sense because we are mining Satoshi. We send Satoshi. We are receiving Satoshi. Now humans do it. Don't think in 8 decimal places. Many humans I know, especially those educated in the public schools of this and otherscountries, do not operate with two decimal places or even zero decimal places, for the convenience of humans who do not like trying to do divisions. now we use other units, this is a concordance table and you can read it from the left and say that one Bitcoin is 100 million Satoshi, yes, go down at the end, a Satoshi is a Satoshi once the Toshi is zero point zero zero zero zero zero zero zero a Bitcoin understands how to read this, so there are a couple of other units that you may have heard of.

Mill comes from the prefix mili, which means thousandth and is part of the international metric system used by all civilized countries in the world. a penny, a little like a dollar, does that make sense? 1.75 bits is 175 Satoshi and you could do these conversions relatively easily, just moving decimal points now for many people it is very difficult to think in long decimal places, so even when I said that Alice receives 0.02 685 Bitcoin for her 80 euros, when you read that you get confused as to how big or small it is related to a Bitcoin, if you think about it in terms of 2 million Satoshi, it's much easier to think like that, that's two hundredths of a Bitcoin story number two.

Alice buys a book at Bob's store. Now Alice is going to make another transaction where she is going. to send 0.01 1 2 3 4 5 8 Bitcoin to buy a book from Bob's web store and Bob will send a book to Alice. There will be some exam questions at the end. She pays attention. I'm just kidding. Now there is a laptop. and with that laptop, Alice is looking at Bob's web store and in the store Bob has a book available for 40 US dollars and that book has its price translated to 0.01 1 2 3 4 5 8 Bitcoin, how does Bob translate the price ? Remember? our previous conversation, anyone, an average between the average or some other exchange or market, has price discovery.

Now there's an interesting question here: why does Bob price most of it in dollars or not in bitcoins? Is it because it is dirty fiat without currency? There are two reasons and this is important, the first reason is that for the vast majority of people, if you say "hey", this is about a million, 1.1 million satoshis, is it that good for you, you think that a lot, it's a little, what is it?, now you know how. the joke goes where the kid says dad I want a tenth of Bitcoin for my allowance and the dad says what you want $1,200 for your allowance I can't give you $1,100 that's ridiculous no kid your age gets $800 volatility bitcoin is no good unit of account and the reason it is not yet a good unit of account is because the market is small and as a result it is still volatile and it is volatile enough that it is impossible to price things when we start and plan this conference.

Bitcoin was $3,600. I have people complaining and saying why don't they price their tickets in Bitcoin. It's like they would have paid three times the cost if they had bought the ticket now instead of six months ago. That doesn't seem logical and they probably would. and if you want to refund, what am I supposed to do? giving it at the current price to the previous price in dollars or in Bitcoin, it is a problem, we do not use Bitcoin as units of account, so one of the reasons is the volatility difficulty for consumers to understand the price because bitcoin is not good at fixing prices, but the other reason that is equally important is that Bob is running a business in a particular jurisdiction, in this case, the United States, Bob has to do the accounting, Bob has to pay taxes, how does Bob pay the taxes?

If you don't know the price of the things you are buying and selling, guess what, the IRS does not accept Bitcoin, but thanks, they accept dollars, the very meaning of the phrase legal tender is that it is accepted for the payment of debts with the government bitcoin is not legal tender now, if I'm Bob and I'm trying to do accounting, it's much easier for me to say I sold the book for $40 $40 today $40 tomorrow $40 next week. I will receive different amounts of bitcoin, but that doesn't matter because the value of Bitcoin at the time I sold the book was $40, which makes my bookkeeping very easy.

I do all my accounting in the United States. The dollars have to do it and I mean that not just in Bob's terms. I run a business where I make Bitcoin payments and Bitcoin receivables and I have to price everything in US dollars, not because I'm a dirty fiat or a coiner, but because I have to pay. my taxes and report my income to the US government, hence the prices and dollars, although payment is accepted in Bitcoin and converted in real time at the time of payments, as you can see here, Alice, who has a rather large hand, is scanning. is that the only clipart I could find is to scan the QR code to make a payment correctly.

It's often much easier to use a mobile wallet on your smartphone even if you're making a payment to a website that's on your laptop. Because? I can't scan the QR code on the laptop screen with the laptop camera that is on the screen lock now if you believe I didn't hold a hand mirror and write to align it. It worked, it was a pain, but it worked, but critically here, one of the things new users have trouble with is this concept of hanging Bitcoin addresses on my laptop if I pay with my smartphone, well my smartphone knows how to send the money to the website because they think that what a wallet does is send the money to the other device, the website, the other smartphone, the wallet does not, it is building a transaction which is depositing money to an address public.

Bob Store doesn't care how the money gets to that address. Store Bob is watching that address and waiting for payments to arrive, when that payment arrives he knows that somehow Alice made that payment because she actually produced an address for Alice's cart, so in a store situation like that , the store generates a unique address for each customer purchase for each cart, when the money arrives at any of the addresses the store is watching, it can see which car corresponds to the brand that that card is paid for and then tell Bob that you send, this is how web stores work in the cryptocurrency space.

No matter how Alice got money at that address, she has to use the same device? No, she could pick up her laptop, go to an ATM, hold up a screen like this, and enter the money correctly. This is a difficult concept for people to recognize because it doesn't match what we do with credit cards, right? You can't enter your credit card into your smartphone to pay for something you just bought on a website, so here's what it looks like from Alice's perspective: She scans the QR code displayed by her wallet. she that there is a payout of 0.01 1 2 3 4 5 8 which is 39 73 wait, I thought it was $40, so this was taken maybe a couple of seconds later, the price changed, not necessarily what happened here is that the Alice's wallet may be using a different provider for pricing than Bob's store, doesn't it matter?

No because the price Bob has charged her is the price Bob's store is posting in Bitcoin, which means Bob is charging her 0.01 1 2 3 4 5 8 whatever Alice's wallet thinks it is. which. in this case it is actually 39 73, everyone understands why this happens when Alice sends this to Bob, the store may see a different US dollar price, but it doesn't matter, Bob has effectively committed to that exchange rate for a period of time during which you will make the transaction to sell that book. Alice then constructs that transaction. Now this is a different type of address that Bob's store uses.

See it starts with BC 1q z 3a 8? Has anyone seen an address like that? Does anyone know what type of address is that excludes you from bank 32? I understood you that it was a trick question, no one knows how to pronounce lot 32, so I asked people to shout it out just so we can see what happens behind 32 Beast 32 bank 32. is the name of this type of address, it is what is more widely known as a native segment, which address we'll talk about on that and some of the other courses we'll follow, but suffice it to say it's just a Bitcoin address, you know? that since BC 1 Q, which is the prefix of all these addresses, does not use a base 58 encoding, it actually uses a 32 character encoding with some very interesting properties for error correction, it doesn't matter, all you need to know is much easier. read because it is in lowercase, no uppercase characters are used and it is the new format that most Bitcoin wallets are also moving to, so Alice hits the send button now, there you go, wait a second, what is that rate?

No one told me there would be fees. We promised a

free

lunch, we'll talk about that in just a second, so we looked at a transaction earlier. Remember? We look at the transaction that built the ATM to give Alice her 0.02 Bitcoin, which is about 40 euros or, sorry, 80 euros. Any transaction is made up of two parts, inputs and outputs, inputs are what you are spending, outputs is what you are paying, so if you look at the transaction from the ATM, the ATM consumes some inputs and created an output for Alice by 0.026 eight four. five Bitcoin Alice now uses that input to construct an output for Bob for 0.01 one two three four five eight so far great, but here's the problem when you consume Bitcoin in one input of a transaction, it is spent in full, yes, Someone here says give me 18 dollars I'll get a twenty, how do I give eighteen dollars out of a twenty?

I can't it's indivisible I can't take 110 percent of the bill I tear it off and give the other person nine tenths of a $20 bill and let's say this is about eighteen dollars, no, now it's zero dollars because you tore up the bill, you are a maniac, the same applies to Bitcoin, the input is an indivisible part of Bitcoin, when you spend it in the transaction, you spend it all. Alice gives the full entry. but she needs change, so if someone says pay me $18 and I have 20, I expect $2 back and the change is actually created by Alice's wallet, so Alice's wallet creates a transaction where the input is the amount of money that the ATM gave him two million indivisible satoshis and the outputs are an output for Bob to pay the book in the precise amount and an output back to Alice's wallet, a different address analysis wallet called address change, it's just another address and the rest, think of it as Alice opening the safe deposit box, taking out a chunk of two million Satoshi and then having to spend it all, so she puts $40 in Bob's safe deposit box and the rest in your own safe deposit box has changed in a single transaction so far, all good, all with me.

Alright, this is the actual transaction on the blockchain. These are all real transactions. You can see them and I encourage you to do it as homework to better understand these things. I am using a block explorer called block flow point information. and you can use this bitly link which is case sensitive, meaning a and T are uppercase; otherwise you'll go to a page about the little town in Texas called Alice Alice Texas is Oh Lord don't go there okay I mean you can but with a capital T if you tap on that it will actually take you to this page from Blockchain Explorer where you can see this transaction 1 in 2 out so far so good, so what have we learned?

Bitcoin history keys and addresses, markets, exchanges, prices, units of accounts. entries, exits and changes and using block explorers, now let's talk about some of the more advanced topics in the remaining time, so we looked at this transaction where Alice pays Bob for the book. That transaction had two outputs, who among you did the calculations to try to add it. Nobody is good and if you try to add it up, if you add 0.01 1 2 3 4 5 8 and 0.01 55 808 the answer is not zero point zero two six eight four five is less, a portion of money is missing. There are two thousand nine hundred and sixty-two Satoshi that are missing in this transaction, they are not missing, it is a fee and it is paid to the miners, so we are in a transaction, it is the fees, we know where the fees are, the money left in the table to tip. the miners you pay him at the restaurant the waiter brings you the change you put some in your pocket you change your dress and leave some coins on the table and you leave that's the advice that's how Bitcoin transactions work Alice spent her entry fee on the ATM spent some of this Bob put some of it back into his own wallet he has change in his pocket and left some on the table two thousand nine hundred and sixty two satoshis and that money will be collected by the miners as a fee for this transaction what happens if you know that changing direction is included well, let's do the math the input is zero dot zero two six eight four five zero zero the outputs are zero dot zero oneone two three four five eight the rates are oh one million five Satoshi 1.5 million Satoshi oh so in today's money that's about a hundred and fifty dollar fee for a forty dollar purchase Alice tips big what can I say ? habit she picked up in Las Vegas, who knows why we have transaction fees.

The answer is really simple. The space for transactions is limited. limited by physics it is limited by technology but it is also artificially limited by software we don't want blocks that are huge because huge blocks mean costs for everyone when processing blocks that are then outsourced in economics there is nothing free if you are not paying fees someone pays fees, or you're paying them in terms of inflation, you're paying them in terms of giving the cartel an advantage over a monopoly by centralizing access and control, or you could just pay fees if we have to decide how the transaction is blocked. and which transaction should and which transactions should not go into a block because we have limited space.

There are really only two ways to do it: one is to specify in the software which are good transactions and which are bad transactions. Developers think about it if they decide which is a valid transaction that should be prioritized versus which transaction is wasteful or spam or for an irrelevant application that they don't particularly need. We just created a dictatorship as developers decide what apps are now. allowed on the network by simply controlling that function, there is only one way to correctly value the scarce resource of the transaction space or lock the space in a way that does not give anyone control and that is a market, so the fees operate as a marketplace to give the freedom to the sender of each transaction to decide for themselves how important this transaction is and what priority it has in their perspective and in doing so they have to compete against all the other people trying to make their transaction. the block and that competition for block space is the market for fee price discovery now when transactions are broadcast to the Bitcoin blockchain they are not automatically included in the first block because there are usually more transactions than that fit in a block, so what do they do?

They go into a waiting space and this waiting space is called a mempool? There is no single mempool. Each system on the Bitcoin network has its own mental image of what it believes remains to be confirmed or entered into the blockchain. This is the queue. is where all transactions line up waiting for their chance to enter the blockchain and as they search this queue they announce themselves to the miners. I have many rates, choose me well if you look at this with red colors. The color at the top actually corresponds to this transaction. Up here, a transaction that at the time was paying 2000 Satoshi per byte, why who knows?

Because for the person who sent that transaction, that transaction was so urgent that they were willing to pay a huge feat in the meantime. eight thousand three hundred and thirty-three transactions with little more than one satoshi per bite and those transactions are less important, some don't even pay any transaction fee, those are almost not confirmed at all, it is actually difficult to do it nowadays, but with a snow she provides that your transaction is confirmed most of the time, eventually I do payroll, in fact I have to do payroll in three days and some of my employees get paid in Bitcoin.

I'm going to put a transaction fee of one Satoshi on my payroll, why? No one cares if it arrives in eight hours instead of three hours instead of six minutes, right, none of my employees will. I need my payroll in ten minutes, first block, please, come on, chop-chop, tick tock. I have to shop compared to the bank. system twelve hours to get your paycheck from the time you catch it a company that is super fast right now, if I want to get into any block within the next 12 hours I'm going to be an idiot about it so I'm going to use the lowest rate now, what do you think these things are?

These spaces here, what do you think this is, is it a block? I have a nice little image to explain that there is a minor, the minor is making a block, how do they make a block? Look at the group of everything waiting in line and wow, I'll take these and they'll take a big cut. This is a simplification of the algorithm. There is no big yellow excavator involved and this is not an endorsement from Volvo, but rather the slightest. What they effectively do is remove the highest paying transactions from the top until there is no more space in the block that they are trying to make and they fill it because they are trying to maximize their profits, so they take a piece and you see that. in the member, all those transactions that leave the mempool the reason they abandon is because they have just been confirmed in a block and now the rest of them are waiting now at some times during the day.

When you look at the mental, you will see that it goes all the way and that means that all the transactions that were pending just stall. Great, everyone came in. sometimes some of those transactions stay there for days. there is Alice's transaction on the Bitcoin blockchain. It was confirmed that she is hiding five six zero three four four. You can see that block on the blockchain. What does it mean that it was confirmed? It means that the transaction was included. in the block so let's look at that in a little more detail Alice creates the transaction somewhere around here at some point she blocks her mind when that blocks her mind and that's block five six zero three four for Alice's transaction is included in that block three minutes later, another block in your mind twenty minutes later, another block in your mind, blocks minds on average every ten minutes on average is one of those misleading phrases in English that doesn't mean what you think it means in average every 10 minutes doesn't mean every 10 minutes Just like the average American family has two and a half children, have you seen half a child and which way they would cut it left to right, top to bottom, who gets the bottom ?

It's definitely not a good plan on average every 10 minutes it means sometimes it takes 40 sometimes it takes an hour sometimes it takes 30 seconds for weeks it's almost exactly 10 minutes if you average it all out because the network is tuned to keep that beat going but at Sometimes you wait a long time for your block. Can I get a time verification? By the end of the session there were 22 minutes left very well, so now let's look at it in terms of time. This was in terms of blocks. This is in terms of time. Alice creates signals and transmits a transaction by paying the light bulbs address $40 or that amount. in Bob's Bitcoin wallet running the webstore you are looking at many addresses, perhaps Bob has many customers with many carts and many addresses purchasing products simultaneously, presumably you want Bob to be able to sell more than one product at a time, so Bob's wallet is watching all of these addresses.

What he is observing means that the pump wallet is connected to the Bitcoin network and has told the Bitcoin software he is running. Please tell me if any payments are made to the following list of addresses. That's what the software does. what it's doing now Bitcoin operates as a broadcast network, which means when you send a transaction on the Bitcoin network you shout it, it's called flooding or gossip protocol, so what you do when you're on the big network is what is making Alice's wallet. he's talking to all the Bitcoin nodes he has direct connections to and he's gossiping, he's flooding, he's shouting a transaction he says hey I have a transaction blah blah blah blah blah the other nodes go oh good news transit, let's see if it's valid, yes. that's valid, I'll tell everyone I know and they'll tell all the nodes that are connected and each of those nodes looks at their transaction and says, hey, let's see if it's valid, yeah, I'll tell everyone that I know. so they tell everyone they know and the transaction spreads very, very fast in 15 seconds, it spreads to the entire Bitcoin network around the world in 15 seconds anywhere in the world.

Bob's wallets will see a notification that says, "Hey, one of your addresses received." a transaction or Bob, you've been paid in the AOL voice, which you probably remember if you're 40 like me now, right now the transaction is not confirmed, what does that mean? It's not on the blockchain, it's in the queue. in the memory pool is in Bob's memory pool is in Alice's Lempel is in the note of every Bitcoin node in the Bitcoin network and at this point everyone is waiting to see the next block, this may take some time, Is Bob in a hurry to ship this book?

Well, this is the beauty of physical products, that book will take days or weeks to reach Alice. Bob can wait 10 minutes, so what Bob's wallet does is wait until this transaction is confirmed in a block because it may never be confirmed if it is. not confirmed Bob did not receive payment Bob only paid if the entire transaction is on the blockchain and the entire world knows that Bob was paid up to that point Bob has not received payment there is a transaction available now for a book Bob can wait but what if it's a Starbucks and if you just bought a cup of coffee like thank you it will be a large latte oh yeah that's $12 oh okay let me send you a transaction thank you very much it's being confirmed, We will wait, please wait?

This gentleman's transaction is confirmed in any second plus or minus 40 minutes. This doesn't work well, but think about it this way: how often has he bought coffee at a Starbucks and not had to sign or enter his PIN with a credit card? I have not signed or entered his PIN. Can you reverse that transaction on his credit card? Absolutely can. He can call the company and leave. I didn't buy a coffee. I did not sign or enter my PIN. I want my money back and they will give you back your $12 and Starbucks will be out of a coffee and lose $12.

They don't care, the reason they don't care is because in terms of risks, the number of people who would give back the charge for that coffee versus the delay they would make. I have to wait to make sure they actually got paid or they had to wait for someone to sign or put in a pin, they can serve three other customers and it doesn't matter, the same goes for blockchains if I'm selling them a coffee. I don't care if it is confirmed, the possibility is that there is a blockchain reorganization that undoes that transaction or that it is never confirmed, it is less of a problem for me if I have three other clients to serve now if you are buying a flat. television screen I'm not going to let you leave the store until it's confirmed at least once, maybe twice, that you know if you're going to buy a house.

I really do not care. I'd like six confirmations, but I know where you live. you just bought the house like I'm not going to give up the title right now it's going to take a few days so it's okay so this is all probabilities it's a risk based probability when people say six confirmations is the standard of gold, what they mean is after six confirmations, the probability of that transaction being reversed is so low that I am willing to accept that risk and that probability depends entirely on the value of the transaction you are talking about, so whatever Let it be for you, I have a rule.

As a rule, zero confirmations for a cup of coffee. zero confirmation for anything I will ship in more than half an hour from the time you make payment because I will receive some confirmations by then. Okay, a confirmation for some electronic products. something good that I will give you right away maybe for confirmation of a flat screen plasma three confirmations for a Mini Cooper actually I did it three confirmations good enough for me here are the keys that are leaving I signed the title after three confirmations possibility Yes, no problem, yes, I also know what your car is and the license plate.

I'll find you good for confirmations five confirmations for a house. I would sell a house with five confirmations. I would sell a house with three. Yes. six confirmations for a Ferrari that you can drive off the lot with the right insurance. yes. seven confirmations for a mansion. eight confirmations for an aircraft carrier. Mining actually occurs separately from receiving the transaction, you may hear this term in economics or in the markets settlement or clearing settlement or clearing is the completion of a transaction is the point at which a transaction is no longer reversible how long does it last?

It takes to clear or clear a credit card transaction 160 days How long does it take to approve a credit card transaction? 10 seconds or less but don't think it's settled if you're a trader they can show up 59 days later and that's it uh-uh it never happened sorry right that's why the crypto law ofmerchants there are no chargebacks, there are no 60 days, so 10 minutes seems like a long time if you're thinking retail transactions are instant, they only are if it's cash, if it's a credit card, it is actually, no It is not instantaneous at all, the merchant does not receive payment for at least 30 days and in many cases that payment is a credit that is subject to being withdrawn if the transaction is disputed and the pinnacle of that is that I have had a transaction. reverse from a credit card 18 months after it was done a credit card company came back and said no no that never happened sorry you owe us money well yeah good luck see you in court . 18 months, the goal, so after 60 minutes or so, Bob's wallet received five confirmations six confirmations sorry, five more blocks mined on top of the one containing Alice's transaction, let's go back and look at this block 560,344 contains the scam transaction from Alice, which means that Alice's transaction has now been recorded in the blockchain block, how many confirmations are that? now anyone can guess, come on, a confirmation, so what does it mean to say that a transaction has a confirmation?

It means it is in a block. What does it mean to say there are zero confirmations? it means it's not in a block it's still in the mempool when it goes from the memory pool to a block that's actually been mined it's in the blockchain now it's in that block that block is a commit so if block five six zero three four four is a confirmation of Alice's transaction, what is block five six zero? three four five two confirmations now this is where it gets a little confusing Alice has received two confirmations in the manual transaction when a block has been mined on top of the block containing her transaction, we count one for which she has her transaction a block for which is on top of your transaction on top of your transaction which is layered on top so we are stacking two confirmations three confirmations with the block five six zero three four six six confirmations on the block five six zero three four nine which is five blocks after the one that Alice's transaction was in itself, the block it is in is one and then we put a layer on top of what is the upper limit of how many confirmations our transaction receives.

What is the maximum number of transactions you can have? There is no maximum. Approximately how many transaction confirmations do you have? how the 2009 Finney transaction so far received five hundred and sixty thousand or more confirmations and every ten minutes one more, so if you look at a very old transaction it will say that this transaction has 300,000 confirmations, all that means is that it was mine more than three hundred thousand. a block ago yes, now let's look at our last example of the day and we'll end this now Catalina wants to get paid for web design Catalina has a software development company in Argentina now operates in Argentine pesos or our right ARS Argentine pesos I would love to tell you That is the exchange rate.

Things have not been going well for Argentina since I wrote these slides, so she is charging ten thousand pesos and at that time 10,000 pesos were two hundred and sixty-two US dollars on her bill. In reality it is written for ten thousand pesos because that is how she sets the price of her services because she operates in the legal currency in Argentina, which is Argentine pesos, right. Bob agrees to pay. How does Bob find out what the exchange rate is on Bitcoin? convert two dollar pesos to Bitcoin because Bob has to do the accounting in dollars so Bob has to put it into his accounting system.

I paid two hundred and sixty-two dollars and then I converted it to Bitcoin and I paid zero point zero seven eight one one seven five. eight Bitcoin that Catalina will account for when I received ten thousand pesos. Does it make sense that you see this type of double exchange that occurs when you are making two national currencies but the payment is in Bitcoin? This is essential to understand how accounting is done. I have some other classes for that too, here is the transaction, the Catalina paid, this is a real transaction, this looks very strange, can anyone guess what is going on here?

Bob has these entries to pay Catalina, why does someone have multiple addresses in their wallet? What are these addresses? these entries, yes, they are not exchange addresses, they are expense transactions, but why are there so many? What does Bob sell? How much does Bob sell these books for $40 each? Catalina cost two hundred and sixty-two dollars. Bob has a bunch of $40 Bitcoin chunks that Bob received, that's the payment for each of the books in his store, each of those payments from each of those customers created an output that Bob's wallet controls, but that output is unique and indivisible, so Bob's wallet has all of these correct $40 payments, only they are not $40 payments, there are 39 payments of $73, there are 39 payments of eighty-two dollars, there are 41 payments of $72 because the price of Bitcoin keeps changing, so while selling $40 books, each of the small payments that come in.

It's slightly different. Bob's wallet needs to take all of these unspent Bitcoin chunks that we call UT EXO. We'll talk about that in a moment and add them to make a payment to Catalina. Have you ever been in a convenience store where the person in front of you goes a lot is that bottle please $2 okay 10 cents 20 cents 30 cents 30 10 cents that's what Bob's wallet is doing okay he has a lot of loose change now this was changed it could be millions of dollars per payment but each payment is unique and indivisible each production can only be spent in full there are two ways Bob could make this payment they could have the exact amount in a UT XO and pay him to catalina made easy, it is unlikely to happen does not consider fees all kinds of complications most likely Bob has a slightly larger amount pays the one who receives the change pays the fees, so two exits are one entry, but in In many cases Bob's wallet doesn't actually have a large enough UT calculations. you can calculate how much Bob paid in fees this is what this transaction actually looks like on the blockchain again it's a real transaction I sat there for two days making $40 payments while the price of Bitcoin changed to a store that doesn't exist in To do this slide, you're welcome and that's the actual transaction that we're going to conclude by explaining the blockchain now that we have a much bigger picture of all of these components.

It starts with what is known as the Genesis block and we count it as. it blocks zero because we are programmers and we bother it that way, we count from zero, so block zero is the Genesis block. Block 1 is the next block in the sequence and points to block zero as its so-called parent. block is the block that came before the child block is the block that came after each block has a parent right, which is the block on which it was drawn as a child and inside each block there is a reference to the parent block, this creates an uninterrupted block. chain if you take the block that just received mines while he was talking and you look in at his father and you follow him back one block and then you look at his parents and you follow him back one block and you keep doing that five hundred and eighty thousand more blocks You will later reach the Genesis block in a continuous, unbroken chain dating back to January 4, 2009.

Each of these references is in the block header and the block also contains transactions. I'm going to run a little late. but not too much now, if you tried to change one of these transactions here, what would happen is you would be modifying the data in this block. If you modify the data in this block, the hash of the block changes, which means the next one. The block is now not pointing correctly, which means you would have to change the next block as well. It's a child because it no longer has a correct reference, but once you change that block to update its parent, its block has changes, which means you need to change. your child will update it, which would change the crust hash of it, effectively forcing it to remember all blocks from that point on.

This is how we achieve immutability in Bitcoin. Each block contains transactions. Those transactions are summarized in a hash. child block so you can't actually change it and that reference is then reflected in its child and its child and its child and it's Sheldon and a broken chain, so the chain goes in two directions and comes back all the way to the Genesis block , but the ripple effect of a hash change carries over to all subsequent blocks, invalidating them, so the past cannot be changed. Each block also has an amount of Bitcoin. This is called a block subsidy or issuance of the mining reward that miners earn.

Bitcoin, where do those Bitcoin come from? New Bitcoin because each block contains new Bitcoin at first 50 Bitcoin per block after four years, which drops to 25 and then drops to 12 and a half, which is the current block subsidy for Bitcoin, twelve and a half Bitcoin. in 2020 it will drop to six and a quarter Bitcoin, then three and eight, then 1.7 something like that and keep going down until it's a Satoshi and then zero, creating this geometrically decreasing asymptotic supply that is probably the most famous feature of Bitcoin as in there will never be 21 million Bitcoin, in fact if you play with the Bitcoin system you will mine 20 million 999,999 points 9 9 9 7 Bitcoin or something like that, just under 21 million, there is a great site called Bitcoin Watch that you can find . and shows you in clock format the time until the next supply, so we say that every four years the supply of bitcoins is reduced by 50%, but in reality it is every two hundred and ten thousand blocks, which is ten minutes per block is equivalent to approximately four years. but because of the difference in time it can change by weeks, it can happen a few weeks earlier, it can happen a few weeks later, it depends on how accurately the Bitcoin network will execute that time, this is again the meaning of on average. which means not really most of the time, so here you see supply falling and cumulative issuance approaching that line asymptotically, almost all of the Bitcoin will be mined by the year 2030 and then we're talking about very large amounts. , very small per block thereafter. decreasing asymptotically to zero emission by year twenty-one forty-one so people often ask me what happens in year twenty-one forty-nine sorry, what happens in year twenty-one forty-one eyeball, it's a very simple answer, I'm dead, we're all dead, it's okay to deal with it so miners receive two sets of incentives, one is called block subsidy and new bitcoin is minted in each block and the other is transaction fees which are the sum of all fees of all the transactions that put that block in when they mined it.

If you look at block five six zero three forty four again, this is Alice's transaction block and you look inside you will find that the first transaction is called a coinbase transaction. This is the transaction that rewards the miners, each block has at least one transaction, that transaction is the coinbase transaction that contains new Bitcoin, it cannot have other transactions, only one, okay, it is valid and if you look here what is the quantity there, twelve point five seven six eight two seven six seven, can anyone? Tell me how that reward plus fees number came about, so the block reward or subsidy currently is twelve point five Bitcoin, which means that in this particular block there were zero point zero seven six eight two seven six seven fees exactly included in the transaction, how can we know that if it were one cent more, this block is invalid.

Everyone verified that all fees add up. Precisely, a miner can be paid less but cannot be paid more. Who writes the Coinbase transaction? Miners do it when a miner is building a block this is how their mining software works let's create the first transaction in this block I'm generous Lee I'll give me 12.5 Bitcoin oh wait we have some fees twelve point five seven six two seven two eight five signs means That's a big transaction to write and if you're a minor and you put that on your block, does that mean that anyone cares about you putting it on your block?

No, because this block has not been mined yet. Now imagine thousands of miners around the world. everyone writes their own check, everyone writes to me because I'm awesome twelve point seven five six seven and they may have different amounts different fees because they've included different transactions from their different groups of men and none of those blocks are real until one of They be the miner who wins, everyone else accepts their block because they found proof of work, how do they know they get paid? They wrote the Coinbase transaction and now the Coinbase transaction is meaningless unless everyone accepts their block except the moment.

Everyone accepts that the Coinbase transaction is there, so the payment to the miner becomes real. Not reallythey can spend it on 100 blocks. It's a security mechanism and Bitcoin, but now it's real. Thank you very much for coming today if you liked it. video please subscribe, like and share all my work is shared for free so if you want to support it join me on patreon.