Welcome to Part 12 of this module.
This video is going to be a basic explanation of cryptocurrency what it is.
A few of the different types and how it is commonly used before we begin I have to admit that when creating
this class I painted myself into a difficult corner where this subject is concerned our focus is on
ethical penetration testing not finance and investment.
This lecture is not going to be a tutorial on how to invest in Bitcoins or how to measure market trends
or anything of the sort.
Such things are outside of the scope of what we are trying to learn here.
However I have mentioned cryptocurrency several times as it is a form of cryptographic payment that
is frequently used within the overall hacking sphere both ethical and otherwise.
With that in mind we need to at least cover the basics of what it is and how it works.
So this is going to be an explanation of these concepts like any other investment.
Buying any form of cryptocurrency entails risk.
The laws surrounding such currency also vary from country to country and seem to be ever changing at
the risk of sounding like a broken record.
Please always do your due diligence and make sure such things are legal in your area before you purchase
them or make use of them.
Also be aware that while Bitcoin is currently legal in the United States there have been changes to
the tax laws concerning them and you will need to familiarize yourself with your tax responsibilities.
If you buy and sell them all right.
So in the simplest possible terms what is cryptocurrency.
There are a lot of different currencies that are currently available and by a lot I mean a lot with
a capital L..
To keep things simple as we start off I'm going to be focusing on the first and arguably the most popular
which is called bitcoin.
We'll touch on a few of the others after that.
Bitcoin.
Put simply isn't a stock it isn't a bond.
It isn't a physical currency.
It isn't a form of credit and it isn't backed by any government or real world resource such as gold
or oil.
If you bought a bitcoin in early 2016 for let's say a thousand dollars you could have sold it for over
17000 in 2017 or as you can see just a little over 5000.
Now at the moment this video is being made and tomorrow it might be over 10000 American dollars.
Or it might be worth far less than it is now.
The value of these coins and my total emphasis is intended to suggest quotation marks fluctuates wildly
from day to day making it one of the riskiest and potentially most profitable investments you could
ever make right.
So what the heck is it.
Well briefly stated a Bitcoin is a tiny string of letters and numbers No I'm serious.
That's it.
You have a bitcoin wallet and that contains these strings.
Each one represents a certain value and looks kind of a lot like a P.G. peaky manager.
You can create addresses for this wallet which also look like strings of letters and numbers and within
your bitcoin wallet these would look something like this.
The person who sends you coins copies and pastes this address which is basically anonymous into their
manager and then simply selects the number of coins and clicks send which is fairly straightforward.
You can then sell these little bits of code that represent a certain amount of bitcoin or fraction of
a bitcoin on an exchange for real world money.
In other words it is a way of transacting business online anonymously at least in theory but I'll talk
more about the downsides in a minute.
Bitcoin relies on something called the block chain a simple way to understand it is to imagine a ledger.
Anytime someone buys or sells using bitcoin it is recorded in this ledger and then copied hundreds of
thousands of times making it universal for all users.
In order for a bitcoin wallet to function it needs an up to date copy of this block chain ledger which
has continued to grow exponentially since bitcoin was first introduced at the moment.
The current size of the chain is over two hundred gigabytes.
So if you were to download the entire thing I'd recommend doing it via some sort of file sharing torrent
client so that you can start and stop the process at will.
I'd also recommend not storing it on your computer but perhaps investing in a small external hard drive
encrypting it maybe with very crypto true crypto or anything else you'd like.
Then downloading directly onto that.
Once you have the block chain you can connect it to your wallet of choice exactly how you do this will
vary from wallet to wallet.
So I can't really show you.
And then every time you load the wallet it will update the ledger by synchronizing to the network.
If you load your wallet daily this might take five to 10 minutes but if you don't use the currency very
often you could end up having to wait days weeks or months before your wallet is synchronized with the
network and your block chain ledger is fully up to date.
Or you could use an online wallet to store your coins.
And this is done entirely at your own risk.
All of these transactions are processed by what are called miners.
Miners are simply computers that are dedicating their resources to processing transactions and keeping
the block chain itself up to date.
They are also the reason you can't try to tell the system that you have let's say 5000 bitcoins instead
of zero point 0 0 0 1 bitcoins in order to trick the chain.
You'd have to manipulate the numbers on all of those systems at once.
It is essentially impossible since there is no localization in any one country so why would anyone dedicate
their computer to mining bitcoin.
Bitcoin Mining has become big business because every time a transaction is successfully processed and
verified to be legitimate a tiny amount of bitcoin is generated within the chain as a reward for the
miner that did this.
When bitcoin mining first started out people were mining with their home computers and if you happen
to be one of those people and held on to any coins you mined from that far back you might be a very
rich person today.
Over time as the block chain ledger grew in size and complexity the transactions became too much for
any individual system to handle CPSU mining gave way to much more powerful GPO mining as well as what
we're called mining pools mining pools were just large groups of people sharing their computers and
then splitting the rewards of any successful process transactions.
Nowadays mining is a big business and there are warehouses full of computers that are nothing but these
high end graphics processors and cooling devices being used to process transactions daily and reap the
rewards.
So it's not really something you can do on your own anymore although it is still possible to mine with
some of the other less popular currencies.
The rewards for that would of course vary.
If all this sounds preposterously complicated for a monetary system it is there is no regulation within
the system no central bank no way to reverse the transaction.
It is however anonymous.
Mostly what you need to remember is that with Bitcoin the block chain ledger can be viewed by anybody
while your identity and the identity of the person that you are transacting with might just be a wallet
address.
It is still possible to track coins as they move across the network and view wallet balances.
This kind of detective work is an entire field unto itself and those wishing to retain anonymity using
bitcoin are likely to go to great lengths to try to tumble their coins as it is cold so as to obscure
them and make any direct trail harder to follow.
Again I'm just covering the concepts here.
There will be no explanation of bitcoin laundering techniques in this video.
So I'm sorry if that disappoints anyone but you don't have to worry strictly speaking about the finer
points of how the block chain works on the simplest level you buy let's say zero point zero zero zero
five bitcoins on an exchange you then send them or some fraction of them from your wallet to someone
else's wallet in exchange for goods and services.
When you're done and you want to convert them back into money you sell them on an exchange to someone
else looking to buy them.
You then pay whatever taxes are required by your locality.
Keep in mind that trying to use bitcoin to launder real money or to evade tax responsibility is pretty
much universally illegal everywhere since the block chain can be viewed by anybody.
Some users prefer to use other forms of cryptocurrency And there are a great many Monaro works very
much like bitcoin except its block chain is not viewable which in theory makes it more anonymous.
There are many different types of coins with different pros and cons and different risks and different
relative values.
Suffice it to say which coin happens to be popular at any given moment will vary as do their relative
values for real world exchange I mentioned before that you can download the block chain and set up your
own off line hardware wallet.
You can also buy an offline hardware wallet that is sort of pre set up for you.
And this may be a better option for many of you.
Provided that you fully trust the source that you're purchasing from the one you're seeing here is just
when I pulled up for random demonstration.
There are a great many you should research them.
If this is something that interests you.
All right so let's say that you've bought a bitcoin or more likely a tiny fraction of a bitcoin which
still equals out to a very high dollar value at least at the time this video is being made.
What can you actually do with your bitcoin other than hold it as an investment.
Well there are many legitimate stores that allow you to buy and sell online using bitcoin and other
popular crypto currencies such as for example Monaro lite coin theorem dogecoin and the like.
Again those other coins have pros and cons and different real world values but in general they tend
to work the same way.
It is also a fact that bitcoin has always been a popular choice for criminal enterprises on the darknet
or Deep Web.
Many illegal markets use bitcoin to facilitate their transactions and make no mistake such transactions
are most certainly illegal and to be absolutely clear.
Buying something illegal with bitcoins such as for example drugs or weaponry or hacking services is
the same as buying that same thing with hard cash.
Always remain lawful and never use this technology for bad purposes.
Nevertheless I would be remiss if I did not point out that this does happen and that was sort of the
original practical use for such coins.
But now that cryptocurrency is taken off and entered the public domain so to speak.
There are a great many more legitimate outlets through which it can be spent with all of that being
said it is probably safe to say that most people are buying and selling bitcoin as an investment.
This holds true of other coins as well cryptocurrency can be a good way to do things anonymously and
that is at the end of the day what all forms of cryptography are for.
If you want to invest in it you do so at your own risk.
As I said the value of these coins fluctuate wildly from moment to moment and it is not impossible that
at some future date the cryptography behind the might be broken resulting in their value crashing to
zero to zero overnight.
It is also necessary for me to say that because there is no regulation at all within the system and
no way to reverse a transaction there are no real protections in place where these currencies are concerned.
If your computer gets hacked and your coin stolen you're out of luck.
If your hardware wallet crashes or breaks or get stolen and you have no backup you're out of luck.
If the online wallet you use gets hacked or closes down or the people running the server just decide
to rob you you're out of luck.
In short crypto currency is risky both as an investment and as a way of transacting business.
There are countless scams out there all designed to rip you off.
I'm not trying to say don't use cryptocurrency but please be aware of the risks involved.
The value can crash your coins can be stolen and you can't reverse any transaction.
The tradeoff is that you get a degree of anonymity to your financial transactions and there is always
the chance that a coin purchased a year ago will have increased in value by some outrageous amount.
How you approach this technology and in what ways you use it are up to you.
As I said this isn't an investment class and I'm not giving financial advice.
Hopefully you understand these concepts well enough that you can at least know what they are and how
they work and how it relates to the subject of modern cryptography and the general hacking sphere.
The very last thing I'll say about this is do your research on any exchange that you plan to do business
on.
Very carefully and I would strongly recommend that if you choose to buy and sell any coin online you
do not leave any amount of money in an exchange account longer than is absolutely necessary.
When the exchange known as Mt. Gox abruptly closed in 2014 it was because something on the order of
850000 bitcoins valued at that time around four hundred and fifty million United States dollars had
been stolen through a rather legendary hack and it was literally all due to one single hack.
Those hackers might be some of the richest individuals on the planet right now and a great many innocent
users lost their money.
Also keep in mind that the price of these crypto currencies can and are manipulated frequently by greater
powers such as nation states or exchanges working in shady and sketchy ways all for their own purposes.
So the moral of the story is if you hold these currencies.
Be very careful where and how you store them.
You should probably always choose to encrypt your wallet particularly if it's stored locally or somewhere
where it can be easily snatched.
Thank you for your attention.