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Now in general unless you're using cash when you make a payment this payment is processed and is transferred

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from one account to another using one or more financial institutions or banks.

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The same goes when you go online and buy something even if you buy with PayPal or some other method.

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Again there is usually one or more financial institution to process that payment.

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So as you can see this is a centralized structure where one entity is managing payments.

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And we're also interested in that entity to manage our security the security of our account and our

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privacy.

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Now no matter how well you trust this company or this bank as we seen before centralized structures

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are just inherently not private.

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The reason for this is because all of the information is stored in one single place.

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So even if you trust this company and trust everything about it what about the employees that work at

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this place.

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What about hackers that manage to gain access to it.

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What about other agencies that force this entity to have back doors or to give them access and the list

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goes on and on and on.

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Simply the idea of keeping everything in one place is not private.

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The alternative to this is to use crypto currency which is not controlled or managed by a single entity.

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So previously we had the money which is the cash which is stored in a bank or some financial institution

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that manages that currency when it comes to crypto currency.

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It eliminates the need to a middleman or to an entity that manages this currency Instead it relies on

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decentralized peer to peer structure known as block chain.

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Now to understand how this works let's have an example where David wants to send money to John to do

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this.

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The first thing David will do is he'll create a crypto wallet.

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You can think of this similar to creating a PDP account.

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So the wallet will be associated with two keys a private key and a public key.

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And let's say David wants to transfer one coin to his friend John.

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So he generates a message or a request similar to this right here.

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And he'll sign this request with his private key which will generate a signature or a fingerprint.

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So again this is very similar to when we used to sign messages with our private key with PDP.

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And the reason why this is done to make sure that whoever inspects this message or this request will

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note that this request to transfer one coin from David's account is actually generated by David because

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David will never share his private key now once this is signed David it will also include his public

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key so that it can be used to verify the signature again similar to what we spoke about in the encryption

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section of this course the public key is mathematically related to the private key and therefore it

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can be used to verify the signature without revealing information about the private key.

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So when this message is inspected by anybody they can use the public key to verify the signature.

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And if it checks out we'll know that this message was actually generated by David.

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Therefore we can process the transfer of one coin from David to John.

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So once this message is generated on David's and David will send this message to the crypto currency

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network.

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Now this network is basically a number of computers usually of high specs that keep a copy of all transactions

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done using this crypto currency.

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These computers are usually referred to as minors because they get paid coins for maintaining the ledger

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or this record of transactions.

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Now this record of transactions is known as a block chain.

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So it's a public record that contains all transactions made with this crypto currency.

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And each miner each computer on the cryptocurrency network contains a copy of all of these transactions.

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So it contains a copy of the block chain.

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So David's message is sent to the currency network.

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It will get verified and if it checks out it will be added to the block chain.

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So this message will be added as a new block to the existing lock chain stored by each one of these

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computers or miners.

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So right here.

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I have a zoomed in diagram of the block chain.

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So each one of the miners of the computers contains a copy of this and you can think of each one of

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these blocks as a transaction that happened in the past.

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The latest one being the one that David just generated in which he transferred a coin to John but the

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others are just other transactions that have been done in the past.

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So as you can see this is a decentralized structure.

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It is not owned by anybody and not controlled by anybody.

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Anyone can join this network and use their computer for mining so anyone can download a copy of this

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block chain and start mining and start helping maintain this cryptocurrency network.

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Now we can also see that this implementation is private because I'm using names in here so I'm saying

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we're transferring one coin from David to John or here from Bob to Alice.

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But in reality real names are not used.

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Instead wallet addresses are used.

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So the contents of the blocks even though they're public you'll see the content of it saying it's transferring

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from a long address to another long address.

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And as long as the users are using proper OPSEC keeping their real identity separate from their fake

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identity connecting using the term network and using all of the tips and methods that we discussed to

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stay private and as anonymous as possible these addresses will not link to their real identities.

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With that being said the fact that the whole ledger or the whole block chain is public means that we

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can read all of the transactions done using this crypto currency.

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Therefore even though these addresses don't link to real identities we can analyze a specific address

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and see all of the transactions it got involved in so we can see all of the money that left this address

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and all of the money that entered this address therefore will even be able to calculate the current

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balance in this specific account.

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Now you can obviously just create multiple addresses to get around this.

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There are also other methods to increase anonymity and privacy and make it hard to see where money is

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going and where it's leaving from.

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And you can simply just use a more private cryptocurrency like Monaro which we'll talk about later on

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in the course.

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For now I just wanted to give you a basic understanding on how crypto currencies work.

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And this is pretty much how bitcoin works which is the most popular cryptocurrency.