1 00:00:00,000 --> 00:00:07,000 Now in general, unless you're using cash when you make a payment, this payment is processed and is 2 00:00:07,000 --> 00:00:13,000 transferred from one account to another using one or more financial institutions or banks. 3 00:00:14,000 --> 00:00:19,000 The same goes when you go online and buy something, even if you buy with PayPal or some other method. 4 00:00:19,000 --> 00:00:25,000 Again, there is usually one or more financial institution to process that payment. 5 00:00:25,000 --> 00:00:31,000 So as you can see, this is a centralized structure where one entity is managing payments. 6 00:00:31,000 --> 00:00:38,000 And we're also interested in that entity to manage our security, the security of our account and our 7 00:00:38,000 --> 00:00:39,000 privacy. 8 00:00:39,000 --> 00:00:46,000 Now, no matter how well you trust this company or this bank, as we seen before, centralized structures 9 00:00:46,000 --> 00:00:49,000 are just inherently not private. 10 00:00:49,000 --> 00:00:55,000 The reason for this is because all of the information is stored in one single place. 11 00:00:55,000 --> 00:01:00,000 So even if you trust this company and trust everything about it, what about the employees that work 12 00:01:00,000 --> 00:01:01,000 at this place? 13 00:01:01,000 --> 00:01:05,000 What about hackers that manage to gain access to it? 14 00:01:05,000 --> 00:01:11,000 What about other agencies that force this entity to have backdoors or to give them access? 15 00:01:11,000 --> 00:01:13,000 And the list goes on and on and on. 16 00:01:13,000 --> 00:01:18,000 Simply the idea of keeping everything in one place is not private. 17 00:01:18,000 --> 00:01:27,000 The alternative to this is to use cryptocurrency, which is not controlled or managed by a single entity. 18 00:01:27,000 --> 00:01:33,000 So previously we had the money, which is the cash which is stored in a bank or some financial institution 19 00:01:33,000 --> 00:01:35,000 that manages that currency. 20 00:01:36,000 --> 00:01:43,000 When it comes to cryptocurrency, it eliminates the need to a middleman or to an entity that manages 21 00:01:43,000 --> 00:01:44,000 this currency. 22 00:01:45,000 --> 00:01:51,000 Instead, it relies on decentralized peer to peer structure known as blockchain. 23 00:01:52,000 --> 00:01:59,000 Now, to understand how this works, let's have an example where David wants to send money to John to 24 00:01:59,000 --> 00:01:59,000 do this. 25 00:01:59,000 --> 00:02:04,000 The first thing David will do is he'll create a crypto wallet. 26 00:02:04,000 --> 00:02:08,000 You can think of this similar to creating a pjp account. 27 00:02:09,000 --> 00:02:15,000 So the wallet will be associated with two keys, a private key and a public key. 28 00:02:16,000 --> 00:02:23,000 And let's say David wants to transfer one coin to his friend John, so he generates a message or a request 29 00:02:23,000 --> 00:02:25,000 similar to this right here. 30 00:02:26,000 --> 00:02:33,000 And he'll sign this request with his private key, which will generate a signature or a fingerprint. 31 00:02:33,000 --> 00:02:40,000 So again, this is very similar to when we used to sign messages with our private key with PGP. 32 00:02:40,000 --> 00:02:47,000 And the reason why this is done to make sure that whoever inspects this message or this request will 33 00:02:47,000 --> 00:02:54,000 note that this request to transfer one coin from David's account is actually generated by David because 34 00:02:54,000 --> 00:02:57,000 David will never share his private key. 35 00:02:57,000 --> 00:03:05,000 Now, once this is signed, David will also include his public key so that it can be used to verify 36 00:03:05,000 --> 00:03:06,000 the signature. 37 00:03:06,000 --> 00:03:12,000 Again, similar to what we spoke about in the encryption section of this course, the public key is 38 00:03:12,000 --> 00:03:20,000 mathematically related to the private key, and therefore it can be used to verify the signature without 39 00:03:20,000 --> 00:03:23,000 revealing information about the private key. 40 00:03:23,000 --> 00:03:30,000 So when this message is inspected by anybody, they can use the public key to verify the signature. 41 00:03:30,000 --> 00:03:35,000 And if it checks out, we will know that this message was actually generated by David. 42 00:03:35,000 --> 00:03:40,000 Therefore, we can process the transfer of one coin from David to John. 43 00:03:41,000 --> 00:03:49,000 So once this message is generated on David's end, David will send this message to the cryptocurrency 44 00:03:49,000 --> 00:03:49,000 network. 45 00:03:50,000 --> 00:03:58,000 Now, this network is basically a number of computers, usually of high specs that keep a copy of all 46 00:03:58,000 --> 00:04:02,000 transactions done using this cryptocurrency. 47 00:04:02,000 --> 00:04:10,000 These computers are usually referred to as miners because they get paid coins for maintaining the ledger 48 00:04:10,000 --> 00:04:12,000 or this record of transactions. 49 00:04:13,000 --> 00:04:21,000 Now, this record of transactions is known as a blockchain, so it's a public record that contains all 50 00:04:21,000 --> 00:04:24,000 transactions made with this cryptocurrency. 51 00:04:24,000 --> 00:04:32,000 And each miner, each computer on the cryptocurrency network contains a copy of all of these transactions. 52 00:04:32,000 --> 00:04:35,000 So it contains a copy of the blockchain. 53 00:04:36,000 --> 00:04:40,000 So David's message is sent to the currency network. 54 00:04:40,000 --> 00:04:46,000 It will get verified, and if it checks out, it will be added to the blockchain. 55 00:04:46,000 --> 00:04:53,000 So this message will be added as a new block to the existing blockchain stored by each one of these 56 00:04:53,000 --> 00:04:55,000 computers or miners. 57 00:04:56,000 --> 00:05:02,000 So right here I have a zoomed in diagram of the blockchain, so each one of the miners of the computers 58 00:05:02,000 --> 00:05:10,000 contains a copy of this, and you can think of each one of these blocks as a transaction that happened 59 00:05:10,000 --> 00:05:11,000 in the past. 60 00:05:12,000 --> 00:05:18,000 The latest one being the one that David just generated in which he transferred a coin to John. 61 00:05:18,000 --> 00:05:23,000 But the others are just other transactions that have been done in the past. 62 00:05:24,000 --> 00:05:28,000 So as you can see, this is a decentralized structure. 63 00:05:28,000 --> 00:05:32,000 It is not owned by anybody and not controlled by anybody. 64 00:05:32,000 --> 00:05:39,000 Anyone can join this network and use their computer for mining so anyone can download a copy of this 65 00:05:39,000 --> 00:05:45,000 blockchain and start mining and start helping maintain this cryptocurrency network. 66 00:05:45,000 --> 00:05:51,000 Now we can also see that this implementation is private because I'm using names in here. 67 00:05:51,000 --> 00:05:56,000 So I'm saying we're transferring one coin from David to John or here from Bob to Alice. 68 00:05:56,000 --> 00:06:00,000 But in reality, real names are not used. 69 00:06:00,000 --> 00:06:07,000 Instead, wallet addresses are used, so the contents of the blocks, even though they're public, you'll 70 00:06:07,000 --> 00:06:13,000 see the content of it saying it's transferring from a long address to another long address. 71 00:06:13,000 --> 00:06:20,000 And as long as the users are used in proper OPSEC, keeping their real identity separate from their 72 00:06:20,000 --> 00:06:27,000 fake identity, connecting using the Tor network and using all of the tips and methods that we discussed 73 00:06:27,000 --> 00:06:30,000 to stay private and as anonymous as possible. 74 00:06:30,000 --> 00:06:35,000 These addresses will not link to their real identities. 75 00:06:35,000 --> 00:06:42,000 With that being said, the fact that the whole ledger or the whole blockchain is public means that we 76 00:06:42,000 --> 00:06:47,000 can read all of the transactions done using this cryptocurrency. 77 00:06:47,000 --> 00:06:55,000 Therefore, even though these addresses don't link to real identities, we can analyze a specific address 78 00:06:55,000 --> 00:06:58,000 and see all of the transactions it got involved in. 79 00:06:58,000 --> 00:07:04,000 So we can see all of the money that left this address and all of the money that entered this address, 80 00:07:04,000 --> 00:07:11,000 therefore, will even be able to calculate the current balance in this specific account. 81 00:07:11,000 --> 00:07:16,000 Now you can obviously just create multiple addresses to get around this. 82 00:07:16,000 --> 00:07:22,000 There are also other methods to increase anonymity and privacy and make it hard to see where money is 83 00:07:22,000 --> 00:07:24,000 going and where it's leaving from. 84 00:07:24,000 --> 00:07:31,000 And you can simply just use a more private cryptocurrency like Monero, which we'll talk about later 85 00:07:31,000 --> 00:07:32,000 on in the course. 86 00:07:33,000 --> 00:07:40,000 For now, I just wanted to give you a basic understanding on how cryptocurrencies work, and this is 87 00:07:40,000 --> 00:07:45,000 pretty much how Bitcoin works, which is the most popular cryptocurrency.