the goal of this video is to explain the
essence of how Bitcoin works without any
jargon or scary math it is not however
an introduction to what bitcoin is or
why it matters for that check out the
great intro video at bitcoin org with
that said on to how it works
Bitcoin lets people exchange money
electronically as easily as sending an
email or text to send money use what's
called a wallet app to type in that
amount enter a scanner recipients
account number and hit Send the
recipient will then see the money pop up
in their account so how does this work
at a basic level bitcoin is just a
ledger with account numbers and balances
when Bob sends Carol five bitcoins
his balance goes down by five and Carols
up by five there's no gold or
government-issued money backing these
numbers just people's belief that the
numbers are worth something and a system
that prevents unfair changes part of the
system makes sure no one can spend money
from someone else's account every time
you hit Send
your wallet app sends a message to the
Bitcoin network describing how the
ledger should change including the
senders and recipients account numbers
and amount to transfer so what's to
prevent a thief from creating a message
transferring money from someone else's
account bitcoin requires a kind of
signature on each message to prove that
it was created by the true account owner
the signature serves the same purpose as
a handwritten signature on a paper check
but it's based on math rather than
handwriting the math comes from the
world of cryptography which is normally
used to hide secret messages but in
Bitcoin has been repurposed to prove
ownership each Bitcoin account number
has an Associated key that only the true
account owner knows and is used to
create signatures by encrypting
transaction messages others test the
signature by trying to decrypt it if
successful they know the signature was
created by the true account owner in
addition to not relying on handwriting
analysis these math based signatures
can't be copied and reused on other
transactions since the signatures are
unique to each transaction
so these signatures keep unauthorized
transactions from changing the ledger
but who exactly is checking the
signatures and overall maintaining the
ledger surprisingly anyone who wants to
one of the main goals of Bitcoin is to
provide a decentralized system meaning
no single company or government can
control it
every time someone sends money a
transaction message is passed around to
all the people who want to help maintain
the ledger who all call maintain errs
each maintainer keeps a personal copy of
the ledger and updates it whenever they
receive a new transaction with a valid
signature with ledger spread all over
the world traffic delays and
occasionally fraud can lead to
differences in those Ledger's so how
does the world decide which version to
use like in other democratic systems
there's a vote but it's a bit different
than a typical ballot system maintainer
z' vote by trying to solve a special
puzzle based on their version of the
ledger
the first person to solve a puzzle
announces their solution and everyone
updates to that version so the vote
turns out to be a kind of mathematical
race but it's designed to favor the
majority's version this is because the
more people there are working on a
particular version the faster it will be
solved because new transactions are
constantly being generated this voting
process repeats over and over again so
maintained errs can continually agree
about new transactions
so why math problems instead of say
emailing in votes to decide on a ledger
without a central authority to register
voters it would be hard to enforce one
vote per person a single person could
create multiple accounts to vote more
than once or even millions of times the
math problems prevent this by making
each vote have a cost in computers and
electricity
this means out voting or out solving the
majority to take over the ledger would
effectively require out spending the
majority an unlikely event so the math
enables a fair vote in a decentralized
system to more important details about
how it does this to prevent someone from
pre solving a puzzle to win the race
each puzzle builds on previous answers
and the winner is not just the most
recent solution but the ledger version
with the most total solutions the
puzzles are also extraordinarily special
in that there are no tricks to solving
them faster other than by buying more
computers and electricity it's this
property that underlies the entire
system and gives people assurance that
the solutions are truly from the
majority and not a clever attacker a
final note about how money is created
every time a puzzle is solved a small
award is added to the solvers balance
effectively creating money out of thin
air this award acts as an incentive for
people to help maintain the ledger and
is in addition to small fees centers
attached to transactions because
maintainer zhh acquire newly created
money through computation they are
typically called miners but their main
purpose is really to manage the ledger
not to create money the voting system
simply provides a convenient way to
randomly distribute money into the world
and in fact after 21:40 no more money
will be created
in summary bitcoin is an electronic
currency that's based on a
collaboratively maintained ledger people
transfer money by sending messages to
maintain errs describing where and how
much money should move maintainer x'
make sure that the messages are from the
true account owners by checking digital
signatures and finally the maintainer is
reached consensus with each other
through a math based voting process
I hope this gives you a quick sense for
how Bitcoin works if you'd like to dive
deeper into the rabbit hole check out my
22 minute video how Bitcoin works under
the hood also feel free to subscribe for
more concise tech explanations