Bitcoin: Overview | Money, banking and central banks | Finance & Capital Markets | Khan Academy


Voiceover: Bitcoin is a
new virtual currency system that’s been gathering a
lot of attention recently, and I thought I would
do a series of videos where I really dive into
the innards of bitcoin and explain how it works in detail, and my plan for this
first video in this series is to describe some of those mechanics at a high level. And then what I’ll do in subsequent videos is dive a bit deeper into
all of the underlying aspects that I have touched upon
within this first video. And my hope is that by the
end of this video series, you’ll know not only what a bitcoin is, but you’ll also understand the mechanics of how transactions are initiated. You’ll see how verification occurs for those transactions, and you’ll also learn
what it means for someone to really engage in a process known as “bitcoin mining”, and that may be a term that you’ve heard if you’ve had any interest
in bitcoin recently. I do want to point out, also, that the bitcoin scheme
is fairly involved. It requires some time to really cover all of the relevant details, and to me the best way
to really wrap your head around a scheme like bitcoin is to really suspend belief for a bit and get exposed to all of
these relevant details. Now, undoubtedly, you’ll
have a lot of questions along the way, but my hope is that by the
end of this video series, all of the relevant stones
will have been overturned and your questions will have been appropriately answered, but it might take some time to get there, and in part, that’s because
I’ll try to describe things in a way that’s sensible and that might involve
leaving some details out until I can explain enough
pieces of the scheme and then add in those
details in as I go along so that you’re not inundated with too many minor points and nuances along the way, but you get a feel for the overall system as I go through things. With that, let me go ahead
and just dive right in. First of all, I do want to point out that bitcoin has been described, really, as a decentralized currency because there’s no real
central bank or entity that’s involved in generating
or transacting bitcoins, and, in fact, what happens
in the content of a bitcoin is all the transactions really require what’s known as a peer-to-peer network, a network of just individual
hosts that essentially collectively agree on different aspects of how the protocol is
implemented and used. Bitcoin itself is also
referred to sometimes as a cryptocurrency, and by a cryptocurrency, I mean that we use a lot
of cryptographic techniques in order to facilitate or to really enable bitcoin transactions to take place, and I’ll do separate videos on some of these techniques, but just take it at face value right now, that it’s decentralized and is a type of cryptocurrency. I also want to point out that
the term “bitcoin” itself can in fact be a bit confusing, and in many ways, bitcoin transactions don’t really resemble
traditional coin transactions so much as they represent really entries in some type of a global ledger, and by that, I mean let’s say you have a transaction taking place, and let’s say the
transaction is taking place within, or among two parties, and we’ll call them Alice and Bob, which are traditional names that are used in many cryptographic protocols to describe the parties involved, and imagine that Alice wants to transfer, or really wants to assign, a certain number of
bitcoins that she possesses over to Bob, and you can think of
this transaction, really, as an entry in a ledger of some sort, and I also want to point
out before proceeding that even though I’ve used terms like Alice and Bob, what I really mean in
the context of bitcoin is not the actual identities
in the physical sense, but really that Alice
and Bob are identities in the bitcoin system, and these identities are just, in actual implementation, are just collections of numbers that do not have to be tied with Alice and Bob’s
real-world identities. In that capacity, you can
think of bitcoin at any, it really is effectively being, of being pseudonyms, rather than real names, and the idea is that
bitcoin really becomes more of a pseudonymous protocol, where people are addressed
by their pseudonyms, and that provides some level of privacy to users that want to transact using the bitcoin system. Now, in a transaction
between Alice and Bob, what Alice will basically do is specify a few different numbers. She has to specify how many bitcoins she wants to allocate to Bob. Let’s say Alice started off
with 50 bitcoins of her own. She might decide that she wants to give, let’s say, 30 of these
bitcoins over to Bob, and let’s say she wants to have some number of bitcoins
returned back to her, so you have to specify, or Alice has to specify, rather, how much change she’s going to get, so in this case, let’s say
her change is going to be 18 bitcoins for herself, and then the remaining 2
bitcoins are going to be a transaction fee, and we’ll talk about what
a transaction fee means a little later, and I think I’ll also dive
into it in future videos, but it’s basically an
incentive for other nodes in the bitcoin network to help Alice in essentially validating
some of the details of this transaction for Bob. Now, Alice will take
these transaction details and apply what’s known
as a digital signature to these transaction details, and a digital signature is basically the mathematical analog of
a traditional signature. It really binds Alice’s
identity to the details of this transaction. And by Alice’s identity, again, I mean her identity
within the bitcoin system, and this binding is really done in a cryptographically strong way. Now, the details of this transaction once it takes place, are going to be broadcast out, so Alice is going to take
these transaction details and effectively just broadcast them out to all the nodes in the
peer-to-peer network that represent bitcoin nodes. Now, Bob, when he receives information about this transaction, he receives it over the
peer-to-peer network. He’ll probably sandy check some part of the transaction. For example, he might
check that the numbers work out correctly, that Alice, let’s say,
started off with 50 bitcoins and is not trying to transfer more than 50 bitcoins to
him, and so on and so forth. He’s going to have some
mathematical assurance because of some of the
cryptography involved that some of these claims are accurate, that Alice, let’s say, has the bitcoins that she’s claimed to possess, and that she’s expressed an interest to assign those bitcoins to him, but what he won’t know yet is whether Alice has really tried to
transfer those same bitcoins to anyone else over the course of time or maybe just prior to that point. the way that we handle that situation, and by the way, I should point out that this concept of Alice
trying to, let’s say, spend coins twice, in the context of digital cash and electronic currency systems, this concept is known as double spending, and it’s something you have to worry about when you have virtual currencies because it’s very easy
for someone to just copy the numbers that
represent this transaction and try to use them elsewhere. The way we basically handle and reduce the risk of double spending is through a specific set of nodes in this peer-to-peer network who are known as bitcoin miners. You might have heard
this term bitcoin miners, and the bitcoin miners are basically specific individuals, specific nodes within
this peer-to-peer network, and what they basically do is they take all of the transactions that they see, and remember, they’re listening to all
of these transactions, and not just Alice and Bob’s, but other transactions
that are taking place, and they’ll take those transactions, and ultimately, they will
take those transactions and will compile them into what’s known as a transaction block. So it’s basically a recording of all the previously
unrecorded transactions. If you think of a single transaction let’s say, as a ledger item, you could think of a transaction block as representing, let’s say, an entire page in a ledger book. These bitcoin miners will
also include in this block, in addition to all these
unrecorded transactions, they will also include in this block a special transaction that’s
meant just for themselves to basically reward
themselves for the effort of doing this mining. Now, a transaction block will also contain an encoding of the
previous transaction block, so there’s going to be
some level of continuity, and then bitcoin miners will also include a specially-crafted sequence of numbers associated with these transactions, and this sequence of numbers is known as a proof of work, and it’s called a proof of work because it’s sometihng that’s
really hard to generate, something that requires
a lot of effort to do, and that kind of makes
it hard for just anybody to get involved with
bitcoin mining willy-nilly, but it requires that they
really exhibit or exert some computational effort, basically in exchange for
getting this extra reward of a payment, and also in exchange for getting this transaction fee that
they’re going to be promised by Alice to engage in this sort of work. I’ll talk about what
proof-of-work protocols are in a separate video in more detail. Now, because each transaction block contains information about
previous transactions, really what you end up having is not just a single block. You ultimately have what
you can think of as a chain of transactions, and you can call this a
transaction block chain. The idea is as soon as a bitcoin miner is able to construct a
transaction block chain containing all these
unrecorded transactions, and this proof of work, it’ll broadcast the
details of that chain out to all of the nodes, all of the peers on that peer-to-peer network for bitcoin. And then once the newly-broadcast chain gets kind of verified and
meets the right properties, the nodes on the network are just going to go
ahead and start using it, and they’re going to start appending new transaction blocks to that chain. They’re going to take anything that hasn’t yet been processed and start incorporating it
into the transaction chain that was broadcast out by the node who came up with the
proof of work correctly. Now, this transaction block chain, really what we’re going to be doing in the context of bitcoin is the nodes are only going to consider the transaction block chain that reflects the greatest amount of work
to generate its contents, and again, there’s this proof
of work that I mentioned that is used to kind of determine or identify what the,
what work was involved in coming up with the
transaction block chain. The one that’s the longest
is going to be considered sacrosanct within the bitcoin system. Future miners are supposed to only work off the chain that has
the most work put into it. Now, what’s remarkable here is that the whole
process is decentralized. There is no bank or no
centrally-trusted entity that was actually involved
in the transaction. Hopefully this first video gave you a bit of description,
a flavor, if you will, for the high-level mechanics
of the bitcoin system. There are a lot of stones
I have left unturned, and what I’ll do in subsequent videos is start covering those details, and I’m sure you have a lot of questions, and hopefully the future videos will help answer some of
those questions for you.

100 thoughts on “Bitcoin: Overview | Money, banking and central banks | Finance & Capital Markets | Khan Academy”

  1. Any higher level cognitive skill does not become more motivating when more money is involved. There are studies that show this. Your assuming that motivation only derives from scarcity which is simply not true. People are rewarded by how they are viewed through the eyes and actions of others. We are educated in classicism to think the value of someone is accurately weighed by an arbitrary number. How we measure one another will change with time and with all evolution there are spikes of change

  2. Nah, your behavior is called being a dumbass troll. Nobody likes to read what you have to write, nobody.

  3. Your comment is a red herring. All im saying is even in a future where humans have invented something similar to the matrix from the movie the matrix there would still be material scarcity. Even in a society where everyone has 3d printer that can print anything almost for free there would still be material scarcity. Sure such a society would probably be able to survive and prosper without money, but it could be EVEN MORE prosperous with money.

  4. what a loser imbecile
    You actually think MONEY has anything to do with popularity – youre dumber than i thought, and that is saying something
    Im sure you will be POPULAR down at the socialist soup-kitchen with all your buttcoin buttmonkey loser 'friends'
    L-O-S-E-R

  5. Go to my channel for a Bit Trader bot – manage all your virtual currencies [BTC/LTC] in one place, set thresholds with SMS/Email notifications when your thresholds are reached, live market prices and More!

  6. Funny how this 11 minute overview doesn't manage to cover anything important about the currency. You can tell it's an IT guy and not an economist who made this video.

  7. you think money has any value if no one cared about it?
    sticks were used as currency in the past. because they were popular. you are just a stupid little shit who grew up with the dollar and the current money we use and think it will never change.

  8. i found out a way to get bitcoins free, god knows how long it lasts check the vid on my channel to get them free too

  9. Hey guys, you guys should try Firepa.com if you want to make money online! I am making over $3,000+ per month! Visit FIREPA.COM and start making money now! FIREPA.COM Is paying me and my wife $10.000 / Month

    The protest collaborates the blushing land.

    The savory middle evaluates the linen.

  10. Hy guys, The "Free Bitcoin Directory" has the world' largest list of Bitcoin sites that give-away free unlimited bitcoins for your wallet. Go to freebitcoindirectory. tk

  11. – BitCoin is not made just by running a program. This would be like saying money is made just by running an offset printer. The BitCoin mining programs tells the entire BitCoin network to complete a series calculations over and over again until a BitCoin is created. It would be similar to a slot machine going around in circles until hitting 'of a kind'. And, BitCoin/p2p crypto currencies are not a scam. Scams are not traded on forex markets. The scam is centralized fiat paper currencies.

  12. It's 2013, what grocery store in America would accept silver for apples? Most silver sold is 99.99%. Interesting enough, you know what else is 99.99%? The percentage of the public that can not recognize real silver from fake silver. Silver sounds great in theory but how many people actually know what silver is when they see it?

  13. You guys should check out this EXTRAORDINARY website called FIREPA.COM . You can make money online and start working from home today as I am!

    I am making over $3,000+ per month at FIREPA.COM !

    Visit Firepa.com and check it out!

    Why does the expansion consider the interesting friend?
    The surprise taughts the nine print.
    Why does the water found the rambunctious son?

  14. so that they could not buy or sell unless they had the mark, which is the name of the beast or the number of its name.

    the mark of the beast is very very close.

  15. Bitcoin is not "you getting money for running a program" any more than providing web hosting is just "you getting money for running a web server".

    First: you do not have to mine to use Bitcoin any more than you have to work at the treasury in order to use USD. Miners act as the distributed custodians of the currency: they protect against double spending and get paid to do so.

    Most people simply buy and sell bitcoin, trade for goods, like any other currency.

  16. Warning: Paypal has noticed unusual activity on your account, has noticed you've donated to Wikileaks, or bought things off an eBay seller who is known to be a blood relation of Edward Snowden. Or we're just bored. So Paypal has suspended your account, and you will have to jump through the following hoops to reclaim your Paypal account balance.

    Have a nice day! :3

  17. asianwonder2010 brings up how silver is not presently common in circulation, and how it can be challenging to authenticate. Allow me to add to that that you cannot easily/quickly/inexpensively transact silver over distance and that precious metals can be expensive to secure in large quantities. Vaults, armed guards.. they are vulnerable to purely physical theft.

    To be fair, Bitcoins present their own challenges to secure. But holders can choose information security instead of purely physical.

  18. If you guys are looking for a good BTC-E Trading Bot (allows automatic trading) check out " btce-bot.me " !

  19. wow…you typed words…that emans they must be true right? right

    Dear LOSER – tell me all about ti when Buttcoin crashes to ZERO, and it will

    Words, if not backed by reasonable data or proof, are meaningless,a s are you

  20. Bitcoin’s problems are far from over as now California’s Department of Financial Institutions has decided to issue a cease and desist warning Bitcoin Foundation. The department claims that the foundation is allegedly engaged in the business of money transmission without a license or proper authorization

  21. Bitcoin lovers, I'd love your thoughts on my Dreamybids dotty com rapid auction service. Dreamybids is a wild west rapid auction where you can freeze the bid of the next bidder, buy the timer down or even block others from joining an auction.

    Using dreamybids you can win bitcoins for $10 or less.

  22. what are the subsequent videos? there should be a playlist or at least have them numbered in parts so people know which comes next. Like this one has to guess which one comes next, or is each video on bitcoin a standalone independent video that doesn't require (or is recommended) the knowledge provided in other (previous) videos?

  23. For an exchange to work, their are people that take the used and give you rights to ownership of bit coin. Therefore someone on the other side must consider bitcoin as a loser and USD having more value

  24. Ah, in fact it's even more like the stock market – an increase in the number of bitcoins (or shares) does *not* mean that the "value" (in dollar terms, for example) goes down. Having more in circulation doesn't mean that users will value an individual unit less.

  25. bit. ly/149JVaw this is a very fun bitcoin game in witch u just play minesweeper and junk. its addictive but its a good way to get bitcoins. o ya, it only costs .001 bitcoin to play! check it out and have fun, i started with .01 and i am at .09./2214 this is a very fun bitcoin game in witch u just play minesweeper and junk. its addictive but its a good way to get bitcoins. o ya, it only costs .001 bitcoin to play! i started with .01 and i am at .09.

  26. Is this Khan speaking or did they get additional lecturers? It doesn't quite sound like his voice, but I really can't tell…

  27. Nobody says “let’s import MILLIONS of non-Blacks into EVERY & ONLY Black countries until Blacks become a minority, FORCE assimilate them into EVERY black community to create a “blended humanity”, give them Affirmative Action & free health care and push miscegenation 24/7 via movies/t.v shows & media(only in black countries)”
    THEN, when the Blacks object we call them RACIST!
    They only call WHITES “racist” for objecting to our geNOcide
    Anti-racist is a >code< for anti-White
    /watch?v=lKDeyuM0-Og

  28. Has anybody actually found any decent BitCoin faucets? ­ I only use one, which is below if anyone is interested:

    http://freebitco.in/?r=20965

    Most of them are shit and have the worst payouts, that one is about the best I've found.

  29. we'll if anyone is interested theres a few sites like this and you're not involved yet but don't want to put actual money in yet heres a site that has a lottery helps you get started without breaking the bank http://freebitco.in/?r=14707

  30. For those viewing this as an investment –

    The US dollar's upside is zero and the downside is zero. It is a fiat currency and will lose value every year and ultimately all its value. For bit coin since supply is limited, technically its upside is unlimited but its downside is also zero. Sounds like a no brainer to me. I am in the process of picking up some bit coin. Best of luck to all.

  31. This looks like another variation of the original Ponzi Scheme, invented
    by Herr Ponzi… See, Ponzi Scheme, on Wikipedia, and compare… his
    orginal scheme with this electronic one… Sooner, or later, it will collapse,
    I think.

  32. bitcoin is shit . virtual ? crypto ? wtf !  it came from nowhere and will disappear into nowhere someday . eaving fools hanging .
    buy silver instead  . check out "silver shortage"

  33. This guy (who definitely isn't Khan) hasn't assembled his instructions into easier terms. His fancy schmancy words and fast pace are more confusing than helpful. Did Khan review this video before it was approved? I'm guessing not.

  34. Hello! Have you thought about – Brians Bitcoin Big Bang (just google it)? If you are seriously interested in making money with Bitcoin, Ive heard some super things about it and my father got great benefits with it.

  35. Alright there! Have you considered – Brians Bitcoin Big Bang (Have a quick look on google cant remember the place now)? In case you are contemplating making money with Bitcoin, I have heard some great things about it and my brother-in-law got excellent benefits with it. 

  36. Bitcoin is merely a much higher-tech currency that was created to forcibly move the world faster (with warp speed) toward a computerized one world currency, which will also be controlled the same way (with RFID), in an absolute foolproof way in its final form.

    That is why bitcoin was created anonymously. No individual created bitcoin, rest assured on that. It is amazing that in people's greed, nobody (like with 9-11) seems to know or care what the truth is concerning the origin of the issue. They just jumped in headfirst, like rats, because there were big profits to make with the invention of bitcoin.

    Tools for moving currencies – like credit/debit cards, wire transfers, PayPal, will all give way to RFID. Bitcoin represents a much closer step toward computer-controlled world currency, and RFID the same as the means to control the flow/stock of the one-world currency.

    RFID is the final tool for the financial future, just as a single, one-world currency is the final currency. They are now RFID chipping 100s of people in Sweden for medical reasons, they have chipped some of the US military, but eventually RFID will include all your basic info, including a unique ID, your financial info, your education and work history, and so on, at which time RFID will become the final "debit card," implanted in your right hand or forehead. A few years ago, even the US Congress quietly passed a law making taking the RFID chip "voluntary," once it comes into being! By then, of course, it will be a choice of taking the RFID chip, or else no buying or selling of any kind.

    Everything is in place via the five-story-tall EC "Big Brother" supercomputer in Brussels to do this right now (every person alive is in their database right now!), as is the banking system now capable of implementing both RFID and a world currency. All that is missing is the man who puts it all together.

    And what will bring in RFID?

    The US has been the oil reserve currency, ever since Kissinger made the deal with the Saudis in 1970. Meaning, all purchases in oil anywhere are made in US dollars. The US is also the world reserve currency. Both of these create false demand for the dollar, but the world is sick of our $125 trillion in unfunded liabilities, and our $17 trillion in national debt, and US imperialism, and today as a result (as you know) the dollar is being bypassed more and more in world trade. These black markets will soon become white markets, as world approval grows.

    Last year, China bought 90% of the world output of gold, and now has over half the gold needed to begin minting a gold-backed yuan. A gold-backed yuan would destroy the dollar overnight, because once major nations no longer accept the dollar as world oil/reserve currency, the US balance sheet will INSTANTLY dictate the value of our worthless fiat currency.

    Add to that, China is not interested in the UN's proposed world "basket" of currencies becoming the international standard (dollar, ruble, yuan, euro), because China has the only truly growing economy, the only significant surpluses, and also the goal of world domination. If the dollar crashed, the US would have no choice but to comply to China's every demand.

    As countries (like Syria, North Korea, Russia, China) bypass/eliminate the dollar in their trade, the need for a universally-accepted one-world currency escalates, and RFID is the one foolproof tool to support such an international currency. If you want to know for sure that this is going to happen, and who will implement RFID and the world currency, open your bible and read Revelation, chapter 13, especially verses 16-18. As things develop, people will finally realize that the bible is exact, and easy to understand

    Everyone, read John 3:16. Accept Jesus as your savior. It will change your life forever!

  37. the problem is only a limited number {21 million} bitcoins will ever be produced. if this the becomes primary currency then there will be hyperinflation.

  38. Great job, bro. Watched all the videos in this series ; I definitely like the way you make one video for each aspect of the btc system rather than one long shot where you introduce them all on-the-fly, like others have been doing (even if their work must be saluted, too). It's much less confusing and lets time for the brain to digest them (no pun), put them in blackboxes of sorts and finally asemble them in a global plot. So thanks for your work !

  39. Good video but Why would alice give bob 30 BC if she wants 18 back? isn't this electronic currency? doesn't make sense that she would treat it like a 30 dolllar bill in her wallet right?

  40. Where is the information about bitcoin block chains saved? Who checks/controls nodes? If there is no banks, who will receive 2 btc fee?

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