The Bitcoin Basics

Learn the fundamentals of Bitcoin from a predominantly non-technical perspective
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  • Lectures 53
  • Contents Video: 7 hours
    Other: 3 mins
  • Skill Level Beginner Level
  • Languages English
  • Includes Lifetime access
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    Available on iOS and Android
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About This Course

Published 10/2014 English

Course Description

Over the past couple years there has been an explosion of growth and innovation in the bitcoin space, but many people still don’t really understand what bitcoin is, or why it’s exciting to so many entrepreneurs and investors.

Draper University and Zapchain have come together with the goal of making the most comprehensive bitcoin course. By making bitcoin more approachable, we hope to inspire people to innovate with Bitcoin, because we believe that bitcoin has transformative potential.

In this course we’ll teach you the fundamentals of bitcoin and introduce you to entrepreneurs who have been funded by tens of millions of dollars, the venture capitalists behind them, and some of the brightest engineers in Silicon Valley, all of whom will give us their unique insights into how bitcoin can change the world.

If you’ve heard of bitcoin but still don’t quite understand what it is, or are interested in how new technology has the power to transform the financial industry today, then this course is definitely for you!

Come join us at The Bitcoin Course.

What are the requirements?

  • This course is perfect for beginners - no prior knowledge about Bitcoin is necessary.
  • An interest in Bitcoin and an open mind

What am I going to get from this course?

  • Understand Bitcoin as both a technology and a currency at a high level
  • Get started with a Bitcoin wallet and make your first purchase
  • Understand Bitcoin in relation to other forms of money and legacy payment networks
  • Create a Bitcoin node

What is the target audience?

  • This course is for anyone interested in learning the basics of Bitcoin as both a technology and a currency. No prior knowledge about Bitcoin is necessary. This course is probably not for you if you're looking for a deep technical dive into Bitcoin, blockchain technology and/or cryptography.

What you get with this course?

Not for you? No problem.
30 day money back guarantee.

Forever yours.
Lifetime access.

Learn on the go.
Desktop, iOS and Android.

Get rewarded.
Certificate of completion.

Curriculum

Section 1: What is Bitcoin?
01:07

What is Bitcoin?

So to begin, let’s start by addressing the question: what exactly is bitcoin?

When it’s talked about in the media, bitcoin is generally referred to as a type of digital or virtual currency. While this definition of bitcoin is correct, it’s also a pretty incomplete one.

At it’s most basic level, bitcoin is a computer protocol. If you’re not familiar with computer protocols, they are basically sets of rules that govern how information is transferred between computers. This protocol allows independent computers across the Internet to link together to form a decentralized network.

What’s unique about the bitcoin protocol is that decades of research into cryptography have culminated in a way to send digital information in a manner that is safer and more secure than ever before.

We’ll explore the technical components of how bitcoin accomplishes this a little later in the course, but for now we want to paint a clearer picture of what this decentralized network does, and why it’s important.

The most practical way to think about bitcoin is to envision it as an Internet-wide distributed ledger.

(There are some good animated introductory videos on YouTube that are helpful for visual learners. Check out the supplement to this lecture for an example.)

00:52

What is a distributed ledger?

If you don’t know what a ledger is, picture an excel spreadsheet that’s recording all of the transactions happening with bitcoin. Now instead of that spreadsheet being only on your computer, it’s being maintained by every computer connected to the network, and each computer has its own complete copy.

In more traditional settings, a ledger recording all transactions would generally be maintained by a trusted central institution like a bank, and the transactions would be flowing through that institution. With a distributed ledger though, every computer connected to the network (or using the bitcoin protocol in this case) keeps a complete and public record of every transaction happening on the network.

Since the system is open and public, anyone with an Internet connection can use the network to transact with anyone else in the world on this ledger without having to go through a bank.

01:21

How do transactions work on the distributed ledger?

So in this distributed ledger, the bitcoin “coins” themselves are the units being counted and recorded in the transactions. Purchasing bitcoin or selling a product or service in exchange for bitcoin provides access to the ledger. So on our imaginary excel sheets, we won’t be tracking the movement of dollars from party to party, but rather the movement of bitcoins. Once you have bitcoin you can transact with anyone else over the network with your transactions becoming part of the distributed ledger.

Using a distributed ledger like this is exciting because it’s an entirely new form of payment system. It allows anyone in the world who is connected to transact with anyone else who is connected for any value, simply by transferring ownership of the corresponding bitcoin and having it be recognized and recorded on the ledger.

Let’s picture Alice who lives in California. She wants to send her friend Bob some money, but he lives in Australia. If both Alice and Bob are connected to the bitcoin network, all Alice has to do is transfer ownership of the corresponding amount of bitcoins over to Bob to complete the transaction. She does this by inputting a value and authorizing the transfer. Bob then receives the transfer with no effort on his end, much as if Alice were sending Bob an email.

01:36

So what’s the difference between bitcoin as a protocol and bitcoin as a currency?

While the practical value of bitcoin may best be understood by describing it as a distributed ledger, it is also important to understand bitcoin as a digital currency. It is a way to exchange money or assets with no pre-existing trust. In this way it behaves like digital cash, if you have the money, you can pay with it, if you don’t you can’t.

As a digital currency, its value is based directly on two things: use of the payment system today - which is basically the amount and frequency of payment running through the ledger - and speculation on future use of the payment system.

It’s often misunderstood that bitoin has some arbitrary value and then people are trading with it; instead, it is more that people can transact with bitcoin in an advantageous way and as a result it has value.

It’s important not to get hung up on the specific value of bitcoins at a given point in time. In reality they are more of a conceptual bridge to get people trading within the bitcoin ledger system. This ledger system then appreciates in value in direct proportion* to the number people who are using it.

In other words, like most networks, bitcoin becomes both more valuable and more useful the larger it gets and the more widely adopted it becomes. A lot of people pay attention to the price of bitcoin, but what's truly exciting isn't necessarily the currency or its valuation, but the technological innovation of the blockchain which enables seamless, low-cost, global transactions for the first time ever.

*The mathematical relationship is a bit more complicated than this. Metcalfe's Law suggests the value of a network increases with the square of the number of users. If you're curious about it, check out the links in the supplement to this chapter for some discussion of Bitcoin and Metcalfe's Law!

02:51

Why is trust so important to financial transactions?

We’ve mentioned the fact that bitcoin allows people to transact online directly with people they don’t trust already, but let’s take a moment to discuss this a little more.

Financial transactions have always relied upon both parties being able to trust that the transaction would occur as expected.

When making a transaction in person - with cash or by bartering - both parties can do their own diligence on whether the transaction is reliable. For example, if I’m trading my shirt for your shirt, it would be very clear to both of us that both the shirts actually exist and that we are in fact exchanging them.

However, as payment methods have evolved and people have started transacting over greater distances, the prospect of trusting the other party has played a larger and larger role.

What generally happens is that instead of transacting directly with the other party, the transaction occurs through a central intermediary, like a bank. Banks and similar institutions step in to alleviate trust concerns by providing both parties with some assurance that the transaction is legitimate and that the funds get from person to person as planned.

For decades now innovations in technology have not found a way to solve this trust issue and thus online payments have never really evolved from offline payment platforms. While the Internet has vastly improved the speed and convenience of interactions, it has generally lacked trustworthiness.

For non-financial transactions, the tradeoff of decreased trustworthiness for increased utility has generally been welcomed. Let’s take a look at phone calls for example.

Mobile phones and Internet based calling have made it much easier for people to interact with each other around the world. Rather than needing to be tethered to a wall, people can make calls while on the go and across greater distances than ever before.

However, mobile and Internet based calls are far less reliable than traditional land lines. Calls are often dropped, fail to connect, or have poor quality, however their advantages make them more useful to people so they’ve become more popular in spite of their lower degree of reliability.

Let’s compare that to a financial transaction.

If I call you and the call drops, it’s not that big of a deal, because I can just call you right back.

Whereas, if I were sending you money - and that money never made it to you - that would be a really big deal. Imagine you’re going to send someone 1 million dollars, you’re probably going to want as much of a guarantee as possible that the transfer will be successful.

That’s where banks - and other central intermediaries - step in. Normally when sending money over the Internet we will work with a bank to perform the transaction, and the bank will charge fees to insure against payments not going through or one of the parties being unreliable.

Bitcoin finally allows us to make reliable and secure transactions over the Internet without relying on banks, despite the fact that the Internet and those who use it can be untrustworthy.

(Cedric Dahl, CEO of Buttercoin, gave a great presentation comparing Bitcoin to Skype that's a great supplement to this lecture.)

02:43

How does Bitcoin solve this issue of trust?

This issue of trust has been studied in length by computer scientists. In fact, it’s such an important concept that it even has its own name: The Byzantine Generals Problem.

To understand the Byzantine Generals Problem, imagine a group of generals of the Byzantine army camped with their troops around an enemy city. The generals must rely on messenger to communicate with each other, and in order to successfully attack, need to agree on one common battle plan.

However, one or more of them may be traitors who will try to confuse the others, so they cannot reliably send messages to each other. The problem is to find an algorithm to ensure that the loyal generals will reach agreement and thus be able to launch a successful attack despite any actions by the traitors.

In terms of computer science, the Byzantine Generals Problem poses the question of how to establish trust between otherwise unrelated parties over an untrusted network like the Internet.

Or more specifically, how can people use the Internet to transfer a unique piece of digital property to another Internet user, in such a way that it’s both safe and publicly recognized as legitimate. Going back to our generals, this is asking how they can reliably communicate without fear that messages are being lost or altered by the traitors.

And while we’ve been discussing this in the context of transferring digital money, the application could potentially apply to other types of digital property, from signatures and contracts, to ownership of physical assets like cars or houses.

Bitcoin approaches this problem by giving every bitcoin and every user unique identifying codes. These codes are what are recorded on the ledger, and ownership of a bitcoin is demonstrated by matching a user code to a bitcoin code.

This is then recorded in what is called the blockchain, which is the digital ledger that every computer in the network maintains We’ll expand on this a little later in the course, but the basics are that if 51% of the network records ownership, then it is recognized as legitimate and becomes a permanent part of the blockchain going forward.

The purpose of this 51% threshold is that in order to do a fake transaction and have it work, that person would need to control enough processing power to gain control of more than 51% of the network which is a massive amount and becomes practically impossible as the network grows.


When you subsequently decide to sell your bitcoin, you transfer the unique identifying code over to another user, and this is again publicly recorded on the blockchain. Through this network then, we have a coherent system to establish property ownership and to facilitate the transfer of that property without needing to go through a central intermediary.

17:59

Matthew discusses how Bitcoin enables trustless transactions in a way that hasn't been possible before

10 questions

This quiz will test the concepts and information covered in Section 1 of the course.

Section 2: An Evolution of Payment Systems
00:18

Hi everyone, welcome back to The Bitcoin Course. Now that we’ve discussed at a high level what bitcoin is and how it works, let’s take a moment to analyze it in the context of the financial landscape today.

Since bitcoin is a new form of money, let’s begin by first asking ourselves: what exactly is money?

03:14

What is money?

Money is generally defined as something that can be used as a medium of exchange between equal values of work and resources. In this way money can act as a store of value, a unit of account, and as a medium of exchange.

When discussing how bitcoin functions as both a currency and as a payment system, it’s useful to understand how society has transferred value historically. Over many generations, people have adapted different mediums to transfer value amongst them, and each of these methods has responded to inefficiencies in the methods that preceded them.

Historically, people used the barter system in which they traded something they owned for something they wanted.

The medium of exchange in this system ranged from livestock to grains to textiles depending on what groups had in supply or needed from others.

The value of these goods is not guaranteed in any way, rather the parties have the obligation to inspect the goods and determine their unique value themselves. There is also no traditional manner of recourse if one party changes their mind after the deal.

Bartering is quite limited for a few reasons. First, it relies on parties having complementary needs (or a coincidence of wants as it is often called).

Second, there may be an absence of a common measure of value between the parties.

Third, many items are not easily divisible, and finally, perishable goods depreciate in value quickly.

The limitations of the bartering system led to the rise of commodities as a method of transacting. Gold was the most popular commodity to use primarily because people valued its physical properties.

So what made gold so good to use?

Gold is scarce (so there’s not too much of it), durable (so it will last over time and use), divisible (so it’s more practical to exchange), and distinctive (so it’s hard to fake)

In practice, gold was used much like bartering. There must be a physical delivery of gold for the transaction to occur, and there is no recourse available after a transaction.

There is also no central authority guaranteeing the value of gold, rather people maintain a belief that gold will remain desirable in the future in determining its present value. While it was more convenient to trade with gold than to barter, people were still limited because storing and transporting gold can be fairly difficult.

Since gold was not extremely practical, countries began developing paper money to act as placeholders for easier use. In the US, cash was traditionally backed by a set amount of gold.

However, this “gold standard” eventually gave way to the fiat money we see today. Instead of a one to one relationship between paper notes and a physical commodity, governments simply declare that the paper notes have value and can thus be used in commerce.

In this system, the underlying value of cash is rooted in the trust people have for whatever government is backing the currency.

An important consequence of fiat money is that there is now an unbounded supply of money. Governments can print more money at will as a political tool, devaluing the money already in supply.

01:07

In many ways bitcoin is a return to a currency that is backed by its own inherent usefulness. As gold is valued for its unique physical properties, bitcoin is valued for unique properties that make it what it is.

When analyzing why bitcoin is valuable, it’s important to distinguish the protocol from the currency. The Bitcoin protocol creates this decentralized ledger for secure transactions that we’ve discussed before, and in order to use the ledger, you have to buy some bitcoin (the currency). It is the access and ability to use this ledger system for transactions that provide an underlying value to bitcoin.

Thus while the exact valuation of a bitcoin might fluctuate as the system grows and matures, the underlying value of the protocol will drive the value of the currency.

Alright, so we can see that using a virtual currency maybe isn’t all that unusual considering how people have transacted in the past. We still haven’t really addressed why it might be more advantageous to use bitcoin though.

To do that, let’s look at some of the inefficiencies and limitations of existing payment platforms.

01:40

What are the limitations of legacy payment platforms?

Many of the problems with the existing payment platforms stem from the fact that they rely on central intermediaries to handle transactions.

As we discussed before, non-cash transactions have historically relied upon some degree of trust. In order to trust that money is being transferred reliably, we have relied on central institutions like banks to manage the transactions.

However, that service comes at a price.

For one, the infrastructure of these legacy payment platforms is old and expensive to use. This leads to institutions having to charge transaction fees simply to cover their own costs to use systems like ACH or SEPA. The transaction fees serve to pass these costs down the line to merchants and consumers, increasing transactional friction.

In addition to paying simply to use the payment rails, transaction fees are bloated by costs associated with insuring against credit card fraud, bad debt, paying for customer support, rewards programs, and the cost of covering purchases before people actually pay off their credit cards.

This often leads to credit card fees of 2-3% for normal transactions with cuts going to the banks and payment processors involved. It’s important to note that these rates have remained relatively the same for decades.

You’d think decades of massive innovation in the technology space would find a way to drive those prices down, but there has been no real competition in the financial services space that has been able to accomplish this because they all rely on the same antiquated systems, and the banks are perfectly happy with the status quo.

02:24

What are the advantage of Bitcoin?

This is where the decentralized network concept underlying bitcoin is so important, as banks are no longer a necessary party to transactions.

While the high cost of transaction fees has been a significant drawback to the legacy payment platforms, bitcoin is not free of fees. When sending a bitcoin transaction over the network, you depend on one of the miners to confirm your transaction and add it to the blockchain. In order to convince one of these miners to bother processing your transaction, it helps to include a small fee that goes to the miner.

Where this differs from the cumbersome transaction fees of the legacy systems is that the decentralized network essentially creates a fluid open market for these fees rather than having them set arbitrarily by the banks or credit card companies.

You will only end up paying the actual cost it takes for a computer to process the transaction and include it on the blockchain. In the near term these transaction fees are subsidized by the mining rewards, but as bitcoin production slows the transaction fees are expected to reach an equilibrium approaching the true cost of processing a transaction.

Companies that arise to make transaction simpler and more seamless for consumers and merchants may charge fees on top of this for their services, but the ability for people to transact over the blockchain themselves will act as a natural competition to keep these fees at a reasonable and competitive rate.

In the past, this fundamental level of competition has never existed in the space and thus the market price has not been forced down.

So now that we know a little about how bitcoin will drive transaction costs down, let’s take a look at the relative risks involved in the old platforms versus bitcoin.

Since it’s not necessary to entrust any third parties with your personal or financial information in order to use bitcoin, credit card and identity theft are not a risk when using bitcoin.

When using cash, there’s always the risk of running into counterfeit bills. With bitcoin on the other hand counterfeiting is not possible which reduces risk and potential costs.

While fraudulent and counterfeit purchases are eliminated with bitcoin, so too are chargebacks. A bitcoin transaction is irreversible unlike a credit card charge, and this significantly reduces costs for merchants.

And while bitcoin theft has occurred in the past, all of these breaches have exploited weaknesses unrelated to the protocol itself.

01:26

How does Bitcoin change international transactions?

It’s also important to note that the payment systems we’ve been talking about, while standard for most modern Western countries, are much less reliable in many parts of the world.

In fact, transacting between different countries can be an incredibly complex and expensive process. Many people in the bitcoin space have identified the area of international transactions as an area where bitcoin’s transformative potential is most promising.

Right now, if you want to send money from the US to, let’s say somewhere in Asia, you’ll have to not only pay large fees to exchange currencies, but also pay large amounts because the two countries are going to have different banking systems that don’t actually connect to each other.

Bitcoin on the other hand is goegraphically unbound and thus can be easily accessed by anyone in the world with an Internet connection. This means that the large unbanked populations around the world can now transact in the global marketplace.

One of the most readily identified use cases of bitcoin as an international payment platform is the remittance market. A remittance is when someone who works in one country sends money back to friends or family in another country. Current estimates put the global remittance market at over 500 billion dollars, and these transfers are rife with fees and other transactional hurdles that cut out massive amounts of the money being sent.

09:33

Christopher Smith discusses what money is, what makes good money, and how bitcoin compares to our notions of good money

Watch this interview on Youtube: https://www.youtube.com/watch?v=BSxe15lgkWc

10:47

Christopher Smith discusses what money is, what makes good money, and how bitcoin compares to our notions of good money

Watch this interview on Youtube: https://www.youtube.com/watch?v=BSxe15lgkWc

19:43

Greg Brockman, the CTO of Stripe, discusses the underpinnings of Bitcoin and how it allows people to transact over the internet like never before.

11:31

Nick Tomaino, Business Development at Coinbase, discusses what it's like working with merchants who want to accept Bitcoin and the potential for future payment innovations

Watch this interview on Youtube: https://www.youtube.com/watch?v=DOgZy6-nO5s

10:46

Nick Tomaino, Business Development at Coinbase, discusses what it's like working with merchants who want to accept Bitcoin and the potential for future payment innovations

Watch this interview on Youtube: https://www.youtube.com/watch?v=DOgZy6-nO5s

13:56

Brian talks about the problems people have transacting in the developing world and how Bitcoin can revolutionize international transactions

15 questions

This quiz covers the material from Section II

Section 3: The Protocol
00:16

Hello everyone, I'm here to tell you some more about bitcoin, specifically about how the bitcoin protocol works. I will assume the audience has at least a basic understanding of how money works, and I will be smearing out some details to make things easier to understand. If you ever want to know more of the details, you can do research online.

01:29

Bitcoin is a digital currency. Most people think of money transfer as taking place physically, like Alice gives Bob a $1 bill for some vegetables. However, if you've ever sent money overseas, you might have done a wire transfer, which doesn't involve you handing anyone dollar bills. Instead you call your bank, convince them you are who you say you are, tell them how much to send, where to send it and which account to take it out of. So we shouldn't be shocked at the idea of digital or non-physical money, since that's been around for a while in the form of wire transfer.

To understand bitcoin a bit better, let's first look at how the bank does the wire transfer. The bank has a big ledger or spreadsheet with all of their customers' personal and account information. When Alice calls them and claims to be Alice, she gives them enough information about herself, maybe where she grew up, a secret number and the name of her first love, to convince them that she really is Alice. That's called authentication; the bank wants to be reasonably sure the request is authentic. Then Alice tells them she wants to wire $1 to Bob's account and the bank makes sure that Alice actually has enough dollars in her account to pay Bob along with all the bank fees and if she does, then they send the money. So that's how banks do wire transfers.

There's something important in all this, and that's how much trust Alice has to place in the bank for this to work. The bank has control over her money. The bank has a lot of her personal information. The bank could lie to her about how much of her money is there and she probably wouldn't find out. It's a very privileged position.

01:10

Sending bitcoin is actually very similar to sending a wire transfer, except there is no bank. Instead of a bank, bitcoin uses peer-to-peer networks, digital signatures and proof of work to accomplish the same task of transferring value. We're going to talk soon in more detail about each of these technologies, but first let's walk thru an example.

Let's say Alice wants to send 1 bitcoin to Bob. She doesn't have to physically hand anything to Bob. Remember the requirements to wire money? Alice had to authenticate herself or prove she was who she said; she had to say how much to send, where to send it, and where to take it from. So Alice creates a transaction, which is just a message with the to, from and amount listed and digitally signs it. Then she announces it to the bitcoin network thru the internet and the network starts gossipping about it 'Did you hear Alice sent Bob 1 bitcoin? Did you hear Alice sent Bob 1 bitcoin? Did you hear...'. After a few seconds, the whole network has heard about it.

Bitcoin miners are part of the network, so they hear about the transaction and put it in a block with other transactions. Then the miners start the proof of work and when they do enough work, they announce the block to the network and Alice's transaction to Bob becomes official.

(Check out the external link for another good visual representation to supplement the lecture!)

00:44

Let's talk about peer-to-peer networks.

There are thousands of computers around the world called bitcoin nodes that are connected to each other in what's called the bitcoin network. Anybody who has a computer and an internet connection can become a bitcoin node. Each bitcoin node is connected to or knows about several other bitcoin nodes called their "peers". They are called "peers" because no bitcoin node is more authoritative than any other, which is why the bitcoin network is called a peer-to-peer network, instead of a master-slave network.

Bitcoin nodes hear about transactions and pass them around to their peers. After a little while, every computer has heard about them. The peer-to-peer architecture enables all the bitcoin nodes to update their shared ledger, the blockchain, in the same way without trusting any node more than the others.

(For a map of all the Bitcoin nodes check out the website in the lecture supplement.)

01:26

Ok, now let's talk about public key encryption briefly, since digital signatures are a type of public key encryption.

Public key encryption might sound complicated, but the basic idea is simple. The core thing to understand is the idea of a trapdoor function. It's all about things being difficult to reverse. It's easy to light a piece of paper on fire, but it's difficult to reconstruct the paper from the ashes. So a trapdoor function is something that's easy to apply, but difficult to reverse.

Ok. How do the trapdoor functions work?

Each person has two numbers called the public and private key. We call them keys because both of them can lock and unlock things. The public key is used to apply the trapdoor function. It's public, so anyone can do it. The private key is used to reverse the trapdoor function, and since it's private, only you can do it.

So how does the digital signature work?

You take a message and encrypt or lock it with your private key. Then you send it out to whoever and anybody can decrypt or unlock the message with your public key. The reason it's called a digital signature is because if somebody tries to change the message, they won't be able to encrypt it to make the digital signature because they need your private key to do that. It's difficult to forge, but easy to check.

Digital signatures can be read by anybody, but only you can write them, sort of like a handwritten signature, but better. Bitcoin uses digital signatures to verify that someone is spending money from their own account, not someone else's.

02:04

Imagine you go to a foreign land, and you hear about a great wonder of the world there.

Imagine you ask a man named Jerry where it is and he takes you to a small office building and says "This is the wonder you seek". You probably wouldn't believe Jerry right? Why would an office building be considered a wonder of the world? So you keep looking.

You come across a woman named Sherry and ask her "Where is this great wonder that I have heard about?" and she takes you to a gigantic pyramid. "This is the wonder you seek." she says. Sherry is much more believable than Jerry, right? The pyramid clearly took a lot of work to make it. That's what makes it a wonder.

Proof-of-work is a similar idea, except it works with numbers instead of buildings.

An important fact about numbers is that most numbers are big, however you define "big". Proof of work uses another trapdoor function, like with digital signatures, but instead of making something that is difficult to forge, it uses something that is difficult to predict.

So I put a number into this trapdoor function and hash it, as it's called, and it outputs a completely different number in an unpredictable way. If I hash another nearby number, the output is completely different from the previous output. So now if I come to you with a big number that when you hash it comes out as a really small number, that's evidence that I searched thru a lot of numbers to find it. Most of the big inputs hash to big outputs, because most numbers are big. So that special input that comes out small, it's like a block in the pyramid, evidence of a lot of work. You can't just take a small number and run the hash backwards because it's a trapdoor function, it doesn't go backwards. So that's proof of work.

Bitcoin uses proof of work to determine which version of the blockchain is the real one, which makes falsifying the history of the bitcoin economy very difficult.

Say Jerry and Sherry from earlier both come to you with different versions of the blockchain and Jerry's blockchain has a bunch of big numbers that hash to big numbers, where as Sherry's blockchain has a bunch of big numbers that hash to small numbers. Sherry's blockchain, like the pyramid, represents a lot more time and effort, a lot more work, because small numbers are rare, so her blockchain is probably the one that everyone has been working on.

01:07

To summarize, let's go thru the example with Alice and Bob one more time.

Alice wants to send 1 bitcoin to Bob. She creates a message saying 'I, Alice, want to send 1 bitcoin to Bob's account'. That's the transaction.

Then she encrypts or locks it with the private key to her account, making a digital signature. Then anyone can unlock the digital signature with her public key to see that she is indeed who she says she is, but nobody can change it and relock it without her private key.

After digitally signing it, she announces it to the nearest bitcoin node, which then begins spreading the news of the transaction to all its peers, who in turn spread it to their peers and so on until the whole peer-to-peer network has heard about it.

Meanwhile, at some point a miner will hear about it and put it in a block, which is basically a bag of transactions. Text is the same as numbers to a computer, so the miner then treats that block as a big number and starts searching for another number to stick on the end of it so that the two numbers together hash to a sufficiently small number. This is the proof of work. When a miner finds that special number, the next block is said to be mined, and Alice's transfer to Bob is complete.

19:39

Ross discusses the Bitcoin protocol, explains the blockchain, and talks about developments in Bitcoin mining

(See the supplement for a breakdown of existing mining pools.)

13:19

Olaf Carlson-Wee, Head of Risk at Coinbase, discusses his vision for Bitcoin's future and how Coinbase works to secure Bitcoin for users

Watch this interview on Youtube: https://www.youtube.com/watch?v=y-qLJ_uxqho

12:14

Olaf Carlson-Wee, Head of Risk at Coinbase, discusses his vision for Bitcoin's future and how Coinbase works to secure Bitcoin for users

Watch this interview on Youtube: https://www.youtube.com/watch?v=y-qLJ_uxqho

12:05

Chris walks us through the Bitcoin mining process and how it contributes to the blockchain

Watch this interview on Youtube:
https://www.youtube.com/watch?v=pgZ1GeT9rAg

11:47

Chris walks us through the Bitcoin mining process and how it contributes to the blockchain


Watch this interview on Youtube: https://www.youtube.com/watch?v=pgZ1GeT9rAg

13:54

Adrian talks about the ability for anyone to use the Bitcoin protocol to build exciting new companies

Watch this video on Youtube: https://www.youtube.com/watch?v=qJv5Tvb0738

12:46

Adrian talks about the ability for anyone to use the Bitcoin protocol to build exciting new companies

Watch this video on Youtube: https://www.youtube.com/watch?v=qJv5Tvb0738

10 questions

This quiz tests the material covered in Section 3.

Section 4: Innovation in Bitcoin
00:28

A big part of what makes bitcoin so exciting is the vast array of potential innovations that can happen with the technology. Now that we’ve learned how to understand bitcoin at a high level and some of the potential uses it can have, let’s meet some of the individuals who are working in the space right now.

We’ll learn how these innovators first got involved with bitcoin, how they’re utilizing their unique skills and experiences to tackle interesting challenges in the bitcoin space, and how they see bitcoin changing the world in years to come.

11:36

Tim Draper, founder of Draper University, discusses what inspired him to invest in the Bitcoin ecosystem and how the technology can transform the world

Watch this interview on Youtube: https://www.youtube.com/watch?v=YGxOHR1vnSo

11:33

Tim Draper, founder of Draper University, discusses what inspired him to invest in the Bitcoin ecosystem and how the technology can transform the world

Watch this interview on Youtube: https://www.youtube.com/watch?v=YGxOHR1vnSo

14:13

Adam discusses his decision to launch a Bitcoin focused VC and the potential Bitcoin has to revolutionize financial markets across the world

Watch this interview on Youtube: https://www.youtube.com/watch?v=kRwVWPDdYH8

12:12

Adam discusses his decision to launch a Bitcoin focused VC and the potential Bitcoin has to revolutionize financial markets across the world

Watch this interview on Youtube: https://www.youtube.com/watch?v=kRwVWPDdYH8

14:27

Adam discusses his decision to launch a Bitcoin focused VC and the potential Bitcoin has to revolutionize financial markets across the world

Watch this interview on Youtube: https://www.youtube.com/watch?v=kRwVWPDdYH8

12:01

Matt discusses common misconceptions about Bitcoin, what needs to happen for widespread BItcoin adoption, and some exciting future use cases for Bitcoin technology.

Watch this interview on Youtube: https://www.youtube.com/watch?v=IbJbuPJTc8c

13:09

Matt discusses common misconceptions about Bitcoin, what needs to happen for widespread BItcoin adoption, and some exciting future use cases for Bitcoin technology.

Watch this interview on Youtube: https://www.youtube.com/watch?v=IbJbuPJTc8c

10:47

Derek discusses the hiring market in the Bitcoin space

Watch this interview on Youtube: https://www.youtube.com/watch?v=vQdB_onpR9Q

11:22

Derek discusses the hiring market in the Bitcoin space

Watch this interview on Youtube: https://www.youtube.com/watch?v=vQdB_onpR9Q

Section 5: Getting Started
Getting started with Bitcoin
00:35
Article

Here we'll point you in the direction of some good places to start researching which wallet service might be right for you

01:02

Chris shows us how easy it is to make an online purchase using bitcoin!

08:38

For those who want to get even more involved, Chris walks through how to turn your computer into a Bitcoin node

Section 6: Bonus Interviews
04:56

Chris discussed the open source nature of the Bitcoin protocol and why it's important

16:58

Daniel discusses how the Bitcoin ecosystem and public perception has evolved over the last two years

19:15

James discusses the patent filing proess and how different types of IP protection can be useful to innovators in the Bitcoin space

16:13

Teemu discusses how storing and transacting with bitcoin compares to traditional forms of money regarding your security

Watch this interview on Youtube: https://www.youtube.com/watch?v=8aKRZmMwwcM

19:30

Teemu discusses how storing and transacting with bitcoin compares to traditional forms of money regarding your security

Watch this interview on Youtube: https://www.youtube.com/watch?v=8aKRZmMwwcM

Section 7: Supplemental Material
Other resources
Article

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Instructor Biography

Draper University, Education for Innovators & Entrepreneurs

Draper University is Silicon Valley's top entrepreneurship program for builders and innovators from around the world. Students experience Silicon Valley via a cutting-edge, hands on curriculum taught by the most successful entrepreneurs in the Valley. Learn how to launch a business in this unique startup boot camp for entrepreneurs. Our program is about the future: making an idea into a prototype, growth hacking, pitching to venture capitalists, and ultimately building a great business. We are taking applications now for our 2016 Cohorts.

Visit our website to Apply!

Instructor Biography

Matt Schlicht, Founder of ZapChain

Founder of ZapChain, the fastest growing network of Bitcoin professionals. At least one person from every major Bitcoin company, VC firm, and publication, are on ZapChain.

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