The full guide to cryptocurrency: Part 1 – What are they and how they work

What ARE they?

Bitcoin is a cryptocurrency (it’s not the only one, but it’s the most popular and I am going to be talking about it a lot), which means that it’s what most people call “the future”. However, it is also known for its system, which can make it easy to find out if one system got cracked. It’s hard to hack and is very open. It’s worth a lot too.

History

Generally, this is practically the history of money.

We started off with trading. Let’s say you had a horse. If that person was willing to, I could tell you that I liked the horse that you had. I could trade you something of value, let’s say, my stash of food. This system worked pretty well. It had one problem: While you might be perfectly fine with giving up your horse, maybe you did not want the stash of food.

Then we used things like silver and gold. This way, it did not matter if you wanted the stash of food or not. You know that lots of people will also trade with it. You are getting something really of value. Fun fact: the British Pound (GBP) is called a pound because it used to be literally one pound of silver.

After, I guess you could say the gold/silver circulation leaked and somehow we don’t have enough to replace the money. The solution to this was banknotes/cash. It did not matter if it actually had value based on the material. It just has value because – well – the government just says it has value. They knew that if the system had trust in it, it can work this way.

Then, credit/debit cards came around. You don’t even need to see or know the person. You can do it all online. And you did not need to be carrying a handful of cash with you.

And that brings us all to Bitcoin.

How do they work? – How traditional banks work

Let’s say that you make a purchase of a mouse (Assuming you are using a debit card) that costs $12 and you and the seller are using the same bank (If they are not it still works the same way, but your bank will contact their bank). The bank will have something like a spreadsheet. This spreadsheet will update itself in a way that states you lose $12 and the seller gains $12. If they are using a different bank then the bank will tell the other bank to manage their spreadsheet.

How do they work? – Ledger

The way to think of cryptocurrencies is by running spreadsheets. But instead of each bank managing it, it is all crammed together. This is called a “ledger”.

How do they work? – Why evreybody is going crypto-crazy

Alright, we all have a good spreadsheet, but what’s all the fuss about?

Well, there are advantages to a system like this:

• It’s decentralised. Even though all transactions are on the same ledger, there are many copies of that ledger. Anybody who wants to can join over a million computers and get a copy of that ledger. You might have heard of crypto mining or bitcoin mining. All that is for somebody to crunch trough transactions on their copy of the ledger. There are already a million miners around the globe. Why they do it? You earn some crypto as reward. The way this works is that when I make a payment, lets say -5BTC, instead of checking with one banks record, it will check with every PC on the crypto network if I have enough, and when I do, each PC will give the go-ahead and update their record to make me lose 5 BTC independently.
• It’s easy to tell if anything fishy is going on. Like if I try to hack into somebody’s PC on the network and give myself lots of bitcoin by adjusting figures on their copy of the ledger, it’s not going to get through. The system will realise that 99.9% of the PCs are all saying something else and only the hacked one is giving the go-ahead. It will know that it was tampered with. There is very clear organisation to the system. And many people beleve in it because they see the future as open-traceable transactions much more then some bits over here, some over there.
• It can replace traditional banks. There are some countries with people who have access to the internet, which is all you need for crypto, but dont have access to traditional banks wire transfer. You don’t have to worry about intrest rates, and exchange rates. It can make transfers almost instantly. And… Anybody can jump on to the network. And most of the time, zero transfer rates.

How do they work? – Blockchain

The reason that cryptocurrencies are called cryptocurrencies is that they are secured by cryptography. One of the ways that most cryptocurrencies, such as Bitcoin, Dogecoin, Monero, and Etherium use is blockchain.

Now many people get confused about blockchain. Remember this:

Blockchain is not Bitcoin. Blockchain is not a currency.

It is just a way of organizing these ledgers. And into, well, blocks. Every time I buy something via crypto, it gets recorded as a block. Each block contains transaction data:

• From. Whoever made the transaction
• To. Who are you paying?
• Amount. How much?
• It’s hash. A hash is a unique identifier.
• Prev. hash. The hash of the previous block in the sequence, or, the previous transaction.

And the idea all of this rests on is that if something in this block is changed, so does the hash. You might know where this is going now because each block contains the data of the previous block. If the hash changes, then the next block will no longer have a matching hash and, as a result, every block after that is declared invalid. Combine this with what we talked about earlier (The idea of more than a million PCs having a ledger), then if I wanted to fraudulently create a transaction that, let’s say, paid me money, I’d not just have to tamper with one block and every subsequent block, but I would have to do this on over a million computers around the world so that the majority of PCs also are consistent and will give the go-ahead in the network with the one I hacked. Probably not going to happen. Meanwhile, bank hacking happens. A lot. And it can be as simple as guessing someone’s six-digit pin. But there is a massive jump between hacking into bank accounts and hacking into 1,000,000 uncoordinated PCs. Fun fact: Crypto prices skyrocketing is known as “Mooning”.

How long will it take to crack a bitcoin wallet address?

A bitcoin wallet is a place where you store your bitcoin. Your wallet address is like your credit/debit card number. A bitcoin address is a random 256-bit number.

There are 2^256 different private keys. That’s larger than a 1 followed by 77 zeroes!

Assuming it takes the same time to run an ECDsA operation as it takes to check a ShA256 hash (it actually takes much longer), and we use an optimization that allows us to only need 2^128 ECDsA operations, then the time needed can be calculated:

It will take just over 0.65 billion years (653799211.223 years) to crack an address.

EDIT: I did point out to myself that computers get faster over time according to Moore’s Law. Assuming PCs get twice as fast every year (they actually get twice as fast every two years but it’s better to play it safe), we can determine this by using the square root of the number, to help this go into a more real-world area:

To be real, it will take 0.42 billion years (427453408.59 years) to crack an address.

Bye!

See you in the next part, where I actually talk about the issues of crypto, and all the alternatives.