How does blockchain work? | Unravel the tech with us | Ep 01

Rudy: 0:05

Hey everyone, welcome to the sugarcane podcast, where we give you your tastiest tidbits of crypto. I'm Rudy.

Sheldon: 0:12

Hey, I'm Sheldon. I'm the founder and CEO of Sugarcane.

Rudy: 0:16

And we got some fun information for you about crypto. So a lot of my life growing up, you know, since 2013, learning about crypto, understanding different transactions. A lot is happening in the background. Right now I have different apps handling everything for me And every time I explain blockchain to people I kind of get stumped, i kind of don't know how to explain it. But I kind of understand how it works And I'm hoping actually, sheldon, you can clear that up for me today. How does blockchain work?

Sheldon: 0:47

That's a huge question, dude, like taking a bit of a step back and looking at what blockchains really do, right, they come to some agreement on some state of the world. So if you think about how, let's say, you have your bank account, you have all your transactions in your bank account, that's how much money you have available to you, and every time you basically swipe your card at, let's say, cvs, now you update that kind of transaction log with a new transaction to say, you just bought $5 of serial from CVS, right? So you can think of blockchains as a way to basically take that kind of step-by-step world transaction state of the world and have that be available for anyone to see. So now anyone can actually see how much balance each person has and see that changing over time.

Rudy: 1:32

So like, if I'm using a credit card. Visa knows that I have $5,000 or $10,000 worth of credit on my credit card. They know that I just spent $5 at CVS to buy some serial. So you're saying, with blockchain, everyone knows what I have and how much I have.

Sheldon: 1:52

Yes and no. So you can make it so that people can now be able to see how much balance you have. And if you now want to transact with me, you want to send me $5 and we're using some app to do that. Now the app knows that you have $5, i have $0, and now you're going to send that $5 to me, and so now our state changes from being you have $5 and now zero, and now I have $5 from you. That's the way that actually think about it.

Rudy: 2:16

But then who manages it? Right now I know Visa is managing my credit. I trust them. What's the difference?

Sheldon: 2:23

So the difference there is that in the Visa scenario, you have your own bank at Chase. I have my own bank, let's say, at Bank of America, and we basically use Visa to communicate from Chase to Bank of America. That now that money moved, but in the state of watching technology, instead of having Visa as one company and Chase as one company and Bank of America as one company, we now have Sheldon as one entity and Rudy as one person, and we're using the blockchain to basically update the balances. So instead of it being like you have your separate organizations to manage that and control that, now anyone can actually manipulate that and control that with your approval of that.

Rudy: 3:03

So then does everyone have the same, I guess, ledger on what's going on.

Sheldon: 3:10

Yeah, so they essentially have the records right. If you think about our ledger as just the records of who has what balance, everyone has visibility of that And as we're updating that and changing that, the changes can't be done without, let's say, my approval of that or your approval of that, But anyone can see the balances. So now it makes it so that anyone can interact and transact with each other without having any central party in the middle.

Rudy: 3:34

That sounds like a lot of hassle. What's the benefit of doing this? I mean, visa is a lot easier, just to let them handle it. What's the benefit of this?

Sheldon: 3:41

Yeah, and I definitely agree with you. From the outset it looks like it's pretty complex. What's the point? But if you're in a scenario where you now are transacting in a certain part of the world, right, and banks don't want you to transact with that person, you get cut off the banking system. Or if you're in the industry, like in the US, for example, let's say I approve this or endorse it anyway, but like Yeah like I don't know somewhere in Africa or like Indonesia, or even like even in Europe.

Rudy: 4:14

It's tough in some places. Yeah, it's a lot of places actually.

Sheldon: 4:19

Yeah, like if you're actually sending money from the US to, let's say, south America, it'll cost you about $17, $18, and it'll take three days for that person to get the money Right. If you're sending money back to your family in another country, that's also very expensive, it takes a long period of time, and so that's kind of ways in which you can actually reduce the time and also cost of doing that transaction.

Rudy: 4:40

Yeah, that makes sense And, like what I've been voicing, i think, for myself and trying to explain to others how important this is, like globally. I feel like in the States it's super easy to change money, like I have Venmo PayPal Cash App. We have so many options to move money around between Americans and for free, but as soon as you go to a different country it's a little bit harder And to change money between countries it's a lot harder.

Sheldon: 5:11

Yeah.

Rudy: 5:12

And I think that's my favorite use case of crypto is that you get really interact globally with anybody you want.

Sheldon: 5:20

And also the reality is that a lot of parts of the world they don't have access to US dollars, and so what that means is that their own currency can get devalued by their government or it can get manipulated in ways that really impacts. Like, let's say I earn $100 a day And let's say tomorrow the cost of bread goes from $5 to $20. That's a four times jump, and it's not a cost me four times as much just to pay for that bread, because of just the currency manipulation. And so, even though I make the same amount of money on a day-to-day basis, it costs me more to live.

Rudy: 5:51

And that's not an over-exaggerated example either. It's happening in some countries like Argentina, So that's a real issue And like. So, now that we have this picture of all right, you have a bunch of computers talking to each other approving transactions that we incur, Is there, does everyone have to approve? Like? how many computers are needed to say that's enough to say it's a legitimate transaction? What happens if one person is approving all transactions? Can that even happen?

Sheldon: 6:25

Yeah.

Sheldon: 6:25

And so to kind of describe that. I kind of talked specifically about Ethereum as a blockchain. So you think about Ethereum as a blockchain. There's Bitcoin as a blockchain, no-transcript. There's a lot of people around the world who run what's called nodes, so these are different computers that are kind of hosting the Bitcoin or Ethereum blockchain, and so the way that works is that there needs to be 51% of the people saying something that's false for it to get approved. So if you're thinking about everyone across the world, there's about, let's say, tens of thousands of computers running this infrastructure, and so if half of those people basically say something is invalid, then that's how you can actually update the blockchain with the invalid information. So that's enlarged by people.

Rudy: 7:14

Do these people actually go on their computers and click yes or no, or is that just all automatic?

Sheldon: 7:20

No, it's all automatic. So their computers are actually having some rules that they go through to verify if something is correct And if the actual rule is checked that they approve it, they can actually push it forward. So it's not like you're sitting on a computer like mashing keys to say yes or no on the transaction. It's all happening automatically. So it's all done in the background And so someone actually intentionally say something bad and put that rule into place for it to go through and convince half of the other network to also say that bad thing or to actually yeah, so that sounds pretty hard to do as a person to actually try to manipulate over 51% of what's happening now in Bitcoin or Ethereum.

Sheldon: 8:00

Yeah, that's the idea And like, if you think about like the total, like market cap of Ethereum, for example, or even descriptive, generically speaking, it's about a trillion dollars And so you basically have to convince essentially about $500 billion worth of value to say something bad for that to get approved on chain.

Rudy: 8:16

So, just to give you context of, like how much money it'll take for that to be overturned So maybe if Apple puts all of its wealth into Ethereum, it might just be able to change it over.

Sheldon: 8:33

The problem is that, like also, you have to keep doing it multiple times. So like, if you did it once and you get kind of punished for that, you lose your money, and so now you just burned half a billion dollars, and then you have to keep doing it over and over again.

Rudy: 8:46

So Oh, wow, so use no, no easy way to do it, huh.

Sheldon: 8:51

Yeah, no, this is not like a. If you have $500 billion sitting in your bank account that you want to burn.

Rudy: 8:57

That would be nice, but no, i don't. So then, all right then how do I get like, how do I get someone into this, if people are asking me I want to invest into the technically sounds good, i want to invest into crypto. What's like the easiest way. What's your go to?

Sheldon: 9:14

Yeah. so historically, if you're trying to get into crypto, you do something like Coinbase, right? If you want to buy Ethereum or buy Bitcoin or even buy any of the long tail of like crypto assets, you basically go on to their, creating account there and buy whatever token you want. But the reality is that like blockchain is much more than just like the token itself. It's actually about a whole new world of like financial services. So if you're thinking about like lending money, or if you're thinking about getting some type of return on whatever investment you have, there's something that she actually can enable now that you have this kind of new financial, primitive financial world. So sugar cane actually funny enough is a product that enables you to actually get access to a number of different financial services that are backed by blockchain technology, So you actually can get returns from different types of investment that are pretty stable or pretty safe.

Rudy: 10:03

But I keep hearing like all these exchanges getting hacked, or these different crypto companies getting hacked and people losing their funds. And just how do I get this crypto, knowing that my funds are safe or like if no one's doing some shady acts with them?

Sheldon: 10:19

Yeah. So it's kind of the between like C-Fy, which is like centralized financial institutions like Coinbase or Binance or last year FTX kind of took a big hit in the in the, in whatever they're doing because they're doing kind of shady stuff And there's also DeFi, where it's like more decentralized finance, where they're actually smart contracts on the blockchain that can't be altered unless you have $5 billion that you want to burn or $500 billion you want to burn. So kind of just between like centralized entities, which is just people controlling at the end of the day, versus like DeFi, which is more decentralized finance. The blockchain controls it. It's a lot more expensive to manipulate, it's temporary, just temporary resistant, and so that's why kind of building blockchain, building technology based on DeFi products is much more sustainable because it's not anybody in the middle that can manipulate it.

Rudy: 11:08

So it sounds like DeFi is actually safer than C-Fy.

Sheldon: 11:14

Yeah, but the problem is that, like the DeFi experience is pretty clunky and like you have to know very technical things right now to basically be able to access it. But that's kind of the problem we're solving with blockchain.

Rudy: 11:24

I mean this makes sense, but I don't know. I just feel as like more comfortable. I guess what I'm used to is just giving it to my information to a company, setting up my bank account with a company and then buying it and leaving it there. then I don't have to worry about anything. So I guess it's going to be hard to implement DeFi, isn't it?

Sheldon: 11:44

Yeah, i mean, i'll be honest, like, historically speaking, that would have been the approach, right.

Sheldon: 11:48

Like it would have been easier to say, hey, i'll give my money that I've saved up in my bank account over to an FTX and have them basically make me money or be able to have me invest money through them.

Sheldon: 12:00

But the reality is that you're still trusting that entity to be a good steward of it and not take it and do whatever they want with it. So what you saw in the FTX scenario is that they were basically using customer funds to invest in their own products or their own assets, and in that scenario, you as a user never knew that like send back before. You're just pushing buttons to actually move your money without you knowing, and it's kind of just like people who have went through the experience they realize that that's kind of the negative side of it. If you trust the centralize entity, they can take your money and do whatever they want with it, but in the blockchain crypto space, you don't have to do that right, and that was just a matter of like building experiences that make that whole process easier And that's kind of that's a shield too much, but that's kind of what we're going to try to do as well.

Rudy: 12:44

That's pretty insane how a Sandbaker and Fried was able to actually just do the underneath Everyone's noses. It's for a while until he got caught.

Sheldon: 12:51

Yeah, he torpedoed like 10 billion dollars a buy, which is terrible.

Rudy: 12:56

And it boils my mind. It's like puts crypto's name through the dirt.

Sheldon: 13:02

Yeah, for sure.

Rudy: 13:02

Even though the idea of crypto was to not allow this Yep, and it still doesn't allow this, but the centralized entities can still make that happen.

Sheldon: 13:14

Yeah.

Rudy: 13:15

Like, what are people doing about it now? Like there's coin based now I think Binance is getting some heat from the acting shady. Yeah, for sure. This sounds like decentralization and being open and transparent is the only way forward. Is there still room for centralized exchanges?

Sheldon: 13:34

I think honestly, yes, just because, like, still on, ramping into this kind of different financial system requires some hand holding And, to be honest, like, binance coin bases of the world have been really good ways to get assets into crypto, into blockchain, cryptocurrencies. But like, the reality is that like, if we're going to grow forward as an industry, we need to move away from having a dependence on C-fi or kind of the coin bases of the world, the Binances of the world, to get assets on chain. So just take some time And like also, like a lot of dristers, a lot of scammers came into the space over the past couple of years And so, even though it last year hurt a lot, i think it was definitely necessary to clear out a lot of the bad actors and like kind of see what those went on.

Rudy: 14:19

Yeah, and those bad actors. I mean those bad actors in every industry and every aspect of life, and hopefully that's a, you know, hopefully they're out of crypto, but there's always something. So from what I've gathered so far today is that, technically speaking, there's a record, a ledger, on all these nodes on different computers around the world that equal to some current rate, about a trillion dollars, for Ethereum specifically And, i guess, bitcoin separately. They speak to each other, they confirm the transactions And I believe they're also rewarded for doing that.

Sheldon: 15:05

Yep.

Rudy: 15:07

And then for a user to use crypto, then first step is just moving US dollars or fee out money onto some type of exchange whether that be a centralized exchange or a DFI app that has ability to convert from a credit card, debit card or bank account into cryptocurrency And once you're on that, you're kind of free to export once you move it off of the exchange.

Sheldon: 15:39

Yeah, pretty much. Right now, again, it's still a bit complicated to access like DFI product, dfi specifically. But again that's some things we're trying to solve and figure out. But yeah, for the most part, you kind of summarize it pretty well.

Rudy: 15:54

Nice, i think I got it, yeah, finally. Now, i can't wait to explain to somebody else in the future. Geez, i hope this helped anyone else out that was listening Definitely want to know. If you have any more questions, let us know. Hopefully I or Sheree or a Sheree King, i or Sheldon, which can help us answer these questions. Again, thank you for listening everyone And stay tuned for next week because I am going to ask more questions and more questions until it's drilled in my head and Sheldon's tired of me.

Sheldon: 16:29

Got a lot of patience, but I'm running low after this episode, dude.

Rudy: 16:35

It's the basics, it's the hardest.

Sheldon: 16:37

Get the beginnings out. Yeah, yeah.

Rudy: 16:40

Again. Thank you everyone. Yeah, follow us and stay tuned for next week's episode.