what is a flash loan you ask well a flash loan is simply a smart contract that creates a loan in cryptocurrency where you can borrow millions of dollars with absolutely no collateral the catch is you must pay the flash loan back and the same transaction that you bought it with welcome to whiteboard crypto where we explain complicated cryptocurrency topics in a way that makes them so easy to understand that your grandmother could write a book about it well maybe not but that seems to be in line with our slogan we use analogies stories and examples to teach the everyday person about crypto topics so that way the technology can keep growing and in this video we are going to explain what a flash loan is and what the purposes of it are let's dig in so like i said at the beginning a flash loan is simply a loan where you can borrow massive amounts of money for free but you must pay it back almost immediately how can we do this well we can borrow some money do some transactions with it using some code that we wrote have a computer check if by the end of all of those transactions that we will actually have enough money to pay it back and then if we can pay it back we will successfully borrow the money for a short period of time do what we wanted to do with that money and then pay it back when i say a short period of time i mean like NUMBER_TOKEN seconds because that's about how long an ethereum block takes to be validated right now currently there are around three main uses of a flash loan we're gonna cover all three in this video but if you're in this far and you already understand what a flash loan is consider leaving us a like and subscribing because that means we've done our job well flash loan purpose number one trading arbitrage imagine a situation where you could buy an apple for a dollar from your mom and then sell that apple to your dad for two dollars you could easily double your money you just keep taking the money that you have and doubling it well this is exactly what trading arbitrage is except in the case of cryptocurrency you might be able to buy the basic attention token for a hundred dollars at coinbase and then turn around and sell it to gemini for NUMBER_TOKEN making a single dollar of profit however with flash loans you can borrow a hundred million dollars of money that is not yours to do this trade over and over and over again let's go through that example let's say you bought a hundred million dollars with a basic attention token on coinbase and then sold it to gemiini for NUMBER_TOKEN million dollars making a really nice NUMBER_TOKEN million dollar profit however the platform that you borrowed it from does charge you a very small fee for using their money since it's a very short period of time they only charge you a small amount i think ave charges point zero nine percent so that would only be a nine thousand dollar fee a nine thousand dollar fee to borrow a hundred million dollars this is one of the most common uses of a flash loan and you should know that it didn't take long for people to write automatic bots or automated systems that did this automatically for them this is why it's now rare to be able to create a flash loan that takes advantage of a trading arbitrage however you should know that it is possible use number two is collateral swap now this one has less potential for profit but creates a useful tool for those borrowing and lending let's say you had half a million dollars in ethereum that you
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