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FinTech > 05 Blockchain 01 > Flashcards

05 Blockchain 01 Flashcards

1
Q

What is a BLockchain?

A

A blockchain is a ledger or list where the entitties are grouped in blocks that are cryptographically linked
* blocks are timestamped and cannot be altered once included in the chain

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2
Q

High level distinguish between four differetent types of tokens?

A
  1. Cryptocurrencies/ payment tokens
  2. Utility tokens
  3. Security tokens and tokenized assets
  4. Non-fungible tokens
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3
Q

What do cryptocurrencies promise?

A
  • secure and immutable transaction
  • increases in efficiency
  • reduction in cost (no intermediation)
  • no trust in particular authority
  • financial inclusion due to lower costs and decentralization
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4
Q

What are the main functions of money? and fullfilled by cryptocurrencies?

A
  1. Unit of account
  2. Medium of exchange
  3. Store of value

–>No decentralized money:
* volatility is high
* acceptance is low

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5
Q

The two generations of blockchains/cryptocurrenices

A

1. Generation cryptocurrencies: Payments and store of value
2. Generation: Platform/ distributed computation tokens

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6
Q

What is a Stablecoin?

A

is a cryptocurrency where the price is linked to some other asset such as fieat currencies or a commodity

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7
Q

Characteristics of stable coins

A
  • low volatility compared to other cryptocurrencies
  • provide quick and relativeley safe way of entering into cryptocurrencies
  • less regulation than the asset they are pegged to
  • some allow for smart contracts
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8
Q

What is Central bank digital currencies? (CBDCs)

A

–>a virtuel currency representing a direct liability of a central bank, similar to banknotes and coins

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9
Q

The two types of Central Bank digital currencies?

A
  1. Wholesale CBDC –>used among financial intermediaries
  2. Retail CBDC –>used in the wider economy
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10
Q

What are utility tokens?

A

Utility tokens offer the right to a service or product
* have value and can typically be used similarly to cryptocurrencies
* some act as internal currencies for payments on a blockchain (E.g. ether)

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11
Q

Wider functionality of utility tokens?

A
  • some utility tokens are “consumed” in exchange for products or services, comparable for voucher or gift gards
  • othery only have to be held, for example offering voting rights

Ex:
* Golem (GNT) for renting computing power
* Filecoin (FIL) for renting storage space
* Exchange tokens like Binance coin (BNB)

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12
Q

What are security tokens/ tokenized assets?

A

Security tokesn represent blockchain-based recorded ownerships of other assets (Stocks, bonds and real estate)
–>derive value from an external asset

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13
Q

Tokenized assets and the pegged underlying asser

A

the price is pegged by (at least in principle) allowing token holders to exchange their tokens for the underlying asset
- token price too low, exchaning the tlkens for the asset is profitable
- token price too high, selling pressure on/low demand for the tokens will decrease their price
–>Mechanism similar to how collateralized stablecoins maintain their peg

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14
Q

What are the benefits of tokenization for tradeing?

A

Beneifts: Allow for fractional ownership
- Equitites:
- Real Estate
* Trading costs and other fictions may be lowerr for tokenized assets
* tokenization is typically not decentralized
–>a company ususally owns the underlying asset
- The price is pegged by allowing token holders to exchange their tokens for the underlying asset

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15
Q

What are tokenized assets?

A

Tokenization of (existing) assets provides a way of recording the ownership of other types of assets on a blockchain

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16
Q

How can security tokens be issued?

A

Can be issued via decentralized ICO, but may also be issued in a more centralized way by a company
- A security token offering (STO) may be less expensive for smaller ventures as compared to an IPO

17
Q

Market for security tokens and their regulation?

A

–>Security tokens are usually subject to the same regulation as the underlying asset
–>Market is still relatively small, but potentially impacts the way trading is organized

18
Q

Benefits using security tokens for trading?

A
  • transaction allows for fractional ownership
  • Blockchain transactions are transparent
  • settlement of trade substantially faster
  • secondary market liquidity may (or may not) benefit
  • transactions cost may be lower than on conventional exchanges
19
Q

What are non-fungible tokens?

A

Non-fungible tokens are not interchangeable
–>usually represent digital artwork and collectibles, where the ownership is recorded on a blockchain

20
Q

What is a cryptographic hash function?

A

= a cryptographic hash function maps an input x of any length to an output Hash(x) of fixed length

21
Q

What do the two properties Deterministic, Efficient mean for Hash Functions?

A

Deterministic: The same input x will always give the same output
Efficient: GIven x, calculating Hash(x) is computationally easy

22
Q

What do the two properties One-way, collusion resistant mean for Hash Functions?

A

One-way: GIven Hash(x), calculating x is computationally infeasible
Collision resistant: Finding two inputs x and y that give the same output Hash(x)=Hash(y) is infeasible

23
Q

What do the two properties Avalanche-effect and Puzzle friendly mean for Hash Functions?

A

Avalanche-Effect: Changing x slightly changes the Output Hash(X) substantially
Puzzle Friendly: GIven Hash(x) and part of x, it is still difficult to find the rest of x

24
Q

Key properties of Hash functions

A
  1. deterministic
  2. efficienct
  3. oneway
  4. collision resistant
  5. avalance effect
  6. puzzle friendly
25
Q

What are Merkle trees and Merkle roots?

A

Merkle trees: are trees containing hashes of hases
–>The top has of a merkle tree is called the Merkle root

26
Q

What is cryptohraphy and security?

A

Cryptographcy used for secure communication:
* prevent third parties from reading and manipulation private messages

asymmetric (or public key) cryptography uses pairs of key:

27
Q

Difference between public and private key?

A

Private key: is basically just a random number that is only known by the owner
Public key: is mathematically linked to private key and is known by others
–>easy to get public from private key, but not vice versa

28
Q

use cases of asymmetric cryptography?

A
  • encryption of messages with the public key, that only can be decrypted by the private key
  • generation of message-specific digital signatures
    –>protect against tampering and impersonation
29
Q

Types of blockchains?

A

Public or private:
public: everyone can read, view participate by writing, and validating
private: only read after approval or some verification
Permissionless or permissioned:
permissionless: no access contral, trust-free, usually slower
permissioned: validating and wirting to the chain requires approval, usually faster, trusted authority required

30
Q

Two problems that needed to be addressed by decentralized currencies?

A
  1. Only alice should be allowed to spend her coins
  2. the “Double spending problem”
31
Q

What is the solution to Problem 1: (Only alice spend her coins?

A

Asymmetric Cryptography:
* all transaction are cryptographically signed by private key of that individual
* everyone can verify the signature by the public key
*

32
Q

What is the solution to Problem 1: (Only alice spend her coins?
–>what are keys and addresses?

A
  • Private keys are basically long random numbers
  • Public key is easy to compute from the private key
    –>Addresses are easy to compute from the public key (for bitcoin, the public key is hashed twice, and a chechsum is added)
33
Q

What is the solution to Problem 2: Double spending problem

A

Consensus Mechanism:
–>there are different consensus mechanisms to get an agreeement on what the correct version of the ledger is
–>if temporarilty conflicting versions, in the long-run the longest version is chosen

34
Q

Question neccesary for blockchains (general)

A
  1. Do you need to store data ? YES
  2. Are there multiple writers? YES
  3. Can you use an always online TPP? NO
    –>blockchain
35
Q

Questions figuring out which type of blockchain

A
  1. Are all writer known?
    NO –>permissionless Blockchain
  2. Are all writers trusted?
    Yes don´t use
  3. Is public verifiability required?
    Yes –>public permissioned blockchain
    No–>private permissoned blockchain

FinTech (9 decks)

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