05 Blockchain 01 Flashcards
What is a BLockchain?
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
High level distinguish between four differetent types of tokens?
- Cryptocurrencies/ payment tokens
- Utility tokens
- Security tokens and tokenized assets
- Non-fungible tokens
What do cryptocurrencies promise?
- 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
What are the main functions of money? and fullfilled by cryptocurrencies?
- Unit of account
- Medium of exchange
- Store of value
–>No decentralized money:
* volatility is high
* acceptance is low
The two generations of blockchains/cryptocurrenices
1. Generation cryptocurrencies: Payments and store of value
2. Generation: Platform/ distributed computation tokens
What is a Stablecoin?
is a cryptocurrency where the price is linked to some other asset such as fieat currencies or a commodity
Characteristics of stable coins
- 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
What is Central bank digital currencies? (CBDCs)
–>a virtuel currency representing a direct liability of a central bank, similar to banknotes and coins
The two types of Central Bank digital currencies?
- Wholesale CBDC –>used among financial intermediaries
- Retail CBDC –>used in the wider economy
What are utility tokens?
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)
Wider functionality of utility tokens?
- 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)
What are security tokens/ tokenized assets?
Security tokesn represent blockchain-based recorded ownerships of other assets (Stocks, bonds and real estate)
–>derive value from an external asset
Tokenized assets and the pegged underlying asser
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
What are the benefits of tokenization for tradeing?
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
What are tokenized assets?
Tokenization of (existing) assets provides a way of recording the ownership of other types of assets on a blockchain
How can security tokens be issued?
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
Market for security tokens and their regulation?
–>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
Benefits using security tokens for trading?
- 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
What are non-fungible tokens?
Non-fungible tokens are not interchangeable
–>usually represent digital artwork and collectibles, where the ownership is recorded on a blockchain
What is a cryptographic hash function?
= a cryptographic hash function maps an input x of any length to an output Hash(x) of fixed length
What do the two properties Deterministic, Efficient mean for Hash Functions?
Deterministic: The same input x will always give the same output
Efficient: GIven x, calculating Hash(x) is computationally easy
What do the two properties One-way, collusion resistant mean for Hash Functions?
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
What do the two properties Avalanche-effect and Puzzle friendly mean for Hash Functions?
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
Key properties of Hash functions
- deterministic
- efficienct
- oneway
- collision resistant
- avalance effect
- puzzle friendly
What are Merkle trees and Merkle roots?
Merkle trees: are trees containing hashes of hases
–>The top has of a merkle tree is called the Merkle root
What is cryptohraphy and security?
Cryptographcy used for secure communication:
* prevent third parties from reading and manipulation private messages
asymmetric (or public key) cryptography uses pairs of key:
Difference between public and private key?
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
use cases of asymmetric cryptography?
- 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
Types of blockchains?
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
Two problems that needed to be addressed by decentralized currencies?
- Only alice should be allowed to spend her coins
- the “Double spending problem”
What is the solution to Problem 1: (Only alice spend her coins?
Asymmetric Cryptography:
* all transaction are cryptographically signed by private key of that individual
* everyone can verify the signature by the public key
*
What is the solution to Problem 1: (Only alice spend her coins?
–>what are keys and addresses?
- 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)
What is the solution to Problem 2: Double spending problem
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
Question neccesary for blockchains (general)
- Do you need to store data ? YES
- Are there multiple writers? YES
- Can you use an always online TPP? NO
–>blockchain
Questions figuring out which type of blockchain
- Are all writer known?
NO –>permissionless Blockchain - Are all writers trusted?
Yes don´t use - Is public verifiability required?
Yes –>public permissioned blockchain
No–>private permissoned blockchain
