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Decentralized Finance > 1 - Basics of Blockchain > Flashcards

1 - Basics of Blockchain Flashcards

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1
Q

What is the web 3.0 about?

A

Token economy; not only read and write but own

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2
Q

What is the current number of blockchain wallet users?

A

like 70 million

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3
Q

What is the current number of internet users?

A

700 million

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4
Q

Metcalfe’s law

A

the value of a network is proportional to the square of the number of connected users of the system (n^2)

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5
Q

Traditional market potential calculation?

A

Price * People

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6
Q

Token economy market potential

A

Price * (People + connected devices) = market potential

-> In web 3 you have a higher user base as you have people and connected devices

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7
Q

What to know about the token economy and the new revenue model?

A

The token economy offers new revenue models, smaller niches with very low prices and yet a larger number of transactions.

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8
Q

What is blockchain?

A

A blockchain is distributed, immutable ledger that facilitates the process of recording transactions and tracking assets in a network

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9
Q

Order from least to most specific

A
  1. Distributed ledger technology (DLT)
  2. Blockchain
  3. Bitcoin etc.
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10
Q

3 attributes of a blockchain

A
  • decentralized
  • transparent
  • immutable
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11
Q

SHA256 how many characters in the hash long?

A

64 chr; 256 bits; hexadecimal string

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12
Q

Who was SHA256 developed by?

A

National Security Agency (NSA)

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13
Q

What is a hexadecimal string?

A

Hexadecimal is the name of the numbering system that is base 16. This system, therefore, has numerals 0, 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, and 15. That means that two-digit decimal numbers 10, 11, 12, 13, 14, and 15 must be represented by a single numeral to exist in this numbering system.

0, 1, 2, 3, 4, 5, 6, 7, 8, 9, a, b, c, d, e, f

Each Hexadecimal character represents 4 bits (0 - 15 decimal) which is called a nibble (a small byte - honest!). A byte (or octet) is 8 bits so is always represented by 2 Hex characters in the range 00 to FF.

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14
Q

How many possible combinations are there in SHA256

A

SHA-256 produces 256 bits

There are 256 bits and each bit has 2 values (0 or 1), thus 2^256.

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15
Q

Requirements of Hash Algorithm (in Blockchain course cryptographic hash)

A
  • One way
  • Deterministic (produces the same result for same input)
  • avalanche effect (slightly different input -> completely different output)
  • collision resistance:

In the second case (collision resistance), the attacker can freely choose both messages 𝑚1 and 𝑚2, with the only requirement that they are different (and hash to the same value).

A hash function h is said to be collision resistant if it is infeasible to find two values, x and y, such
that x != y, yet h(x) = h(y).

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16
Q

Why is the blockchain immutable?

A

because of hashing. A simple change in one block changes all following hashes

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17
Q

Consensus options

A

Proof-of-Work (PoW)
Proof-of-Stake (PoS)
Others

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18
Q

Where in the matrix could we place cryptocurrencies?

A

Anyone can write and anyone can become a node and read.

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19
Q

Where in the matrix could we place voting?

A

Anyone can write; owner decides who can read

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20
Q

Where in the matrix could we place a supply chain?

A

An owner decides who can write; anyone can read

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21
Q

Where in the matrix could we place tax returns?

A

An owner decides who can write; anyone can read

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22
Q

Energy consumption of one Bitcoin transaction?

A

2188.6 kWh; 1.2 tones of carbon

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23
Q

Why the energy debate might be too short-sighted

A
  • energy consumption can be reliably traced
  • increasing costs are counterbalanced by the ever greater increasing total value secured in the network
  • renewables are estimated to account for 77% of total bitcoin mining
  • Ethereum switches from PoW to Pos which reduces energy consumption by 99%.
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24
Q

How fast is Ethereum compared to Bitcoin?

A

Tx per second are 5 for BTC and 20 for Ethereum

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25
Q

How much faster is Ripple than Bitcoin?

A

300 times faster

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26
Q

Bitcoin’s Lightning Network

A

The Lightning Network (LN) is a “layer 2” payment protocol layered on top of Bitcoin. It is intended to enable fast transactions among participating nodes and has been proposed as a solution to the bitcoin scalability problem. It features a peer-to-peer system for making micropayments of cryptocurrency through a network of bidirectional payment channels without delegating custody of funds.

Normal use of the Lightning Network consists of opening a payment channel by committing a funding transaction to the relevant base blockchain (layer 1), followed by making any number of Lightning Network transactions that update the tentative distribution of the channel’s funds without broadcasting those to the blockchain, optionally followed by closing the payment channel by broadcasting the final version of the settlement transaction to distribute the channel’s funds.

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27
Q

Smart Contract definition

A

A smart contract is a computerized transaction protocol that executes the terms of a contract

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28
Q

Benefits of the smart contract

A

autonomy: no broker, lawyer or other intermediaries
safety: documents are encrypted on a shared ledger
backup: documents are duplicated many times on the blockchain
speed: fully automated software code without paperwork
savings: cost reduction in the absence of intermediaries
accuracy: no ex-post errors in the absence of manual work

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29
Q

How many cryptos are using the existing blockchain?

A

76% (3300)

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30
Q

How many cryptos are using their own blockchain?

A

24% (1000)

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31
Q

Subjective theory of value

A

The subjective theory of value holds that the value of a good is not determined by any inherent property of it - nor the amount of labor necessary to produce it - but by the importance an individual places on it for the achievement of his or her ends

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32
Q

Lindy effect

A

the future life expectancy of a technology is proportional to its current age, i.e., any additional time of survival implies a longer remaining life expectancy.

33
Q

What is tokenization?

A

Tokenization is the process of putting a real-world asset or commodity on the blockchain.

34
Q

Benefits of tokenization?

A
  • Fractionalization (dividing an assets ownership rights into parts) decreases barriers to entry: Higher market depth and liquidity of asset classes with high economic buy-ins
  • global accessibility and trading 14/7/356
  • faster transaction settlement times (The settlement date is the date when a trade is final, and the buyer must make payment to the seller while the seller delivers the assets to the buyer. )
  • lower transaction costs
  • can be programmed to entail different other rights e.g. access to gym
35
Q

Can consumables be tokenized?

A

Yes

36
Q

Areas of cost saving in tokenized securities

A 
pre-issuance
primary market
custody (protection and care of something) and asset servicing --> largest cost saving
- secondary market
--> total 35-65% cost savings
37
Q

asset servicing

A

a group of tasks and activities provided by a custodian to his clients around the assets he has under custody

38
Q

Decentralized Finance

A

open-source,
permissionless
transparent
without any central authority.

39
Q

Are the assets controlled by the user? –> NO

A

Then Centralized Finance

40
Q

Financial assets controlled by user

If someone can single-handedly censor a transaction execution

A

CeFi intermediary, DeFi Settlement

41
Q

Financial assets controlled by user
Nobody can single-handedly censor transactions

If someone can single-handedly censor the protocol execution

A

Centrally governed DeFi

42
Q

DeFi

A

Financial assets controlled by user
Nobody can single-handedly censor transactions
Nobody can single-handedly censor the protocol execution

43
Q

Are transactions pseudonymous in DeFi?

A

Yes, mostly

44
Q

Total value locked in DeFi right now

A

round 76B

45
Q

Fiat money

A

Fiat money (from Latin: fiat, “let it be done”) is a type of currency that is not backed by any commodity such as gold or silver, and typically declared by a decree from the government to be legal tender.

46
Q

Four types of stablecoins

A
  • Fiat backed
  • Crypto backed
  • Precious metals
  • Algorithms
47
Q

Fiat backed stablecoins

A

Basically an IOU (I owe you) for a traditional fiat currency (usally dollars). You use your fiat currency to purchase a stablecoin that you can later cash-in and redeem for your original currency.

48
Q

Pros Fiat backed stablecoins

A
  • safe against crypto volatility

- changes in price are minimal

49
Q

cons of Fiat backed stablecoins

A
  • centralized - someone must issue the tokens

- requires auditing to ensure company has sufficient reserves

50
Q

Crypto backed stablecoins

A
  • backed by other crypto assets like ETH. Their price depends on the value of the underlying asset or collateral, which can be volatile. Because ETH’s value can fluctuate, these stablecoins are overcollateralized to ensure the price stays as stable as possible.
51
Q

Pros Crypto backed stablecoins

A
  • transparent and fully decentralized
  • quick to turn into other crypto assets
  • no external custodians - all assets are controlled by Ethereum accounts
52
Q

Cons of crypto backed stablecoins

A
  • less stable than fiat-backed stablecoins

- you need to keep an eye on the value of the crypto collateral

53
Q

Precious metal stablecoins

A

-like fiat-backed coins, instead these stablecoins use resources like gold to maintain their value.

54
Q

Pros of precious metal stablecoins

A
  • safe against crypto volatility
55
Q

Cons of precious metal stablecoins

A
  • centralized - someone must issue the tokens

- you need to trust the token issuer and the precious metal reserves

56
Q

Algorithmic stablecoins

A

These stablecoins aren’t backed by any other asset. Instead an algorithm will sell tokens if the price falls below the desired value and supply tokens if the value goes beyond the desired amount. Because the number of these tokens in circulation changes regularly, the number of tokens you own will change, but will always reflect your share.

57
Q

Pros of algorithmic stablecoins

A
  • no collateral needed

- controlled by a public algorithm

58
Q

Cons of algorithmic stablecoins

A
  • you need to trust the algorithm

- your balance of coins will change based on total supply

59
Q

DEX

A

Decentralized Exchange. A decentralized exchange is a peer-to-peer marketplace where transactions occur directly between crypto traders

–> liquidity pool with automated market making (AMM)

60
Q

AMM formula

A

x * y = k
(x = asset quantity)
(y = asset quantity)
(k = constant)

–> Constant Product (CP) AMM

61
Q

AMM properties

A
  • instant liquidity, irrespective of other orders, an order book, or the trade size
  • purchase of asset Y increases price of Y and decreases price of X in order to keep K constant
62
Q

When does K change in AMM?

A

when liquidity for X and Y is added

63
Q

What sets the price in AMM?

A

Ratio of asset X and Y sets the price

64
Q

Largest DEX by trading volume

A

Uniswap

65
Q

How is the trading volume of DEX compared to CEX or Nasdaq?

A

DEX only 1b daily trading volume
Binance has 16b daily trading volume
Nasdaq has 131 b daily trading volume

66
Q

Pros of DEXs

A
  • security
  • users have control
  • privacy (no checks of users)
  • financial inclusiveness (trade from any location)
  • token variety
67
Q

Cons of DEXs

A
  • trickier user interfaces
  • smart contract vulnerability (any DeFi protocol is only as secure as the smart contract that powers it)
  • riskier coins (many scams)
68
Q

Challenges of DeFi

A
  • Cluttered ecosystem (hard to find app for a specific use case)
  • Bad user experience
  • market and technical risks
  • high risk of user error (DeFi applications transfer responsibility from the intermediaries to the user)
  • poor performance (slow)
69
Q

What is permissionless

A

anyone can read

70
Q

permissioned

A

owner decides who can read

71
Q

public BC

A

anyone can write

72
Q

private BC

A

owner decides who can write

73
Q

total annualized BTC footprint

A

114 Mt C02

74
Q

tx per second visa

A

24k

75
Q

tx per second BTC

A

5

76
Q

tx per second Ethereum

A

20

77
Q

smart contract definition 3 key elements

A
  • written code
  • publicly available
    events in the contract triggers code execution
78
Q

largest cost saving through tokenizing securities

A

custody and asset servicing 33-64% cost saving

Decentralized Finance (8 decks)

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