Bitcoin- an introduction

Question 1

the three functions of money?

Answer 1

-Medium of exchange
-Store of value
-Unit of account

Question 2

Forms of money:

Answer 2

-Barter (goods exchange)
- Commodity money (money is valuable)
- Representative money (money is claim)
- Fiat currency (money is de-linked)

Question 3

is Bitcoin and cryptocurrencies legal tender ? do they have fiat characteristics

Answer 3

Bitcoin and cryptocurrencies have fiat characteristics but are not yet legal tender (except in El salvador)

Question 4

Properties of cash:

Answer 4

• Physical money
  
  • No identity information that can be stolen or misused
  • Immediate settlement through physical tokens transfer
  • However,
  • Does not work at a distance (transfer only in person)
  • solution: digital money

Question 5

Properties of digital money

Answer 5

• Relies on trusted bookkeeper to keep accurate accounts.
  
  • Account with bank, paypal, E-wallet
  • is record of agreement how much you have with them, and how much they owe you.
  • without third party, would need bilateral records
    Settles by increasing / decreasing balances in accounts
    Two types of digital transaction:
  • card present
• card not present

Question 6

Ledger definition:

Answer 6

• Book / file for recording and totaling economic transactions measured in terms of a monetary unit of account by account type, with debits and credits in separate columns.
  
  • Used to keep track of transfer of money and transfer of asset ownership

Question 7

centralised ledger, Dependance on trusted parties:

Answer 7

• Take centralised ledgers (with trusted record-keepers) for granted because we have never before had practical alternative.
  
  • If we let untrusted party enter transactions in an important traditional ledger, chaos is likely to ensue.

Question 8

problems with ledger

Answer 8

-Monopolist transaction fees
- Ability to ‘rewrite history’ by changing the ledger
- Single point of failure
Control over users data

Question 9

Decentralised payment system requires?

Answer 9

> Perfectly accurate identification of ownership
> Perfectly accurate transfer of ownership
> Fraud proof:
- cannot be spent twice by the same person
- ownership identification cannot be changed retrospectively.

Question 10

what is Cypherpunks:

Answer 10

advocates for the widespread application of robust cryptography and privacy-enhancing technology in order to safeguard people’s rights and advance a more open and decentralized society.

Question 11

what is bitcoin

Answer 11

Bitcoin is a decentralised, algorithmic currency:
- A stateless, decentralised, ‘algorithmic’ currency invented by satoshi nakamoto
- Ownership is recorded on an electronic ledger called Bitcoin’s blockchain
- That exists only in cyberspace

Question 12

What was Nakamoto trying to do?

Answer 12

Cash is superior to credit cards in several ways:
- transactions are non reversible, except by the seller
- transactions do not require “trust” between the parties
- no third party needs to provide verification
- no fees are necessary

Question 13

how does Bitcoin fulfil cypherpunks ideal of private payments:

Answer 13

> Bitcoins decentralised, open network allows economic agents to interact directly on a peer-to-peer basis:
- no role for trusted third parties to validate transactions
- no role for government to resolve disputes
- design could convey not only payments, but also securities, commodities, real estate, ect
> Reflects the ambitions of the cypherpunk movement:
- personal communications and payments should be private
- privacy must be protected by technology, not laws and governments
- advent of computer age creates enormous risks and enormous opportunities.

Question 14

Why would a merchant accept bitcoin? pros/cons

Answer 14

Benefits:
- Save 3% fees
- Market to clientele (tech users, Anonymity)
- Cheap access to international customers and vendors
Costs:
- Risk of holding BTC
- Risk of hacking
- Accounting problems
- Taxation complexity
- Signal to regulators of lawlessness