Blockchain In Finance 7B

Question 1

What is a blockchain?

Answer 1

A blockchain is a public database/ledger that is built on a combination of technologies such as

1) data processing
2) data storage
3) cryptography
4) distributed consensus protocol
5) Peer to peer network system
6) Smart Contracts

Question 2

What is a hash?

Answer 2

A mathematical algorithm that transforms any kind of message into a bit sized array of a fixed size regardless of size of input. ONE WAY FUNCTION, UNABLE TO REVERT

Question 3

What are the types of blockchain?

Answer 3

1. Public Blockchain
   - Permissionless blockchain, anyone who has access to the internet can use this blockchain
2. Consortium Chain
   - A blockchain with different access rights for different users.
3. Private Chain
   - Private blockchain that requires permission and a restrictive chain that operates within a closed network. NOT ON THE OPEN WEB

Question 4

What is Decentralised Finance?

Answer 4

A blockchain based form of finance that does not rely on central financial intermediaries such as banks, brokerages, exchanges. Instead, it utilizes smart contracts on blockchain to honor and execute contracts when needed.

Question 5

What is the difference between CEX and DEX?

Answer 5

CEX are intermediaries with centralised power. Most of a CEX’s work are done using human intervention.

DEX are exchanges that operate without the need for intermediaries, most of the work are done by smart contracts

Question 6

Who are the three key stakeholders in a consortium finance?

Answer 6

1. Suppliers
2. Buyers
3. Financial Intermediary

Question 7

What are the advantages of a blockchain in a consortium context?

Answer 7

1. For the suppliers
   a) Ease of credit
   b) Increase in sales
2. For the Buyers / Core Enterprise
   a) Optimize working capital
   b) Reduce Supply Chain Risks
   c) Reduce Operational Costs
3. For the Financial Intermediaries
   a) Service a greater pool of clients
   b) Safer & more managed risk

Question 8

What are the advantages brought about by Blockchain?

Answer 8

1. Improving transparency in whatever industry the blockchain is deployed in
2. Lowering Costs of financial related borrowings etc
3. Adding security to a company’s transactions

Question 9

What are the challenges faced in adopting Blockchain?

Answer 9

1. Scaleability Problem
2. Technology Risk
3. Regulations by the government.

Question 10

What does SHA stand for? SHA 256 is more secure than SHA160.

Answer 10

Secure Hash Algorithm, the larger the bit value, the more secure it is.

Question 11

What are the cons of barter trade?

Answer 11

The goods being traded have a short shelf life.

The objects being traded might be too large to carry around

Question 12

When was the first paper money made?

Answer 12

7th Century AD

Question 13

What is the role of the central bank?

Answer 13

To regulate and authorise the printing of paper money

To ensure that the flow of funds align with monetary policy

Question 14

What is a cheque and how do they work?

Answer 14

A cheque is a non-cash method for making payments. A cheque is a document that tells the bank to pay a specific amount of money from a person’s account to the person whose name the cheque has been issued to.

The receiver of the cheque will deposit the cheque at their bank, the receiver’s bank will then communicate with the sender’s bank and check if the sender has enough cash in their account. Once the checks are done, the bank will transfer the money to the receiver.

Question 15

What are the advantages of a cheque

Answer 15

1) More convenient than carrying around large amounts of cash
2) Cheques are safer than carrying around large amounts of cash
3) They can be post dated
4) They can be posted

Question 16

What are the disadvantages of a cheque

Answer 16

1) The cheque might bounce if the sender does not have enough money in their bank account
2) Cheques are not legal tender, receivers can choose to only accept cash
3) Lead time from posting to drawing a cheque

Question 17

What are credit cards?

Answer 17

Credit cards are bank accounts created for the cardholder by the issuing bank. Cardholders can borrow money within a given range for payment to a merchant or as a cash advance.

Question 18

Are the addresses of BTC and the QR code the same?

Answer 18

Yes, they are just a different representation of the same wallet address of the receiver.

Question 19

Who sets the price of bitcoin?

Answer 19

The price of BTC is set by the markets, like most financial assets, there is a floating exchange rate with fiat currency. This allows the price of BTC to fluctuate according to supply and demand of the market.

Question 20

What does UTXO stand for?

Answer 20

Unspent Transaction Output

Question 21

What does Nonce stand for?

Answer 21

Nonce stands for: Number Used Only Once. It is the unique randomly generated number that blockchain miners are solving for.

Question 22

How does mining work?

Answer 22

Keep trying different combinations of the digits to unlock the nonce, done by sheer brute force use of processing power.

Question 23

How much are the rewards for mining?

Answer 23

It depends, in 2022, the reward for mining one BTC block is 6.25BTC

Question 24

When does bitcoin halve?

Answer 24

BTC conducts halving every 210,000 blocks mined which is roughly around 4 years.

Question 25

What is the maximum supply of BTC and when is it expected to stop mining?

Answer 25

BTC has a maximum supply of 21 million BTC, it is expected to cease mining at 2140.

Question 26

What is a hash function?

Answer 26

Hash functions are mathematical algorithms that transforms data of any size to a bit sized array data. This transformation cannot be reversed.

Question 27

What is a merkle tree?

Answer 27

A merkle tree is a data structure used for effectively summarising and verifying the integrity of a large set of data. Merkle trees is constructed by recursively hashing each pair of nodes till there is only one hash, which is the merkle root.

Question 28

What are the four components of a block?

Answer 28

1. Previous hash
2. Timestamp
3. Transaction Root
4. Nonce