CAIA L2 - 1.8 - A Short Introduction To The World Of Cryptocurrencies

Question 1

Define

Permissionless network

1.8 - A Short Introduction to The World of Cryptocurrencies

Answer 1

Any participant can become a anonymous miner
without permission to access the blockchain

Ex: Bitcoin blockchain

Contrast with permissioned system,
that requires permission to access the blockchain

1.8 - A Short Introduction to The World of Cryptocurrencies

Question 2

Describe

Consensus mechanism
of bitcoin blockchain

1.8 - A Short Introduction to The World of Cryptocurrencies

Answer 2

Process of acceptance of a block candidate by other participants.

Consensus mechanism works because of the role of miners, who compute the hash Value via trial and error process

1.8 - A Short Introduction to The World of Cryptocurrencies

Question 3

Quote

4 Advantages and 3 Risks
of Bitcoin and blockchain technologies

1.8 - A Short Introduction to The World of Cryptocurrencies

Answer 3

1. Diversification (new asset category)
2. Colored coins (other payment promises attached to them. Ex: dividend)
3. Smart contracts (self-executing legal agreements. Ex: e-voting, fundraising, identity)
4. Data integrity

Risks
1. Fork (split of blockchain if no agreement by participants)
2. Energy usage (expensive)
3. Volatility (changing demand + predetermined supply of bitcoin = 21 million bitcoins)

1.8 - A Short Introduction to The World of Cryptocurrencies