Cryptocurrency

Question 1

Ledgers

Answer 1

Record-keeping system.
Tracking and maintaining historical record of transactions for many times of assets.

Question 2

DLT

Answer 2

Distributed Ledger Technology
Ledgers shifting to a global decentralized network. Cryptographically secured and fast.

Trust based on cryptography, not centralized authority
Accessed with keys and cryptographic signatures
Ledger changes reflected and copied to all participants quickly. Each participant has a copy

Full audit of history available at all times.
DLTs can be used for recording tracking, monitoring and transacting of all forms of assets.

Question 3

Centralised downsides

Answer 3

Centralised open to corruption/manipulation, additional regulation/legislation costs, centralised point of failure, centralised system of valuable data, attractive malicious errors

Question 4

DLT advantages

Answer 4

Improved transparency, reduced corruption, improved security while reducing overheads of auditing, accounting and legal issues.
Easily accessible on demand, tamperproof (reduced corruption again), distributed, no single point of failure so data synchronised across all nodes in network

Question 5

Public permissionless DLT

Answer 5

Anyone can join, read, write and commit

Question 6

Private permissionless DLT

Answer 6

Only authorised participants can join, read, write and commit

Question 7

Public permissioned DLT

Answer 7

Anyone can join and read
Only permissioned participants can write and commit

Question 8

Private permissioned DLT

Answer 8

Only authorised participants can join and read
Only permissioned participants cna write and commit

Question 9

Blockchain

Answer 9

Series of blocks chained together by each block’s hash
Each block has data/transactions and hash generated from them. Next block has hash of previous block

Question 10

Blockchain hash purpose

Answer 10

Canot create the block from the hash as it’s a one-way function
Changing any data in the block gives a completely different hash so it’s easy to verify if the block has been changed. Next block won’t recognize the previous block as being in the chain.

Question 11

Blockchain consensus

Answer 11

No central organisation so consensus to verify transactions needed.
Distributed system, parties don’t have to trust each other
Transactions need to be validated and then sent to all nodes on the network. Anyone can validate on the network.
Bitcoin uses proof of work for validation
Ethereum uses proof of stake, less energy consumption

Question 12

Blockchain transactions

Answer 12

Transferral of money with public-key cryptography.
Each wallet has public and private key.
Public key acts as address on wallet for receiving funds.
Private key gives owner access to their digital assets.
Effective security only requires keeping the private key private

Question 13

Blockchain layers

Answer 13

Application and Presentation Layer
Consensus Layer
Network Layer
Data Layer
Hardware/Infrastructure Layer

Question 14

Hardware/infrastructure layer

Answer 14

Underlying systems supporting the functioning of a blockchain network
VMs, Containers, Services, Messaging

Question 15

Data Layer

Answer 15

Storing and managing transactions in a distributed ledger
Digital Signature, Hash, Merkel Tree, Transactions

Question 16

Network Layer

Answer 16

Transmitting and distributing information between nodes.
P2P

Question 17

Consensus Layer

Answer 17

Reaching agreement among nodes about state of shared ledger
PoW, PoS, DPoS, PoET, PBFT

Question 18

Application and Presentation Layer

Answer 18

Providing access to blockchain functionality and services to end-users and developers
Smart Contracts, Chaincode, DApps, User Interface

Question 19

Blockchain “trusted system”

Answer 19

Trust created by design. P2P distributed network between people who don’t trust each other. Trust in technology and cryptography rather than any centralized authority.

Question 20

Digital Currencies

Answer 20

Monetary asset in digital form.
Regulated -> denominated to sovereign currency
Unregulated -> Virtual currency (cryptocurrency)

Question 21

Virtual Currency

Answer 21

Electronic representation of monetary value
Issued, managed and controlled by private issuers (platform developers/founding org)
Relies on trust. No issuing central authority.
Value based on an underlying mechanism (mining/underlying assets)
Restricted to members of a virtual group

Question 22

Cryptocurrency

Answer 22

Part of virtual currency group
Use cryptography to keep transactions secure and authentic
Manage and control the creation of new currency unts.
Transacted over DLT typically on a dedicated blockchain based network. Public financial transaction database. Open to the common public.

Question 23

First cryptocurrency

Answer 23

Bitcoin, p2p network to prevent double-spending. Completely decentralized with no server or central authority.

Question 24

Cryptocurrency Monetary Properties

Answer 24

Controlled supply. Most cryptocurrencies limit supploy of tokens. All cryptocurrencies control the supply of tokens by schedule written in the code.
No debt but bearer: Fiat-money is a system of IOU whereas cryptocurrencies just represent themselves

Question 25

Cryptocurrency Transactional Properties

Answer 25

Irreversible
Pseudonymous
Fast and global
Secure
Permissionless

Question 26

Irreversible

Answer 26

After confirmation, a transaction cannot be reversed (immutable).
No safety net if you are hacked or sent funds incorrectly.

Question 27

Pseudonymity

Answer 27

Neither transactions nor accounts are connected to real-world identities. Can analyse transaction flow but it is difficult to connect real-world identity of users with those addresses.

Question 28

Cryptocurrency: Fast and Global

Answer 28

Transactions are propogated nearly instantly in the network. Confirmed in a couple of minutes.
Invariant to location of sender and receiver

Question 29

Cryptocurrenty security

Answer 29

Funds locked with public-key cryptography system. Only owner of private key can send cryptocurrency

Question 30

Cryptocurrency Permissionless

Answer 30

Software based, so once installed, you can make use of cryptocurrencies. No gatekeeper.

Question 31

Cryptocurrency concerns

Answer 31

No regulation (Independent from formal banking system, no way to control monetary policy, secure from political influence)
Limited (Cannot control inflation)
DIfficult to track (Exchange is fast, global and very complex)
Anonymity, use in black-market economy
Tax evasion/money laundering

Question 32

Cryptocurrency theft and fraud

Answer 32

Crypto.com admits $30 million stolen by hackers. User accounts where transactions were being approved without the 2fa authentication control.
Infrastructure is not as well designed as that of banks
Not enough regulatory oversight
Lack of consumer protection against loss or theft

Question 33

Cryptocurrency transactions double-spending

Answer 33

Need to stop double-spending. Can normally use a centralized digital authority to give correct balance.
Achieved in a decentralized system with P2P technology. Transaction is broadcasted across the network.
Each peer has a full copy of the ledger. Transactions, and hence balance for every account on the system

Question 34

Cryptocurrency transaction broadcast and confirmation

Answer 34

Transaction broadcasted immediately across the network, it is not confirmed straightaway.
Before confirmation, there is a possibility of being forged. After being confirmed it is immutable.

Question 35

Cryptocurrency transaction validation

Answer 35

Once a validator has confirmed a transaction, it is added to the distributed ledger.
Anyone on the network can be a validator.
Make validators work to validate (e.g. proof of work) prevents one validator abusing the system.
Validators get reward for undertaking confirmation process (mining)