LM 7: Introduction to Digital Assets Flashcards
What are the 3 basic elements of a distributed ledger technology (DLT)? DPC
- digital ledger
- participant network
- consensus mechanism to confirm new entries.
What is a distributed ledger?
database that can be shared over a network among a potentially unlimited number of network participants (aka nodes).
How do you add a new transaction entry to a ledger?
consensus must be reached among participants.
What are the 2 parts to a consensus mechanism?
- the new transaction is validated,
- this decision is confirmed when network participants agree to accept a common version of the updated ledger.
What is cryptography?
process of hiding or coding information so that only the person a message was intended for can read it.
What is a blockchain?
type of digital ledger where information (e.g., ownership changes) is recorded sequentially in blocks that are linked (chained) together.
What are the 6 steps to add a transaction to the blockchain? BBAVNT
- Buyer & seller agree to the transaction
- Block is created to record the transaction information & sent to all of the network’s nodes
- Authorized members verify the new transaction’s details & identify any related previous transactions
- Verified data is combined with data from previous transactions in a new block
- New block is added to the ledger and, using a secure link (known as a hash), it is chained to other blocks containing transaction data
- Transaction is considered complete and the new block becomes part of the updated ledger
What are smart contracts?
contracts that execute automatically when specified terms are met.
Why are consensus protocols needed on blockchains?
needed to prevent network participants from acting maliciously to create false records.
What are the 2 types of consensus protocols?
- Proof of Work (PoW)
- Proof of Stake (PoS).
What is proof of work vs proof of stake?
Proof of work: requires miners to solve cryptographic puzzles.
Proof of stake: validators are chosen based on the number of staked coins they have.
What is the difference between permissionless networks and permissioned networks?
- Permissionless: the design of the network is open for anyone to participate
- Permissioned: limited only to designated participants
What are the 2 types of digital assets?
- cryptocurrencies
- tokens
What is tokenization?
process of representing ownership rights to physical assets on a distributed ledger.
What are non-fungible tokens (NFTs)?
blockchain technology to link digital assets to certificates of authenticity
What are security tokens?
tokens represent digital ownership rights of publicly traded securities.
What are initial coin offering (ICO)?
when companies raise capital by issuing digital tokens
What are utility tokens?
tokens used to pay for services within a specific network.
What are governance tokens?
tokens that allow voting rights to members.
What are alt coins?
cryptocurrencies other than Bitcoin (BTC).
What are stablecoins?
a type of cryptocurrency that is designed to maintain a stable value relative to a specific asset or currency. Stablecoins are typically pegged to the value of a fiat currency, such as the U.S. dollar, or a commodity, such as gold.
What are meme coins?
coins created purely for entertainment purposes and lack any serious basis like Dodgecoin
What is the difference between a centralized exchange and a decentralized exchange?
centralized exchange: controlled by a central authority that manages the exchange’s operations.
decentralized exchanges: operating on a decentralized platform that does not rely on a central authority
What are 5 forms of indirect digital asset investment forms?
- Cryptocurrency coin trusts
- Cryptocurrency futures contracts
- Cryptocurrency exchange-traded funds
- Cryptocurrency stocks
- Hedge funds investing in cryptocurrencies
