Week 1 Flashcards

1
Q

Bitcoin?

A
  1. first and most widely used cryptocurrency
  2. the community, network, software
  3. the currency itself
  4. the inspiration for blockchain-an underlying data structure that stores a permanent history of all transactions to ever occur in the history of bitcoin
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2
Q

who backs and builds bitcoin

A

1) not by any gov’t or bank
2) users build it
3) it came from cyberpunks and libertarians concerned by the centralization of money

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3
Q

Who created bitcoin

A

Satoshi Nakamoto-pseudonym of an individual or group

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4
Q

what did the creator envision

A

a decentralized currency that does not require trusting or knowing the identity of the user

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5
Q

how does bitcoin work

A

a decentralized network validates transactions and stores the entire transaction history. the network is a group of users communicating with each other as part of the bitcoin protocol. the network is a substitute for a central bank

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6
Q

problems with decentralized networks

A

1 inconsistent transaction records held by different network members
2 malicious pseudonymous actors who broadcast false messages and divide the network
3 double spending: asynchronous records held by different nodes

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7
Q

what is bitcoin’s solution to these problems

A

1) using blockchain and

2) proof of work consensus protocol

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8
Q

what do banks do

A

1) account and ID management-links personal info to bank account and verifies ownership
2) service - transfers money and redeems money
3) record management- updates and tracks account balance
4) trust- provides services by professionals under regulations by gov’t

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9
Q

How can bitcoin fullfill banks’ functions

A

1) account and ID mgt: gives users autonomously created and managed IDs
2) service: sends funds between peers directly (P2P)
3) record management: updates every node, which keeps its own ledger (blockchain)
4) trust: provides a trusted protocol that incentivizes actors to behave honestly

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10
Q

what are some benefits of the decentralized nature of bitcoin

A
  1. decentralized record keeping ensures the integrity of data
  2. prevents the risk of a single point of failure; if a few nodes are hacked, the rest of the nodes ensure the integrity of the transaction
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11
Q

how does trust work in bitcoin

A

instead of trusting a banker, you are trusting a protocol, ledger, math, and logic and don’t have to trust the user or seller

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12
Q

what’s the role of ID in context of currencies

A

1) authentication
- receiving money
- claiming/spending money
- blame: if someone tries to use your money, you want to be able to call them out
2) integrity-authentication methods that cannot be replicated by anyone else

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13
Q

what is public key or chest

A

it’s the alias or handle of the user in bitcoin; used for receiving

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14
Q

what is private key

A

it is the password that one uses to access and spend bitcoin; used for redeeming (never tell others the private key)

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15
Q

what makes a transaction valid

A
  1. proof of ownership, e.g. signing a check (proof of ownership)
  2. available and sufficient funds to spend (bank then checks to make sure there are enough funds for that check)
  3. a guarantee that no other transaction is using or has used the same funds (bank makes sure the check issuer did not already write a check for those same funds to another payee)
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16
Q

what is a UTXO

A

unspent transaction output model: bitcoin users spend directly from past transactions made to them, not from some account. every transaction creates a UTXO. Eg, i have prior UTXO with $10 in it and I buy a $5 item, that breaks the old UTXO and creates 2 new UTXOs: one for $5 that I still have and one for $5 that went to the seller. If I buy another $2 item, then I end up creating 2 more utxos ($3 and $2)

17
Q

peer validation

A

a system of proposers and voters on the validity of the proposal. everyone on the network is notified of every transaction and votes on its validity. only after a certain number of votes, eg majority, the transaction is logged to the ledger. each node has the whole history and ledger

18
Q

Sybil attack

A

when a person can create multiple identities/accounts for a malicious purpose

19
Q

ID

A

notes use public keys to make transactions and use private keys to spend bitcoins

  • private keys generate public keys and addresses using cryptographic primitives
  • nodes arbitrarily generate numerous private/public key pairs
  • the large # of total possible addresses make it almost impossible for 2 notes to generate the same address
20
Q

transactions

A

nodes transfer ownership of UTXOs

  • unique identifiers help keep records of the entire lineage of the transactions
  • can send change back to a new address
  • can make several payments in parallel
21
Q

record keeping

A

mining nodes keep record of transactions by updating their own blockchain (ledger) and broadcast their version of ledger to the network

  • a block is an ordered bunch of transactions; each block references a previous block
  • everyone maintains their own copy of the ledger based on what they hear from the network
  • updates on blockchain are irreversible
22
Q

consensus

A

the network agrees on a single version of history (or transaction record/blockchain) through proof-of-work

  • proof-of-work makes participation in the consensus process expensive, preventing malicious entities from tampering with transaction history
  • allows network to reach consensus without relying on a central authority
23
Q

unique properties of bitcoin

A
  • pseudonymous: users use pseudonyms rather than real-world IDs to make transactions
  • decentralized: every user has the same copy of transaction history
  • immutable: close to impossible for any users to change the network transaction history in their favor
  • trustless: users don’t need to trust anyone they are transacting with to be sure that their transactions will be accurately recorded by the rest of the network