Week 2 & 8 - Cryptocurrency Flashcards
1
Q
Define Cryptocurrency
A
- digital asset representing value
- decentralised, bypassing traditional financial institutions
2
Q
What is the blockchain?
A
- distributed ledger with growing lists of records (blocks)
- securely linked together via cryptographic hashes.
3
Q
Desscribe the key features of the blockchain or distributed ledger technology (DLT)
A
- IMMUTABLE - blocks contain previous info; Validated blocks are irreversible and cannot be changed.
- DISTRIBUTED - All network participants or nodes have a copy
- CONSENSUS - All participants agree to the validity of each record
- ANONYMOUS - No ‘true’ identities known.
- PROGRAMMABLE
4
Q
Bitcoin - How does it prevent double spending
A
- blocks are 10 mins apart
- ensured using a hashing computation which is increased if solved faster
5
Q
Bitcoin - What are miners?
A
- processes the transactions with the highest fees first
- collect the validated transactions into ‘bundles’ (approx 2700 transactions).
- Solves a computational puzzle (for ‘proof of work’ & verification).
- Adds this ‘bundle’ of transactions to the blockchain as a new block
- Requires a lot of computational power. Get paid a fee.
6
Q
Bitcoin - What are validators?
A
- process the transactions submitted to the network
- prepare for the miners (check they have followed the rules)
- Get no reward
7
Q
How does the concept of ‘proof of work’ verify the new block creation?
A
- random number (nonce) is added to each bundle of transactions (approx 2700) & a SHA256 hash function applied.
- miner has to work out what the random number is
- once solved other miners check their solution using the hash value.
- the block is then verified and the network can acknowledge that work so the block is added to the chain
8
Q
Bitcoin - What are the key features of a transactions
A
- TRANSACTION HASHES (TxIDs) - the identification of a transaction
- UNSPENT TRANSACTION OUTPUT (UTxO) - The output of a previous transaction
- INPUTS - The amount inputted into the transaction, can be multiple UTxOs
- FEE - The amount the miner receives
9
Q
What are Bitcoin Heuristics?
A
- techniques or rules of thumb (‘assumptions’) to analyse patterns in transactions and addresses.
- Used to try to deanonymise the transactions or identify illicit activity.
- It groups inputs into clusters.
- Assumes peer to peer transactions.
- Assumes if the output is smaller than one of the inputs –> the output is a change address
10
Q
Crypto Crime & Investigation - How criminals evade blockchain analytics
A
- Multi-signature Transactions (CoinJoins)
- Monero Bridge
- Mixing
11
Q
What are CoinJoins or Multi-Sig transactions?
A
- A way to pool multiple transactions in one
- Multiple inputs from different Entities group for one transaction
- e.g. Mixer.io
12
Q
What is a Monero Bridge?
A
- Convert Bitcoin to Monero then back to Bitcoin to obfuscate origin and destination of BTC
- Based on smart contract (not an exchange).
- The smart contracts are publically available but extremely difficult to analyse.
- e.g. Mixer.io
13
Q
What is mixing cryptocurrencies?
A
- Layering multiple transactions with BTCs of multiple persons
- Sends them back to defined output address or gives the user a token to collect them
- Similar to CoinJoin but it layers the transactions
- e.g. Chipmixer or WasabiWallet
14
Q
Blockchain Analytics as an investigation tool
A
- Identify wallets and seize them
- cluster Wallets, using heuristics and machine learning
- Identify Exchangers used and request the KYC documents
15
Q
Seizing Cryptocurrency
A
- Seize at the Exchanger - he is the custodian
- Find Seeds of wallets, restore them and seize the assets
