Week 7: Digital Currencies Flashcards
What is the double spending problem?
Sending the same money multiple times
What is a blockchain?
A blockchain represents a history of financial transactions in a decentralized community.
It solves the double spending problem
What is a cryptocurrency?
A digital currency based on a blockchain
What are private keys?
Key that is randomly generated when creating an account for digital currencies
What is a public key?
IBAN equivalent.
Key that is generated from a private key using hashing to identify the recipient of a transaction.
What is hashing?
Using an input of any number of characters to generate an output of fixed length.
Used to create a public key using a private key.
What is hte purpose of digital signatures?
Used by miners to verify if a transaction is correct
What is mining?
The process in a decentralized system that creates consensus.
Verifies that money comes from the private key that created the signature.
How does mining work?
Through reverse engineering cryptographic algorithms using trial and error.
How does mining work?
Through reverse engineering cryptographic algorithms using trial and error.
What is a Merkle root?
A hash structure to quickly identify transactions in a block
What are Initial Coin Offerings (ICO)? How do they work?
Type of funding using cryptocurrencies.
Cryptocurrencies sold in form of tokens. Investors receive certain rights and other cryptocurrencies once funding objective of ICO has been met.
How can you buy crypto?
- Indirectly through ETFs. They track the ER between the cryptocurrency and a real currency ($)
- Directly: By making an account on an exchange that trades crypto
How can you short Crypto?
- Futures
- Contracts For Difference (CFDs)
- Short ETFs
What are things to watch out for when shorting crypto?
- Unlimited losses
- High Margin Requirements
