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3 Fintech > Blockchain and Cryptocurrency > Flashcards

Blockchain and Cryptocurrency Flashcards

(106 cards)

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1
Q

What is a blockchain?

A

A continuously growing list of records (blocks) linked and secured using cryptography, forming a digital ledger.

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2
Q

How is a blockchain different from a cryptocurrency?

A

Blockchain is the technology; cryptocurrency is an application using blockchain as a ledger.

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3
Q

What can blockchain be used for besides cryptocurrencies?

A

Storing financial balances, transactions, contracts, records, and other data.

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4
Q

What is a traditional ledger?

A

A book storing records or transactions, typically now implemented digitally on relational databases.

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5
Q

Why is blockchain’s immutability significant?

A

Once data is recorded, it cannot be changed, ensuring trust and reliability.

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6
Q

What is a digital ledger in blockchain?

A

A ledger that stores records/transactions without needing signed, timestamped documentation.

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7
Q

What are the key attributes of a blockchain ledger?

A

Immutable, authoritative, mutual, scalable, secure, interoperable, transparent.

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8
Q

Who proposed blockchain and Bitcoin?

A

Satoshi Nakamoto, in 2008, using a pseudonym.

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9
Q

What was Nick Szabo’s contribution to blockchain?

A

Pioneered smart contracts and conceptualized bitgold, a decentralized currency, in 2008.

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10
Q

Why was blockchain created?

A

To enable a trusted, virtual, stateless digital currency not controlled by banks or countries.

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11
Q

What problem did blockchain solve for digital ledgers?

A

Immutability, preventing copying, editing, faking, or deleting of digital data.

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12
Q

What is the double-spending problem?

A

A flaw where the same digital token can be spent multiple times due to duplication.

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13
Q

How does blockchain prevent double-spending?

A

Uses immutable, timestamped, and cryptographically secure transactions validated by consensus.

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14
Q

What is a centralized system’s weakness?

A

Single point of failure, attack, compromise, or shutdown; easily controlled.

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15
Q

How do centralized systems like Facebook operate?

A

Use distributed systems internally but are controlled by one entity, making them centralized.

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16
Q

Why is immutability hard in digital ledgers?

A

Digital data is easy to copy, edit, or delete without cryptographic protection.

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17
Q

What makes blockchain a distributed ledger technology (DLT)?

A

Combines cryptography and distributed databases for immutable, secure, transparent ledgers.

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18
Q

What types of transactions can blockchain store?

A

Financial, non-financial, smart contracts, votes, or random timestamped data.

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19
Q

How are blockchain users identified?

A

By public keys; users can remain anonymous or identifiable via certificate authorities.

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20
Q

What ensures blockchain security?

A

Public/private key pairs and cryptographic hashing (e.g., SHA256).

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21
Q

What is a blockchain node?

A

A computer storing and updating the blockchain, participating in validation and consensus.

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22
Q

How many nodes does a blockchain typically have?

A

Thousands, distributed across many countries for redundancy and security.

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23
Q

Why is blockchain resistant to hacking?

A

Thousands of nodes make it hard to compromise; cryptographic techniques protect blocks.

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24
Q

What is distributed consensus in blockchain?

A

Multiple nodes agree on transaction validity using mathematical calculations, no central authority.

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25
How does distributed consensus enable trust?
Parties trust the algorithm, not each other, removing need for authentication or identity.
26
What is a permissioned blockchain?
Restricts who can validate transactions or create blocks, limiting access to approved users.
27
What is a permissionless blockchain?
Allows anyone to join, verify blocks, or create transactions without identification.
28
How does blockchain replace authoritative access control?
Uses distributed consensus on a shared ledger, not centralized database control.
29
Why is blockchain disruptive for banking?
Reduces costs, risks, and intermediaries, enabling innovation in transaction networks.
30
What is the structure of a blockchain?
A single, shared, ordered chain of blocks, not a tree, starting with a genesis block.
31
What is a genesis block?
The first block created in a blockchain.
32
Why do blockchain pointers point backward?
Each block links to the previous block’s hash, ensuring immutability.
33
What is mining in blockchain?
Process where nodes validate transactions, build blocks, and earn tokens/fees.
34
Why is mining incentivized?
Compensates node operators for costly hardware and energy used to run blockchain nodes.
35
What are the three types of blockchain nodes?
Broadcast nodes, relay nodes, and full nodes (miners).
36
What do broadcast nodes do?
Create and post transactions to be verified and stored in the blockchain.
37
What do relay nodes do?
Receive transactions from broadcast nodes and relay them to miners.
38
What do full nodes (miners) do?
Validate transactions, build blocks, mine them, and add them to the blockchain.
39
What is a block in blockchain?
A group of transactions, digitally signed, hashed, and stored in a linear sequence.
40
What does a block header contain?
Merkle Root, timestamp, block ID, pointer to previous block, nonce, version info.
41
How are transactions stored in a block?
Hashed and organized in a Merkle Tree, with the Merkle Root in the block header.
42
What is a Merkle Tree?
A binary hash tree where leaf nodes are transaction hashes, producing a single Merkle Root.
43
What is the Proof of Work (PoW) hash?
SHA256 hash of the block header, uniquely identifying the block.
44
Why is only the block header hashed?
Contains Merkle Root, which represents all transactions, ensuring cryptographic security.
45
How does a Merkle Tree ensure security?
Any change in a transaction alters the Merkle Root, invalidating the block’s PoW hash.
46
What happens if a block is tampered with?
The Merkle Root and PoW hash change, breaking the blockchain’s integrity.
47
What is the role of the nonce in mining?
A 64-bit integer miners adjust to find a PoW hash with required leading zeros.
48
How does Proof of Work function?
Miners compete to find a block header hash with a specific number of leading zeros.
49
How long does mining a Bitcoin block take?
Approximately 10 minutes, adjusted every two weeks by leading zeros requirement.
50
How much energy does Bitcoin mining use?
Estimated 121 terawatt hours annually, more than some large countries.
51
What happens if two miners mine a block simultaneously?
A fork occurs; the longest branch wins, maintaining a linear chain.
52
Why are older blocks more secure?
Hacking requires re-mining all subsequent blocks, which is computationally expensive.
53
What is the Byzantine General Problem?
Difficulty achieving consensus in a decentralized network without a trusted central party.
54
How does Bitcoin solve the Byzantine General Problem?
Uses Proof of Work to establish objective rules for block validation and transaction integrity.
55
What is distributed consensus vulnerability?
51% attack, where malicious entities control over 50% of nodes.
56
What is a concern with Bitcoin mining?
Takes 10 minutes per block, plus confirmation time (minimum one hour).
57
Why is mining energy-intensive?
Proof of Work requires brute-force computation to find hashes with leading zeros.
58
What is Proof of Stake?
A potential replacement for Proof of Work, less energy-intensive, based on coin ownership.
59
What is Bitcoin?
A cryptocurrency using a blockchain ledger, launched as open source in 2009 by Satoshi Nakamoto.
60
When was the first Bitcoin mined?
January 2009, with the genesis block created by Satoshi Nakamoto.
61
What is a Bitcoin wallet?
Software storing Bitcoin addresses (public/private keys) on a PC, tablet, or phone.
62
How long does a Bitcoin transaction take to confirm?
At least 10 minutes, limiting some applications.
63
What is a cryptocurrency?
A digital currency created via algorithms, open, anonymous, secure, bypassing traditional finance.
64
How does a cryptocurrency differ from fiat currency?
No physical notes/coins; transactions are managed digitally via a secure ledger.
65
What are altcoins?
Cryptocurrencies other than Bitcoin, often using custom DLTs or algorithms.
66
What is a fiat currency?
Government-issued currency not backed by commodities, valued by supply/demand and government stability.
67
What is a pro of cryptocurrencies?
Full anonymity; transactions carry no personal information.
68
Why are cryptocurrencies free from bank fees?
Not linked to government or bank regulations, avoiding interest rates or surcharges.
69
Why can’t crypto accounts be frozen?
Stored in digital wallets, not traditional banks, unless the private key is exposed.
70
Why is Bitcoin considered secure?
Uses cryptographic encryption and decentralized ledger, reducing fraud risks.
71
What is a con of Bitcoin?
High volatility; value can fluctuate drastically.
72
Why is Bitcoin not widely accepted?
Limited adoption by merchants and regulatory restrictions in some countries.
73
Why do governments dislike Bitcoin?
Transactions are hard to trace or tax, enabling illicit activities.
74
What was the Silk Road incident?
An online marketplace (2011) using Bitcoin for illicit goods, enhancing Bitcoin’s negative reputation.
75
What was the Mt. Gox incident?
Tokyo-based Bitcoin exchange hacked, losing 850,000 Bitcoins; owner arrested for fraud.
76
Is Bitcoin safe?
Wallets are generally secure, but incidents like Mt. Gox show risks from negligence.
77
Why is Bitcoin a target?
Its pseudo-anonymity and value attract hackers and regulatory scrutiny.
78
What is Bitcoin’s hard cap?
21 million Bitcoins, with 18.93 million mined by 2022, expected to be fully mined by 2040.
79
How are Bitcoins issued?
Via mining on a logarithmic curve, decreasing exponentially until 2040.
80
What happens after all Bitcoins are mined?
Miners will earn transaction fees; protocol may change to increase supply.
81
Why is Bitcoin’s fixed supply beneficial?
Prevents arbitrary issuance, similar to gold, maintaining value stability.
82
What legal issues does Bitcoin face?
Untraceable transactions enable tax evasion and illicit trade, prompting bans in some countries.
83
Which countries have outlawed Bitcoin?
Russia, China, South Korea, Thailand, and others.
84
Why do speculators drive Bitcoin’s price?
90% of buyers are speculators, inflating value beyond ecommerce use.
85
What is IOTA’s Tangle?
A distributed ledger using a directed acyclic graph, faster and more efficient than blockchain.
86
How does Tangle compare to blockchain?
Shares distributed ledger and P2P principles but uses a different, more efficient structure.
87
What is a smart contract?
Code on a blockchain that enforces, verifies, or executes a digital agreement.
88
How can smart contracts be used?
Automate processes like car rentals when payment and insurance are confirmed.
89
What is a drawback of public blockchains?
Require significant computing power for Proof of Work, limiting scalability.
90
Why do public blockchains lack privacy?
Open access provides little to no transaction privacy.
91
What is a common blockchain mistake per Gartner?
Misunderstanding blockchain’s purpose or assuming it’s ready for production.
92
Why are smart contracts problematic?
Lack scalability, auditability, manageability, verifiability, and a legal framework.
93
What governance issues do blockchains face?
P2P systems require new approaches to security, economics, and organizational questions.
94
Why is blockchain not just a database?
It’s a distributed ledger with consensus, immutability, and cryptographic security.
95
What is a pro of decentralized P2P networks?
Distributed ledger ensures visibility and consistency for all parties.
96
How does blockchain ensure accountability?
All parties can view the ledger, agreeing on transaction progress and outcomes.
97
Why is blockchain considered transparent?
Distributed ledger allows peers to view transactions, subject to security rights.
98
What is the market cap argument for crypto?
Crypto’s large market size makes banning it costly for governments.
99
Why do economists oppose cryptocurrencies?
High volatility, illiquidity, and lack of economic basis or central issuer.
100
How do cryptocurrencies aid the unbanked?
Enable financial inclusion via mobile wallets without needing bank accounts.
101
What is the unbanked population’s size?
55% are women; India (21%) and China (12%) are key regions.
102
How has mobile money grown globally?
From 2% to 12% of adults in Sub-Saharan Africa (2011-2014), half with no other account.
103
Why is Bitcoin’s network decentralized?
No central authority; distributed nodes ensure stability even if some go offline.
104
How does Bitcoin ensure low transaction costs?
Minimal fees (0.1% of transaction amount) compared to bank or credit card fees.
105
Why is Bitcoin easy to use?
Wallets can be created in 5 minutes without complex bank account processes.
106
How does Bitcoin prevent identity theft?
Transactions use private/public keys, not personal data, reducing fraud risk.

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