Lecture 2 Money, Ledger and Bitcoin

What does "Crypto" and "Currency" mean in the term "Cryptocurrency"? (Hint: another term for Cryptocurrency is Cryptographized Currency) A. "Crypto" means "using digital encryption"; "Currency" means "a system of money" B. "Crypto" means "crypt"; "Currency" means "current" C. "Crypto" means "graph"; "Currency" means "intermediate" D. "Crypto" means "secretive"; "Currency" means "money"

A Because "Crypto" comes from the word "Cryptography", meaning encryption; and "Currency" means "a system of money." All other choices are wrong and not what "crypto" or "currency" means.

What does "immutability" mean? A. Cannot be changed or modified. B. Mutable. C. Mutant abilities. D. Immune system.

A Because immutable means not mutable, which means not changeable, cannot be modified. All other answers are wrong.

According to the Fed at Dallas: Money reading, Who of the following prints the money US Dollar? A. The Bureau of Engraving and Printing (BEP) B. The Federal Reserve System C. United States Department of Treasury D. United States Department of States

A The Bureau of Engraving and Printing (BEP) is a government agency within the U.S. Treasury Department that designs, engraves and prints all paper money for the U.S. The BEP has two facilities, one in Washington, D.C., and the other in Fort Worth, Texas. These facilities supply billions of dollars to the Federal Reserve Banks to replace worn bills that have been taken out of circulation and shredded and to meet increases in consumer demand for money.

1) Blockchain is a peer-to-peer ---- distributed ledger technology that makes the records of any digital asset transparent and unchangeable. a- Decentralized b- Demanding c- Centralized d- Popular

A

What does P2P stand for? a- Peer to Peer b- Product to Product c- Password to Password d- None of the above

A

According to the lecture, who invented Bitcoin? A. Satoshi Nakamoto B. Bill Gates C. Vitalik Buterin D. Kevin Mckoy

A, Satoshi Nakamoto invented Bitcoin, Bill Gates is the inventor of Microsoft, Kevin Mckoy is the inventor of NFT.

Bitcoin is a _________ and _________ money system that is fully peer-to-peer, with no trusted third-party and replaces the central issuer (central company/banks/govs) of money by democratizing the monitoring, updating, and recording of open ledger in a collective consensus basis system of trust, and thus, get away with fees/inefficiencies/corruption/risks of centralized information (centralized 3rd party/banks/govs). a. "decentralized" and "democratized" b. "bit" and "coin" c. "digital" and "paper" d. "commodity" and "fiat"

A. Because Bitcoin and Blockchain are decentralized (not centralized) and are democratized (controlled by everyone, not by central banks or govs), since it's peer-to-peer, i.e. democratized. The open ledger or the digital distributed ledger of Bitcoin or Blockchain through collective consensus basis system of trust proves the authenticity of the Bitcoin or Blockchain, as well as its value that's verified by consensus and recorded in the distributed ledger. All other answers are either completely wrong or half wrong.

Which of the following statement is incorrect about fiat money? A. Fiat money is note of raw metal reserve. B. Fiat money does not have intrinsic value. C. Fiat money is backed by the power of sovereign. D. Fiat money's value is built upon trust.

A. Commodity-backed money is a note of raw metal reserve, not fiat money.

What is INCORRECT about fiat money? A. Fiat money has intrinsic value B. It is a type of money not backed by any commodities C. It is typically declared by a decree to be legal tender D. Government can issue a mandate that it be used for economic activities.

A. Fiat money has no intrinsic value but instead derived its value by government decree.

According to the Fed at Dallas: Money reading, which of the following options are the 3 main conditions for a barter system to occur? 1. Coincidence of Wants 2. Goods and Services must be immediately available 3. Both parties must agree on a price of each good in terms of the other 4. Goods can be exchanged later with mutual understanding A. Option 1, 2 and 4 B. Option 2, 3, and 4 C. Option 1, 3 and 4 D. Options 1, 2 and 3

Answer - D - Option 1, 2 and 3 All goods must be available immediately and cannot be exchanged at a later date. Both parties should have the same want of goods and agree to pay a price in goods term.

In A Short Introduction to the World of Cryptocurrencies, Aleksander Berentsen and Fabian Schär write Reputation is not important to Bitcoin users—why? A. Bitcoin works through a large network that cannot easily be managed by a centralized entity B. The internet is a dark and scary place full of user handles C. False—it's very important to verify the validity of a transaction for tracing monetary movement through a network D. Everyone is corruptible so reputation cannot exist on such a large network

Answer: A--the Bitcoin system is designed to function in a network where no participant can trust any other participant. This feature is necessary because it is a permissionless payment system in which participants can remain anonymous through the use of pseudonyms. Incorrect: B—while true not necessarily a consideration by Berentsen and Schar Incorrect: C—while there is a consensus mechanism, this is not why bitcoin does not rely on reputation. Consensus is the reason why bitcoin user can trust the general ledger. But it is not a consideration for reputation necessarily as users are traditionally anonymous Incorrect: D—again, the consensus mechanism and network of Bitcoin's blockchain technology is large and works against single bad actors, an outside mechanism is not a reason why reputation is not considered important to Berentsen and Schar.

What makes Block (the company) notably different from other Fintech companies? A. Low margins B. The company rebranded C. The company challenges existing payment options D. The company's products consist of software and hardware

Answer: D "A" is incorrect as most companies in the space have low margins "B" is incorrect as rebranding is not a notable differentiator "C" is incorrect as many firms challenge current finance incumbents "D" is correct as few Fintech firms also offer hardware

In chapter 2 of the paper A Short Introduction to the World of Cryptocurrencies had discussed the demand of transaction process. In the following choices, which of the demands is NOT required? A. transaction capability B. transaction promptness C. transaction legitimacy D. transaction consensus

B As the reading quoted, Berentsen and Schär (2017) had argued that transaction capability, transaction legitimacy, and transaction consensus are the three required demands, and the promptness of transaction is not one of the demands.

Which of the following is not included as a reason why consumers don't want intermediaries? A. Concerns for monopoly power B. Concerns for insecure power rights C. Face high costs associated with financial intermediation D. Wants to to hide their identity like Satoshi Nakamoto

B is incorrect. The reasons are concerns for insecure property rights, concerns for monopoly power, face high costs associated with financial intermediation, and wants to hide identities.

Currencies rely upon what major theme? A. Religious significance B. Trust C. Attractive designs D. Volatility

B.

From the Feb 2018 paper. "A Short Introduction to the World of Cryptocurrencies" Which of the following sentences is not correct about mining? A.It is dependent on highly specialized software B.Not everyone can become a miner C.The trial-and-error method is applicable in finding a block candidate D.It's expensive and uses large amounts of electricity

B. Anyone can become a miner by downloading the respective software and the most recent copy of the Bitcoin Blockchain.

Which of the following has intrinsic value? A. Bitcoin B. Commodity money C. Fiat money D. All of the above

B. Commodity money has intrinsic value as it has value even if it is not used as money, while Bitcoin and State monopoly currencies/fiat money have no intrinsic value.

According to the "Government Action Related to Money" from Dallas Fed article, one of the acts established the Federal Reserve System to, among other things, create an elastic currency—one that grows and shrinks to meet demand. Which act did establish the Federal Reserve System? A. National Bank Act of 1863 B. Federal Reserve Act of 1913 C. The Nixon Shock (1971) D. Coin age Act of 1792

B. Federal Reserve Act of 1913 -Established the Federal Reserve System to, among other things, create an elastic currency—one that grows and shrinks to meet demand

In section "Government action related to money" from Fed at Dallas: Money" Which action falls under the Federal Reserve Act of 1913? A. Established the U.S. Mint; declared the types of metals and the denominations that could be used for coins; made coins legal tender. B. Established the Federal Reserve System to, among other things, create an elastic currency—one that grows and shrinks to meet demand. C. Established the International Monetary Fund to manage fixed exchange rates where all currencies were pegged to gold or the U.S. dollar. D. Ended the U.S. willingness to convert dollars to gold as prescribed under the Bretton Woods agreement; ushered in a period of free-floating exchange rates.

B. The Federal Reserve System Act of 1913 created the Federal Reserve System to issue a currency that fluctuates in volume with demand (Page 12).

Berentsen and Schär assert under section "2 Bitcoin Transactions" that transaction processing demands that three necessary conditions are satisfied. Which of the following is NOT one of these three requirements? A. Legitimacy B. Coordination C. Consensus D. Capability

B. Transaction processing requires that legitimacy, consensus, and capability are satisfied. (Page 9-12). "A Short Introduction to the World of Cryptocurrencies".

According to Lecture 2, which company did acquire CyberCash technology? A. Square B. PayPal C. INTU D. Stripe

B: CyberCash technology was eventually acquired by PayPal in 2005.

Which type of money in history had the feature that the value of money is backed by the trust of the power of the sovereign of the money? A. Commodity Money B. Representative Money C. Fiat Money D. Cryptocurrency

C Commodity Money is the type of money that has value itself. Representative Money does not have value itself, but this type of money that can be represented to commodity money. Cryptocurrency's value is based on because people tend to believe it will have value in the future.

According to the lecture notes 2, Which of the following Blockchain Technology is a one-way cryptographic function as the original data cannot be retrieved via decryption? A. Merkle Tree B. Asymmetric Key C. Hash Values D. Distributed Ledger Technology

C Hashing refers to the transformation and generation of input data of any length into a string of a fixed size, which is performed by a specific algorithm. This algorithm is a one-way cryptographic function as the original data cannot be retrieved via decryption.

Which of the following is NOT the requirement that Bitcoin transaction processing demands? A. Transaction capability B. Transaction legitimacy C. Transaction authorized D. Transaction consensus

C The key feature of the Bitcoin system is the absence of a centrally managed ledger. Transaction processing demands that three requirements are satisfied: (1) transaction capability, (2) transaction legitimacy, and (3) transaction consensus.

Can Bitcoin replace fiat money? A. Yes, as long as people have enough trust in using cryptocurrency B. No, there are so many types of cryptocurrency in the markets, and it is hard to consensus choosing the one C. No, Bitcoin is considered an investment. D. Yes, El Salvador accepted Bitcoin as their legal tender, therefore there will likely more country follows

C because it's not widely used and it has a volatile price.

Based on the note 2 lecture. What is the "magical number" for miner in blockchain headers?What is the purpose of it? A. Merkle Root.Validate the data integrity B. Sends information to the blockchain network C. Nonce. Prevents double spending D. Node. Follows nouns

C. Who discovers nonce number first will become the block validator and can earn the coinbased.

What are NOT characteristics of money? A. Scare, uniform, acceptable, authentic, portable, stable B. Rare, exchangeable, convenient, uniform, variable C. Durable, portable, divisible, scarce, uniform, acceptable D. Durable, portable, divisible, fixed, acceptable, convenience

C.

Which of the following is true about FIAT money A. The fiat money has value as long as people do not trust the government will enforce its laws. B. Fiat money has intrinsic value. C. The money is taken on the faith that people can find it valuable. D. None of the above

C. (Fiat money does not have intrinsic value, but it has value as long as people trust the government will enforce its laws.)

Based on the note lecture 2. What is a node? A.A cryptocurrency B.A Blockchain C. A computer on a Blockchain network D.A feature of data structure

C. A computer on b Blockchain, A blockchain consists of numerous blocks of data. These blocks of data are stored on nodes that can be compared to small servers

What are the main concerns of Bitcoin? A. Price volatility and scare B. Hard to understand and serious scalability issues C. Price volatility and scalability issues D. Limited use and no government regulations

C. In last paragraph of "A Short Introduction to the World of Cryptocurrencies"

Read the following case and choose the statement that correctly describe characteristic of each payment participant. Lisa Su purchased a cup of coffee using Apple Pay from Starbucks. Lisa Su is holding a Bank of America Credit Card and used this card in Apple Pay. Starbucks's merchant account is a business account from Citi Bank. The credit card is branded by Visa A. Citi Bank: Card Issuer; Lisa Su: Card Holder; Bank of America: Acquirer B. Apple Pay: Payment Processor; Visa: Payment Gateway; Starbucks: Merchant C. Bank of America: Card Issuer; Apple Pay: Payment Gateway; Lisa Su: Card Holder D.Visa: Payment Platform; Apply Pay: Payment Gateway; Lisa Su: Card Holder

C. Lisa Su is card holder. Starbucks is merchant. Citi Bank is acquirer, the bank which acquires payment. Bank of America is card issuers. Apple Pay is a payment gateway. Visa is the processor of payment, who is responsible for sending request of payment and receive response from banks.

Which of the following is incorrect about the problems of decentralized currency that must be solved? A. It requires rules to govern the supply of money. B. It must maintain the security and accuracy of a ledger of transactions. C. The value of decentralized currency must be accessed daily. D.It must establish a system of ownership rights.

C. The value of decentralized currency does not need to be determined everyday. The value itself is declared by the government and its depreciation depends on annual inflation.

According to the article "A Short Introduction to the World of Cryptocurrencies" by Aleksander Berentsen and Fabian Schaer, which of the following is NOT the advantage of Cash? A. Whoever in the possession of the physical object is by default the owner of the unit of value. B. Any agent can participate in a cash payment system C. Buyers and sellers have to be physically present at the same location in order to trade D. It is possible for the parties involved to remain anonymous

C: Buyers and sellers have to be physically present at the same location in order to trade, which in many situations makes its use impracticable.

In Money, by the Central Bank of Dallas, what is a way the US government uses to deter counterfeiting its money? A. Micro threading B. Micro printing C. Micro analyzing D. Micro scoping

Correct: B—Microprinting is when the small words are hidden within the design of a bill to make it difficult to counterfeit Incorrect: A—Micro threading does not exist but there is a security threading, which is when the a security thread is placed on money that can only be seen with an ultraviolet light Incorrect: C—one probably needs to micro analyze money to determine if it's a really good fake or real but not an methodology discusses nor would it deter counterfeiters that are good at what they do Incorrect: D—one people needs to use a microscope to read microprinting but again not utilized by the government to deter counterfeiters

In Money, by the Central Bank of Dallas, what is the difference between Fiat Money and Representative money? A. Fiat money is made by a car company, thus has no authority behind its value while Representative money is a percentage of how much money a government holds in its reserves B. They're the same thing—they're made of paper with important, mainly dead people on them but just different dead people C. Fiat currency is back by a government's word while representative money is backed by a specific commodity issued by a governmental body D. Representative money represents the percentage of gold held by the individual within the entire country while fiat currency represents the promise of a government that they have that much gold in their vaults

Correct: C—as stated in the paper "Fiat money is money by decree. When it is no longer feasible or desirable to back money with a commodity, governments can declare an item to be money". In most any country only the government can decree things. Commodity money is very similar and a stepping stone to fiat currency. "Representative money does not have value on its own. Its only value lies in the value of the commodity it represents. It is actually a promise. When a government begins printing representative money, it is promising that the money is backed by, and often can be exchanged for, a specific amount of the represented commodity." Incorrect: A—fiat makes cars, not money Incorrect: B—they're similar in that both require a governmental body but not the same even though they are both paper and have images of important, now deceased, individuals on them. They are different due to where they derive their validity as currencies. One is from the promise of a government. The other is from an scarce and resource commonly accepted as valuable in the society it is traded Incorrect: D—representative money does represent a valuable object but it is not necessarily a percent of something. While most governments do hold physical assets of value in their vaults, this is not where fiat currency technically derives it's value from the order of a government. Whether that is a government of a rich or poor country is an entirely different matter.

What is the difference between Asymmetric Cryptography vs Symmetric Cryptography? A. Asymmetric uses a key-pair or 2 keys (public and private key); Symmetric uses 1 key B. Asymmetric has longer bits of encryption and more secure; Symmetric has smaller bits of encryption and less secure C. Asymmetric is slower to encrypt/decrypt; Symmetric is faster to encrypt/decrypt D. All of the above

D Because all are true. Asymmetric uses 2 keys and has longer bits, so it's more secure than Symmetric which only uses 1 key and has smaller bits of encryption. Because Asymmetric uses longer bits, it is much slower to encrypt/decrypt using Asymmetric than Symmetric cryptography which is a lot faster because it uses smaller bits and only 1 key for encryption/decryption.

As per key concepts notes for Lecture 2,Which of the following are 4 technologies which enable blockchain technologies. A. asymmetric key; Bitcoin; Merkle trees; and Distributed Ledger Technology in peer-to-peer networks. B. asymmetric key; hash function; Smart Contracts; and Distributed Ledger Technology in peer-to-peer networks. C. asymmetric key; Digicash; Merkle trees; and Distributed Ledger Technology in peer-to-peer networks. D. asymmetric key; hash function; Merkle trees; and Distributed Ledger Technology in peer-to-peer networks.

D Four particular technologies are used to enable blockchain technologies: asymmetric key; hash function; Merkle trees; and Distributed Ledger Technology in peer-to-peer networks.

As per key concepts notes for Lecture 2, which of the following is not a property of Distributed Public Ledger ? A. Permissionless B. No Central Authority C. Public D. No optional anonymity

D Permissionless: Unlike central bank or commercial bank ledgers you don't need anyone's permission to own an entry. This is especially relevant to the billions of people who don't have access to reliable electronic financial systems. IOHK, the company behind Ouroboros, is setting up offices in Ghana, Ethiopia and Kenya in 2018 for this reason. No central authority: The operation of the protocol is the only thing determines the next state of the system. If you trust the protocol then you can trust the system. This also means there is no way to create new money on the ledger unless the protocol defines a way to do that. Public: You can prove you own something or have done something publicly using cryptography as long as it can be represented on the blockchain. Optional Anonymity: You can own an entry without ever revealing your personal identity.

Which of the following are the characteristics of Money? 1.Durable 2.Portable 3.Divisible 4.Scarce 5.Uniform 6.Acceptable A.13456 B. 12346 C. 12345 D. All the above

D The Characteristics of Money : durable, portable, divisible, scarce, uniform (Consistent value of denominations and the ability to distinguish ) and acceptable.

Which of the following is NOT a function of money? A. Medium of Exchange b. Store of Value c. Unit of Account d. Store of Account

D is incorrect. The three functions are medium of exchange, store of value, and unit of account.

Which of the following are NOT typical participants in electronic payment systems? A. Cardholder B. Issuer C. Payments Processor D. Handler

D is incorrect. The typical participants are cardholder, merchant, issuer, acquirer, payments processor and payment gateway

In section "4 Risks" from the article "A Short Introduction to the World of Cryptocurrencies", which of the following is NOT a risk associated with blockchain technology? A. Forks B. Energy Wastage C. Bitcoin Price Volatility D. All of the above

D. All the above answers are correct. A is correct. A disagreement between parties can cause a blockchain split. B is correct. Mining cryptocurrencies consumes a significant amount of energy and produces a large amount of energy waste. C is correct. Bitcoin is one of the cryptocurrencies that fluctuates the most..

In the article Fed at Dallas. "Money" Which of the following is not a security feature incorporated into the US currency bills. A. Watermark B. Microprinting C. Security Thread D. Amount

D. The amount of a US currency bill is not a security feature but a legal tender value. All the rest are security features to deter counterfeits.

Which of the following is not a concern of fiat money? A. Fiat money is depreciated overtime due to inflation. B. Fiat money is controlled by the central bank which might lead to unnecessary economic intervention. C. The instability of currency might harm the society. D. Since the value of fiat money is derived by itself, it is difficult to determine the exact intrinsic value of it.

D. The fiat money's value cannot be determined by itself, but by government decree; so that, we can know the value of it.

According to the class discussion notes, Which statement best describes the Hash value? A. It is used to maintain and share digital records instantaneously across a network of participants. B. DLT connection and communication point that can create, receive, send, and act on information. C. Sign a digital transaction to make sure the origin of the transaction is legitimate. D. Converts the input data into an encrypted output of a fixed length

D. The hash value converts the input data into an encrypted output of a fixed length. A. Digital Ledger Technology is used to maintain and share digital records instantaneously across a network of participants B. A node is a DLT connection and communication point that can create, receive, send, and act on information. C. Asymmetric key signs a digital transaction to make sure the origin of the transaction is legitimate.

From Lecture Note 2 under "History of Money", which of the following is not a type of money? A. Commodity Money: items from naturcommoditye B. Gold Standard C. Leather D. Nails

D. Under the "History of Money" the following are a type of money: Commodity money: Items from nature, coins, leather money, paper money, gold standard, credit cards and digital currency.

What key properties does Bitcoin share the same as U.S. dollar money? A. Durability B. Divisibility C. Transferability D. Scarcity E. All above

E.

According to Lecture Note 2: If you make an alteration in the harsh values, there is no change in the blockchain. a. True b. False

b. False. Any alterations to the transactions that make up a block will change the hash value of the block as a whole. If a block's hash value stays the same over time, users can be sure that the transactions in that block have not been tampered with. This allows users on the blockchain to determine whether or not they can trust the history on the blockchain.

Which are types of money? a. Commodity Money, Fiat Money b. Fiat Money, Representatives Money c. Fiat Money, Paper Money d. Commodity Money, Representatives Money, Fiat Money

d: Three different types of money are recognized based on their sources of value: commodity money, representative money, and fiat money