Blockchain
List the order of execution of a bitcoin transaction.
1) New transactions are broadcast to all nodes. 2) Each node collects new transactions into a block. 3) Each node works on finding a difficult proof-of-work for its block. 4) When a node finds a proof-of-work, it broadcasts the block to all nodes. 5) Nodes accept the block only if all transactions in it are valid and not already spent. 6) Nodes express their acceptance of the block by working on creating the next block in the chain, using the hash of the accepted block as the previous hash.
16. How can you identify a cryptocurrency scam?
1. Get to know the team 2. Look over the whitepaper 3. Look at the token sale 4. How feasible is the project?
What is a hard fork in a cryptocurrency blockchain? Give an example.
A hard fork refers to a radical change to the protocol of a blockchain network that effectively results in two branches, one that follows the previous protocol and one that follows the new version. In a hard fork, holders of tokens in the original blockchain will be granted tokens in the new fork as well, but miners must choose which blockchain to continue verifying. Example: Bitcoin cash and bitcoin (Due to change in block size), Ethereum and Ethereum classic (Due to Dao Hack)
14. Why can't you change a block in bitcoin blockchain that is situated way behind the current block? For example, if the current block is 618765, is it possible to change block 618700?
Because each block references the hash of previous block, changing the transactions in a block will change the hash of the block
19. Give example of a cryptocurrency scam.
Bitconnect, Plexcoin
Digital coins are not comparable to equities for what reason?
Coins are not comparable to listed equities in which there are both stringent disclosure requirements and listing requirements.
11. What are some of the barriers to arbitrage opportunities in the cryptocurrencies market?
Cross-Border Capital Controls, Regulations in some countries that make cross-border transactions difficult for retail investors, Transaction costs
What is reward halving with respect to Bitcoin? Each reward halving takes place in how many years?
Current reward for bitcoin is 6.25 BTC for solving a block Every 4 years
What is a token airdrop?
Distribution of token or coins to numerous wallet addresses
Blockchain mostly used for ICOs
Ethereum
18. Why do cryptocurrency exchanges and tokens participate in wash trading?(falsely signal their liquidity.)
Exchanges: Popular exchanges get more media attention - In order to increase their popularity and attract new users, cryptocurrency exchanges present inflated numbers. This helps them rank on top of CoinMarketCap's Exchange listing (by reported trading volume). As a result, they are seen as authoritative platforms and receive more media attention. Higher listing fees from ICOs, IEOs, and Altcoins - Top-list exchanges can attract much higher listing fees from cryptocurrencies that wish to be listed on their platform. Higher volume means more trading. And by more people trading a certain coin, higher liquidity is achieved.
Internet of value
Facilitates transactions without the need of an intermediary
Differences between fiat currencies and cryptocurrencies
Fiat - centralized (controlled by central bank), inflationary, high transaction fees for global transfers Cryptocurrencies - Can be anonymous, no third party involved, faster, lower fees for transfer, transactions can't be reversed (less chances of a fraud)
List differences between fiat currency and cryptocurrencies
Fiat - centralized (controlled by central bank), inflationary, high transaction fees for global transfers Cryptocurrencies - Can be anonymous, no third party involved, faster, lower fees for transfer, transactions can't be reversed (less chances of a fraud)
17. How do the regulatory body treat bitcoin?
IRS-Property, CFTC - Commodity, SEC - Not a security
12. List differences between bitcoin, Litecoin, and bitcoin cash.
Market capitalization, distribution larger block size for each (Litecoin 4MB, Bitcoin Cash (32 MB). Litecoin block time is 2.5 minutes vs. 10 minutes for bitcoin
What are the advantages of Pre-ICO from the issuer's and investor's perspectives?
Possibly more prominent concession on tokens compared to crowd sale. A token purchase is assured. Sometimes, ICOs slump crowd sales especially if the cryptocurrency market is in a bull run which means ICO hits the fiat hard cap through appreciation of crypto invested. Possibility of obtaining more tokens contrasted with Crowdsale since presale is normally gone for greater financial specialists. Possibility of quick return whether tokens purchased at concession are sold at ICO cost when token exchanging starts.
20. Give example of recent SEC lawsuits alleging that the token offering was a security
Ripple, Telegram
Key differences between ICOs and IPOs
Selling different type of assets ICO firms do not use an underwriter to help determine value and attract buyers ICO firms are much younger and smaller, typically in the earliest stage of a firm's life cycle
List the key difference (s) between Stablecoins and other payment tokens such as bitcoin and Litecoin. Give example of one stablecoin and the currency that it is pegged to.
Stablecoins - Try to minimize price volatility by pegging the price to a currency or a commodity. (Tether), wider range of possible uses 1 Tether is backed by 1 USD.
Which group are digital coins more comparable to?
The more relevant comparison group is Venture capital industry.
List a few factors for ICO success.
The token must have true large scale potential Must attract the actual ICO investors The token must attract a large audience to use it or make money with it Be in a field that is interesting and solves real problems which leverage the blockchain
How is double spending problem solved?
To be able to double spend, a node would have to solve consecutive blocks, which is very resource intensive and virtually impossible, if users wait for a confirmation of few blocks after receiving bitcoin payment to make a shipment etc. in return.
Tokens
To gain enough "volume" to get listed on CoinMarketCap. Once it appears on that influential market data site, an asset can gain the attention of larger platforms and bigger investors.
Features of cryptocurrencies
a. 1 Satoshi = smallest unit of the bitcoin currency (one hundred millionth of a single bitcoin (0.00000001 BTC)
ICO
a. A blockchain version of crowd funding, Mechanism to raise external funding through the emission of tokens
a. Why use ICOs to raise money
a. Adopting innovative blockchain reduces the cost of raising capital through avoiding intermediaries such as crowdfunding platforms and payment agents. b. The token mechanism allows investors to create a secondary market while having illiquid equity/lending/reward based contracts. c. ICOs bypass regulations that IPOs and other crowdfunding platforms must adhere to. d. ICOs increase public awareness of the company and acts as a marketing agent. Maximizing the wealth of current shareholders without diluting the company ownership and control
Why use ICOs to raise money (advantages)
a. Adopting innovative blockchain reduces the cost of raising capital through avoiding intermediaries such as crowdfunding platforms and payment agents. b. The token mechanism allows investors to create a secondary market while having illiquid equity/lending/reward based contracts. c. ICOs bypass regulations that IPOs and other crowdfunding platforms must adhere to. d. ICOs increase public awareness of the company and acts as a marketing agent. e. Maximizing the wealth of current shareholders without diluting the company ownership and control.
Why can't you change a block way behind the current block?
a. Because each block references the hash of previous block, changing the transactions in a block will change the hash of the block
What is reward halving?
a. Current reward for bitcoin is 6.25 BTC for solving a block
a. Altcoins (Features of each, pro and con)
a. Ethereum - useful for building smart contracts b. Bitcoin cash, Litecoin - larger block size for each (Litecoin 4MB, Bitcoin Cash (32 MB). Litecoin block time is 2.5 minutes vs. 10 minutes for bitcoin c. Ripple, Stellar - faster transactions (few seconds, not mineable), d. Stablecoins - Try to minimize price volatility by pegging the price to a currency or a commodity. (Tether) e. 1 Tether is backed by 1 USD.
Advantages of Blockchain
a. Everyone can access data, and nodes prevent data loss b. Provides trust between parties c. Transparency d. Decentralization e. Automation (smart contracts) f. Immutability (data cannot be erased or changed)
Disadvantages of Blockchain
a. High power consumption b. Expensive hardware for mining c. Requires space d. Adding information is slow e. Could harm privacy
a. Key findings of Benedetti and Kostovetsky (2018)
a. ICO underpricing - average returns of 179% from the ICO price to the first b. day's opening market price, over a holding period that averages just 16 days c. After trading begins, tokens continue to appreciate in price, generating average buy-and-hold abnormal returns of 48% in the first 30 trading days d. ICO returns are positive and significant when the cryptocurrency asset class is performing well but also when it is performing poorly e. The degree of underpricing is much larger than that for IPOs f. Returns to ICO investors have declined over time, suggesting that firms are learning from prior offerings about market demand for different kinds of platforms
a. Steps involved in an ICO
a. Project Development, Marketing, and the Howey Test b. Pre-ICO c. ICO d. Listing
a. Key differences between ICOs and IPOs
a. Selling different type of assets b. ICO firms do not use an underwriter to help determine value and attract buyers c. ICO firms are much younger and smaller, typically in the earliest stage of a firm's life cycle
a. Key findings of Momtaz (2018)
a. The results suggest that ICOs create, on average, investor value in the short run. Raw and abnormal first-day returns range from 6.8% to 8.2%. b. This is consistent with the market liquidity hypothesis of ICOs according to which issuers have an incentive to underprice in order to generate market liquidity, which, in turn, increases the inherent value of their virtual currency. c. Moreover, the quality of the management team is a first-order predictor for the success of virtual currency projects. Highly visionary projects trade at a discount due to an increased probability of failure. Finally, the ICO market is very sensitive to adverse industry events. Both hacks and regulatory actions are shown to potentially reverse ICO returns to investors, with the former effect being more than twice as strong.
List three categories of digital tokens and write features of each.
a. general-purpose medium of exchange and store of value cryptocurrency, such as Bitcoin; these are often termed coins. b. security token, which represents a conventional security that is recorded and exchanged on a blockchain to reduce transaction costs and create a record of ownership; the underlying assets may range from commodities to currencies to real estate or even corporate equity c. utility token, which gives its holder consumptive rights to access a product or service. Utility tokens comprise the largest and most well-regarded ICOs
a. Three types of digital assets
a. general-purpose medium of exchange and store of value cryptocurrency, such as Bitcoin; these are often termed coins. b. security token, which represents a conventional security that is recorded and exchanged on a blockchain to reduce transaction costs and create a record of ownership; the underlying assets may range from commodities to currencies to real estate or even corporate equity c. utility token, which gives its holder consumptive rights to access a product or service. Utility tokens comprise the largest and most well-regarded ICOs
Two purposes of bitcoin mining
a. verifying transactions and creating new coins
What are the advantages of airdrops for the token issuer?
build loyalty and spread their coin to a wider user base. increases the number of token holders, which greatly increases the liquidity of that token on the secondary market. The more token holders there are, the more likely you will find buyers and sellers of those tokens. costs of marketing airdrops are low Generating Awareness
Blockchain
distributed ledger technology. It is the ledger of all transactions that have occurred within a given system and uses encryption to create an irreversible and incorruptible repository
Explain briefly what Howey Test is?
test created by the Supreme Court for determining whether certain transactions qualify as "investment contracts."
What is "double spending" problem in bitcoin? How is it solved?
the risk that a digital currency can be spent twice implementing this confirmation mechanism and maintaining a common, universal ledger system. In this way, the bitcoin blockchain retains records of time-stamped transactions going back to the founding of the cryptocurrency in 2009. To be able to double spend, a node would have to solve consecutive blocks, which is very resource intensive and virtually impossible, if users wait for a confirmation of few blocks after receiving bitcoin payment to make a shipment etc. in return.