Fintech Midterm Review

What are the 2 types of hot wallets?

1. Custodial 2. Non-custodial

What are the cons of a hot wallet?

1. Device hacked, you are toast 2. Wallet data lost and no backup, you are toast

What are the cons of the Bitcoin blockchain?

1. Disruptive to traditional financial institutions 2. Proof of work mining expends a lot of energy

What are the 5 characteristics of Blockchain?

1. Distributed 2. Consensus Algorithm 3. Smart Contracts 4. Immutable 5. Cryptography

What are the pros of an online wallet?

1. Easily accessible 2. Higher degree of usability 3. Available across devices

What are the pros of a hot wallet?

1. Easy to use 2. Often free

What are the 5 prongs of FINRA's Innovation Outreach Initiative?

1. External Outreach 2. Industry FinTech Committee 3. Timely External Publication 4. Streamlined Internal Communications 5. Regulatory Collaboration

What number do private keys begin with?

5

What is a cryptocurrency exchange?

A business that allows users to trade cryptocurrencies for other assets

What is the US currency backed by?

Full faith and credit of the US government

What are the cons of an online wallet?

Higher security risk than cold storage as juicy target

Cons of hardware wallet

If something happens to device, user loses everything if keys and public addresses not backed up

What is a public address derived from?

Private key

What is a paper wallet?

Private key recorded on paper

RSA Algorithm

Relies on ease of multiplication vs. difficulty of factoring

What are multisignature wallets?

Require signatures from two (2) or more keys in order to sent.

Permissioned Blockchain

Restricts participation in consensus and may also restrict the types of transactions that each participant may make

Smart Contracts

Rules defining legal transactions

Consensus Algorithm

Rules distributed network use to reach agreement information is correct; that all nodes have an identical copy of the ledger

What is FinTech?

The broad category that refers to the innovative use of technology in the design and delivery of financial services and products.

What is financial inclusion?

The provision of accessible, affordable and relevant financial products to all individuals

Pros of hardware wallet

User has custody of their own cryptocurrency

What is an online wallet?

Web-based wallet that allows the user to send, store and receive cryptocurrency online

What are the properties of hash functions?

1. Compression 2. Ease of computation 3. One-way 4. Entropy

What numbers do public addresses begin with?

1 or 3

What are the 3 "A's" of financial inclusion?

1. Access 2. Affordability 3. Active Usage

What are the benefits of public key cryptography?

1. Authenticity 2. Integrity 3. Nonrepudiation

Cons of non-custodial wallet

1. Higher degree of responsibility on the user. If user loses their private keys, funds are lost.

What does the US government do to give people faith in the currency?

1. Inflation control 2. Anti-Counterfeiting measures 3. Pays its debt

What are the GAO Fintech subsectors?

1. Marketplace Lending 2. Mobile Payments 3. Digital Wealth Management 4. Distributed Ledger Technology

What are the 4 ways of acquiring cryptocurrency?

1. P2P 2. Bitcoin ATM 3. Cryptocurrency Exchange 4. Mining

Cons of paper wallet

1. Paper can be easily lost or destroyed 2. Vulnerable to dumpster diving

What are the pros of the Bitcoin blobkchain?

1. Permissionless 2. High resiliency and security

What kinds of scams can criminals run using your phone number?

1. Phone number porting scam 2. Number spoofing 3. SMS redirection

What are the potential benefits of blockchain?

1. Tamper Resistent 2. Increased Trust and Security 3. Lower Transaction Costs 4. Decreased Transaction and Settlement Times 5. Reduce or Eliminate Paper Systems

What are the 3 types of exchanges?

1. Trading Platform 2. Broker 3. Decentralized Exchange

Pros of non-custodial wallet

1. User has control of their own cryptocurrency

Asymmetric Crypto

Alice and Bob have different keys

Symmetric Crypto

Alice and Bob share same key

Permissionless Blockchain

Allows anyone to participate on the network's consensus mechanism, via nodes, if they have the ability to do so

What is a public address?

Alphanumeric address/number used and shared to receive bitcoin

What is a private key?

Alphanumeric private key (string of bits) that is used to send irreversible bitcoin transactions

What is a Digital Wallet?

An application that allows you send, store, and receive cryptocurrencies

What is SMS redirection?

Attacker has SMS or calls temporarily sent to them instead of your phone

Cryptography

Blockchains use algorithms and math to secure and validate transactions on the network

What is a characteristic of the majority of exchanges?

Centralization

What is a hot wallet?

Client on your desktop or mobile device

What is a hardware wallet?

Cold wallet except when making transaction

What is number spoofing?

Criminal uses one of many services, some Web-based, to call your account provider, using your phone number

What is a cold or offline wallet?

Cryptocurrency wallet that is not connect to the internet

What is a phone number porting scam?

Cyber criminal pretends to be you, contacts your phone company, and has your phone number ported to another carrier

Distributed

Data shared across every node, many equal nodes, no central authority, each node holds a copy of the blockchain, very resilient to failures/attacks.

What is a private key generated by?

Digital wallet when it is created

Can multisignature wallets be hot, cold, or either?

Either

For a hardware wallet, are the private keys accessible?

No. Only sends public address to host computer

Is bitcoin anonymous?

No. Pseudonymous. Public key associated with each transaction

Pros of paper wallet

Not connected to Internet

Immutable

Once transaction recorded on blockchain, cannot be changed

What is a custodial wallet?

Third party has access to the user's private keys. User does not have access to their own private keys. Third party has the ability to send, receive and store cryptocurrency on the user's behalf, and therefore has custody of the user's cryptocurrency. Similar to a bank account.

What is a non-custodial wallet?

Third party website hosts the wallet, but not does not have access to the private keys. User sends, stores and receives cryptocurrency using their own private keys.