Cryptocurrencies and Cryptoassets Part 1

What are two legal issues with ICOs that one needs to be careful of?

1. Does the sale of tokens in an ICO create tax liabilities? 2. Are ICO tokens considered as securities? This is currently unclear and laws differ between regions.

What is a utility token?

A cryptocurrency that serves a purpose other than currency or ownership. They confer consumptive rights (access to some services)

What does it mean that the Bitcoin ledger is an append-only ledger?

A data structure we can only write to, once data is written, it is there forever.

Is Bitcoin anonymous/private?

In some sense it is anonymous as you use a pseudonym (the public key). However, it is not private as if somehow a public key gets tracked, all transactions are exposed.

What could be a use case for smart contracts?

Insurance industry. Store and process payouts via smart contracts that triggers automatically once pre-determined parameters are met in the real world. For example, AXA delayed flight insurance.

What is an ICO?

It is an event in which a new cryptocurrency project sells part of its cryptocurrency tokens (nota bene - NOT COINS) or coins to early adopters in exchange for money today. It provides a way to raise money for the founders.

What, on the conceptual level, is the computer scientist definition of anonymous?

It is pseudonymity + unlinkability.

What is the concept of an Airdrop?

It is when tokens are given out for free, which mostly is a strategy to build interest.

What is the meaning of the word peer-to-peer network?

It means all nodes are equal and that there are no hierarchy

What is the meaning of the term smart contract? How is it used in the blockchain context?

It was first used to describe the use of computer systems (or other automated means) to enforce contracts. The program lives on the blockchain and anyone can create a contract by uploading its program code in a special transaction.

How is ethereum stopping someone from implementing a loop in a program that runs forever?

They introduced the concept of "gas". You need gas to execute an operation. When a contract runs out of gas, no computation will run. Every transaction must specify how much gas it will spend.

What would happen if every single transaction was added to the chain instead of blocks of multiple transactions? (2 negative aspects)

Verification more costly and cumbersome as the blockchain itself would be a lot longer. It would slow the system as consensus would have to be reached on all transactions.

Describe the process of participating in an ICO in a few steps.

1. A prospective buyer sends payment to the blockchain address of the issuer 2. payment usually in cryptocurrencies 3. orders are filled through smart contracts 4. as your offer is accepted, the tokens are sent by the automated contracts

What are the 6 advantages of ICOs?

1. Financing development of decentralised networks 2. Securing commitment from future customers 3. Establishing immutable governance terms 4. Providing rapid liquidity 5. Hastening network effects 6. Reducing transaction and regulatory costs

What are the three biggest sectors of ICO funding?

1. Non-crypto marketplaces and services (18% of ICOs) 2. Asset Management/Other crypto financial services (15%) 3. Smart contract creation (5%)

What are the 7 things that reduces the failure rate of ICOs?

1. Published white paper 2. disclose a budget for the proceeds 3. provide an incentive pool of tokens for employees 4. establish vesting schedules for top managers token holdings 5. Computer science background for top managers 6. Prior VC equity 7. Utility token has less failure than other types

What are three potential ways your identity could be revealed in the Bitcoin network?

1. Some businesses might require you to share info (exchanges) 2. The barista at Starbucks might recognise you when you pay 3. Information about you an be correlated through side-channels.

How would one go about changing the protocol underlying bitcoin? What happens if not everyone follows the new protocol?

Every node needs to successfully upgrade to the new version If some nodes do not implement the new one, we have a hard fork. That means that the blockchain splits in two with each subgroup working on their own chain.

What is the differences between coins and tokens in an ICO?

Coin ICO - sell participation in an economy. The definition of a digital coins is an asset that is native to its own blockchain. Coins are used to interact with the product to transfer money, store value and as a unit of account. Token ICO - sell a right of ownership or royalties to a project Tokens are created on existing blockchains. Anyone can make their own token. The developer has to spend the native coins to the blockchain that the token is being created on. (most run on the ethereum blockchain)

What are the two types of accounts in ethereum?

EOAs - external owned accounts (humans) Contract Accounts - run by code once deployed and can hold and transfer ETH

What is the area called where one tries to uncover the identities of people in a network?

Transaction Graph Analysis. You start clustering wallets and then interact with merchants, individuals etc to earn their adressess and lay the puzzle so to speak. Relies on heuristics, but can be successful.