FINC 402 Exam 1
What does it mean to have an open ledger?
Crypto is an example of an open ledger because it allows everyone to see the details of each transaction.
What do miners get for solving the hash?
Financial rewards paid in crypto by the application which is also known as staking
ETH charges a _______ fee for every transaction?
Gas
Each unit of gas has a price which is shown in?
Gwei
What are the blockchain mechanics?
Hash (made up of nonce, code, and last 2 digits of the previous hash)
What are the cons to using POS?
Holds Not as secure as POW
What kind of ledger are bitcoin transactions stored on?
Immutable
When was the bitcoin white paper published?
In 2009 but the first bitcoin transaction was in 2010 for 2 pizzas at 10,000 bitcoin.
What are some inefficiencies of traditional transactions?
It is a lengthy process, there are multiple intermediaries involved, it is not transparent
What is a distributed ledger?
It is a non centralized ledger that puts a pool of transactions into a block with many copies of the same ledger.
What is the significance of barter?
It is peer to peer which is what bitcoin and crypto was based on.
What happens to your transaction if it does not meet the average gas price?
It will not get approved
What are some issues with distributed ledgers?
Latency (not updating instantly) and synchronization
What is a crypto collaterized stablecoin?
Maker DAO and Synthetix
What is bitcoin & crypto?
Medium of exchange
What is another name for miners?
Nodes
What are non collaterized stablecoins?
Not backed by any underlying asset and use algorithmic expansion and contraction of supply to shift price to the peg.
How can we solve the smart contract issue?
Oracles
Who are miners?
People and technology
What are the cons to charging a gas fee
People may be less likely to buy ETH if they must pay an additional fee and the fee applies to all transactions big or small
What is POS?
Proof of stake
What is the only identifier on public ledgers?
Public keys
What is the hashing algorithm?
SHA-256
What serves as collateral for a loan?
Securities
How did Bankman Fried make his money?
Sent people to Japan bc of spread, ex: "buy in London, sell it in NY"
What is hashing?
Solving the code for an encrypted transaction which results in a stake
Which cryptocurrency has had large controversy?
Tether because it has been proven that there were false statements about dollar backings and losses
What is a gas limit?
The amount of gas a user is willing to pay for a transaction
What is the double spend problem?
The idea that someone purchases something with money that has already been spent elsewhere. Virtually impossible for someone to double spend a bitcoin.
What are two examples of fungible tokens?
US dollars and GBO tokens
What are the cons for using proof of work?
Uses A LOT of energy Costly
What are the pros to using POS?
Uses way less energy (more sustainable) Cheaper
Who created Ethereum?
Vitalik Buterin in 2015
What is a utility token?
fungible tokens that are required to utilize some function of a smart contract system or have intrinsic value proposition defined by respective smart contract system Ex cases for utility tokens: collateral, represent stake, pay app fees, etc.
What do margin requirements do?
govern how much equity the trader must have in total
Margin Call
if the stock prices drops such that the margin is below the maintenance margin level, the trader must add cash or securities to the margin account
How does oracles solve the smart contract issue?
it is a data source that reports information outside of the eth ledger
What are the three characteristics of money?
medium of exchange, unit of account, store of value
What are the benefits to using proof of work?
non hackable extremely secure impossible for hackers to change historical blocks
Hashing is a?
one way function
What is an equity token?
represents ownership of an asset or pool of assets that involves compounding, uniswap, and set protocol
What is the initial margin?
required 50% at original purchase
What is the law of one price?
the notion that a good should sell for the same price in all markets
Margin
the portion contributed by investor
What is spread?
the spread/different interest rates
What is volatility?
time series of past market prices
How does the ERC-20 interface work?
total supply, balance of (address), transfer from, approve amount? Associated with fungible tokens
What is buying on margin?
using a loan to finance a portion of the purchase price
How did bitcoin solve the double spending problem?
using a peer to peer distributed timestamp showing all transactions and proof of money in the account to finalize the transaction
Hyperinflation
A very rapid rise in the price level; an extremely high rate of inflation. (When interest or purchases of crypto rise, the price per share rises)
What is margin?
% equity in margin account
What is the probability of guessing a nonce?
(1/16)^17
What are the three types of stablecoins?
1) Fiat collaterized 2) Crypto collaterized 3) Non collaterized
What things can a distributed ledger store?
1) Financial transactions 2) Property Records 3) Shipments and inventory 4) Grades
What are five issues of the current banking system?
1) Transactions take a long time 2) Limited access (can't always borrow/not everyone has a bank) 3) Centralized control (one entity controlling interest rates, etc) 4) inefficiency 5) opacity (banks are not transparent
How much gas does one transfer on ETH require?
21,000 gas
What is the reward for miners?
6.25 bitcoin or about 20,000 usd
What is a private key?
A key that associates you with your metamask account. This is a unique identifier that can only be accessed by the user. If password is lost, the account is lost.
What is a nonce?
A number 1-3 that makes the hash equally divisible by three. (must have this to calculate the hash)
What is a smart contract?
A program code that runs on top of a blockchain.
Where bitcoin was designed to be a method of payment, what was ethereum designed to be?
A smart contract platform
What is blockchain?
A technology
What percentage of bitcoin are lost due to lost private keys?
About 20%
ETH is?
Algorithmically encoded and enforced
What are the benefits to charging a gas fee?
Allows the system to run properly
How do you calculate margin?
Amt gained or lost/amt invested. Formula: (N X P) - loan amount/ (N X P)
What is the standard proof of work mining machine?
Antminer S17
What is the benefit of standard ERC-20 AND ERC-721?
App developers can code for one interface and support every possible token that implements that interface.
What is a fiat collaterized stablecoin?
Backed by an off chain reserve of target asset Ex's: Tether (no audit) USDC backed by Coinbase and Circle
Who invented NFT'S?
Bankman Fried
Why didn't the bitcoin arbitrage contract work?
Because prices varied
Which cryptocurrency is associated with POW?
Bitcoin
What was the first cryptocurrency?
Bitcoin, invented by Satoshi Nakamoto in 2009
What is an example of an NFT?
Bored Ape
What is arbitrage surrounding cryptocurrency?
Buying crypto for one price and then exchanging it using different parameters at a different price to make a profit. (offshoring to another country for tax exemptions, etc) buy and sell two or more currencies risk free
How was the issue of synchronization with distributed ledgers solved?
By miners
Tether and USDC are both?
Centralized
What is an example of an oracle?
Chainlink
What does a hash do and where is it contained?
Connects transactions in current time to the previous block to be stored on the last line of code on each block
What are dapps?
Decentralized applications that allow peer to peer contact with no interference.
What two problems does bitcoin solve?
Double spending and eliminating intermediaries
What is the standard for fungible tokens?
ERC-20
What is the standard for NFT'S?
ERC-721
All contracts run on the __________ blockchain?
ETH
Which crypto is considering switching from POW to POS?
ETH
What is an append only ledger?
Each data entry is linked to the previous entry via a hash
What are the types of tokens?
Equity and Utility and governace
What is an immutable ledger?
Essentially an unhackable ledger which requires over 50% of miners to agree to change a block.
What are some problems with bitcoin?
Extremely volatile Highly unstable Very expensive to purchase Finite amount no intrinsic value have to report every transaction to the IRS
What is proof of work?
The verification system that requires miners to verify transactions by solving hash using the nonce
What is the problem with smart contracts?
They are isolated from information that is outside of the ETH ledger
What is a governace token?
They represent % ownership and voting rights
What are stablecoins?
Tokens intended to maintain price parity with some target asset.
What are some pros to ETH?
You get what you put in, convenient, unbiased, and transparent.
Which country is an example of hyperinflation?
Zimbabwe
unit of account
a means for comparing the values of goods and services
store of value
an item that people can use to transfer purchasing power from the present to the future
medium of exchange
anything that is used to determine value during the exchange of goods and services
What are cryptocurrencies?
digital tokens
maintenence margin
during the life of the loan, trader must maintain a certain level of margin