Chapter 11 - ALA - Blockchains & Cryptocurrency

A technology that attempts to ensure that once a piece of software is constructed it cannot be changed is known as ___ technology. Bitcoin is an example of a cryptocurrency that is built on this technology.

blockchain

The first widely used blockchain was created in 2008 to support the cryptocurrency called:

Bitcoin

To help ensure the strength of the blockchain, blocks can only be added in certain:

time intervals

Unlike other large accessible databases that are controlled by corporate entities, such as Netflix or Spotify, public blockchains are hosted on a public ledger, which can be considered a huge database, that stores the data for a blockchain and essentially runs as a peer-to-peer network. This means they have no:

controlling central authority

A consensus mechanism that typically requires those who wish to add a block to put up a number of the blockchain's native coins as collateral is referred to as a proof-of-___ mechanism.

stake

Which of the following is a technology that attempts to ensure that, once the software is constructed, it cannot be altered?

blockchain

The most commonly used consensus mechanism, with the drawback that it requires large amounts of computing power (and electricity) as the blockchain grows, is called the proof-of- ___ consensus mechanism.

work

Blockchain technology builds on the packet-___ concept in which each packet connects to the previous packet according to specific software.

switching

A consensus mechanism that demands large amounts of computing power, with the associated energy demands, is the __ consensus mechanism.

proof-of-work (PoW)

The unique identifying code contained in each block in a blockchain is called its ___.

hash

Unlike proof-of-work (PoW) consensus mechanism protocols, proof-of-___ (PoS) protocols allow individuals to "forge" new blocks by placing a certain amount of their existing blocks up as collateral.

stake

Along with being composed of blocks and using a standard protocol, what are three other attributes of a public blockchain?

It is permissionless.

It has no centralized controlling authority.

It has a consensus mechanism.

One potential issue with the point-of-stake (PoS) consensus mechanism is that if an owner purchases over ___ percent of the blocks (coins), that owner could potentially stop any future transactions.

50

To ensure that any block that is added to the chain is legitimate, without having to place trust in an outside entity, such as a bank or governing body, blockchains use a ___ mechanism.

consensus

PoA consensus mechanisms are often used by private blockchains, such as those used by corporations. PoA stands for proof-of-___

authority

In the proof-of-work (PoW) consensus mechanism, a miner solves an unpredictable math problem, this solution is called a(n) ___ and allows the miner to create another block in the blockchain, such as a Bitcoin in the Bitcoin blockchain (cryptocurrency).

nonce

Select three consensus mechanisms that some newer blockchains are using.

proof-of-history (PoH)

proof-of-contribution (PoC)

proof-of-burn (PoB)

A major drawback of the proof-of-work (PoW) consensus mechanism is that it requires large amounts of Blank______ as the blockchain grows.

computing power

Seeing the success of Bitcoin's blockchain, but wanting to capitalize on the ability to create smart contracts, the developers of the Blank______ blockchain made it more flexible and faster than Bitcoin's blockchain.

Ethereum

To add a block to a PoS blockchain, you must put up existing blocks (coins) as collateral. This collateral is called a ___.

stake

One potential use of blockchains may be to help with supply ___ tracking to ensure items such as blueberries and romaine lettuce is fresh and clean when shipped and illicit items such as "blood diamonds" are kept off the market.

chain

Because owners of large amounts of collateral in the blockchain are more likely to be selected as validators, the dynamic of the rich getting richer is a criticism of the proof-of-___ (PoS) consensus mechanism.

stake

Digital money that is based on a blockchain is called ___

cryptocurrency

Most private corporate blockchains, such as Microsoft Blockchain, use the ______ consensus mechanism.

proof-of-authority (PoA)

How cryptocurrency is created depends upon the ___ mechanism of the blockchain on which the cryptocurrency is based.

consensus

An emerging consensus mechanism that requires miners to permanently destroy a certain number of tokens in order to create a new block is called proof-of-___ (PoB).

burn

Choose three reasons why Bitcoin has value.

because some investors believe the price of Bitcoin (BTC) will increase in the future

because it can be used as legal tender in some countries such as El Salvador

because it can be used to purchase certain items such as Teslas

Match the blockchain (cryptocurrency) with its fundamental use or purpose.

Instructions

Bitcoin

matches

Choice

Store of value (alternative currency)

Ethereum

matches

Choice

Store of value (alternative currency), and also to create smart contracts

Solana

matches

Choice

Store of value (alternative currency), and also to create smart contracts and decentralized applications (dApps)

Choose three methods by which investors buy, sell, and store cryptocurrencies.

through the use of wallets

through a cryptocurrency exchange

through the use of a peer-to-peer exchange

A cryptocurrency's supply is controlled by a protocol called ______ that distributes control among the users and participants.

a consensus mechanism

For purposes of security, wallets are typically accessed through a combination of:

public and private keys

Cryptocurrency creation is determined by the Blank______ used by the blockchain developers

consensus mechanism

To buy, sell, or use cryptocurrency, you must have access to a secure computer code. These codes (private keys) are stored in cryptocurrency __.

Wallets

Some cryptocurrencies have value just because they store value and have a limited number of blocks. The largest cryptocurrency by market cap is ___. It is limited to 21 million blocks (coins).

Bitcoin

Most cryptocurrency hardware wallets incorporate a small keypad that requires the user to add a Blank______ before accessing their private key (and their cryptocurrency).

personal identification number (PIN)

Typically, online wallets require the use of a strong password and Blank______ to log into the wallet where your cryptocurrency private keys are stored.

two-factor authentication

Because it was built on a proof-of-work blockchain, Ethereum (Ethereum 1.0) has Blank______ gas fees than a proof-of-stake cryptocurrency such as Solana.

higher

Simply writing down or printing out your private key and storing it in a secure site is a simple way to ensure that access to your cryptocurrency cannot be hacked. This is called using a paper ___

wallet

The software that allows an owner to access a cryptocurrency account is called a private ___. This typically grants the owner access to their wallet.

key

Similar in function to a site where you would switch dollars for euros, a cryptocurrency ___ (CEX) allows users to buy and sell different cryptocurrencies.

exchange

Select three commonly used types of cryptocurrency wallets.

paper wallets

hardware wallets

online wallets

Not as expensive as a cryptocurrency brokerage firm, users can buy, sell, or trade cryptocurrency either for other cryptocurrencies or for regular (fiat) money such as U.S. dollars, for a standardized per-trade fee when trading through:

a traditional cryptocurrency exchange

A device similar to a USB drive that gives you access to your cryptocurrency is referred to as a ___ cryptocurrency wallet.

hardware

A cellphone app that provides access to a user's cryptocurrency private key is often called a hot or online ___

wallet

As more and more individuals become increasingly knowledgeable about cryptocurrency trading, P2P cryptocurrency __ have grown in popularity.

Exchanges

Writing down your private key and storing it in a secure site is referred to as using:

a paper wallet

Coinbase is the world's most popular cryptocurrency ___ (exchange) firm.

broker

The three main types of cryptocurrency exchanges include:

peer-to-peer (P2P)

traditional

brokerage

Select three categories of risks associated with cryptocurrency trading.

hacking

scams and fraud

volatility

Performing services similar to those of a stock exchange, a traditional ___ exchange allows owners to trade Bitcoin for Ethereum (for example).

cryptocurrency

One scam, which occurred with a cryptocurrency called Squid, is where developers create a new cryptocurrency, use social media to create hype about the coin, and then delete the blockchain itself, leaving investors with absolutely nothing. This is known as:

rug pull

Most successful hacks that occur today are conducted through:

social engineering

Also called direct trading platforms or over-the-counter (OTC), ___ involve low or no transaction fees.

peer-to-peer (P2P) cryptocurrency exchanges

Because it has no intrinsic value other than the faith that investors place in the currency, cryptocurrency is a very Blank______ investment.

Multiple choice question.

volatile

volatile

The most popular cryptocurrency brokerage firm (exchange) in the world is ___.

Coinbase

If you purchase Ethereum (coins), the transaction operates on the Blank______ blockchain, since it is a native coin.

Ethereum

Scams and fraud, hacking, and simply losing your private key, along with volatility, are ___ associated with buying cryptocurrency.

risks

To purchase Ethereum with Bitcoin, you would use a wrapped Bitcoin (wBTC) to create what is referred to as a wrapped ___.

token

A common scam associated with cryptocurrency (and other investments) is when insiders purchase a particular cryptocurrency and then use social media to create hype around the cryptocurrency so that investors rapidly buy the cryptocurrency and raise the price. The insiders then sell the cryptocurrency at these inflated prices, resulting in a subsequent price crash. This is called a ___ and dump.

pump

Some blockchains charge fees (called gas fees) for transactions. The first major blockchain that enabled decentralized financial (DeFi) transactions was ___

Ethereum

Advances in programming have made hacking cryptocurrency extremely difficult. Because of this, hackers tend to use ___ engineering hacks to lure victims into divulging their private keys.

social

An asset that retains its worth rather than depreciating over time, such as precious metals and fine art, is an example of ___.

store-of-value assets

Because cryptocurrency is very liquid, and it has no intrinsic value other than the faith that holders place in the currency, its price tends to be very ___.

volatile

The largest cryptocurrency by market capitalization, , ___ is accepted by well over 100,000 merchants.

Bitcoin

Unlike coins, NFTs do not reside on one specific ___.

blockchain

The Litecoin blockchain was created to be a faster store-of-value coin than ___ (BTC).

Bitcoin

If you wish to purchase Ethereum (ETH) with your Bitcoin (BTC), you would use wBTC, which stands for a ___ Bitcoin token.

wrapped

When first executing decentralized financial (DeFi) transactions, developers were paid in Ethereum, which was recorded as GWEI or one-billionth of an Ethereum coin. GWEI became known as ether or simply ___.

gas

Despite being started as a spoof, ___ (DOGE) at one point had a market capitalization of over $33 billion.

Dogecoin

The first major cryptocurrency, Bitcoin, was developed to be an alternative currency that could not be manipulated by any government entity. This is why it is called a store-of-___ cryptocurrency

value

If all parties want to update a smart contract, they have to build an additional contract, called:

a proxy contract

Aside from a single vulnerability, found and corrected in April 2010, no flaw in the ___ has been discovered.

Bitcoin blockchain

Assets are wrapped using Ethereum Request for Comments (ERC) protocols. The most commonly used is the ___, which is generally used for contracts that exchange cryptocurrencies.

ERC-20 protocol

Litecoin (LTC) resides on the Bitcoin blockchain.

False

The Ethereum blockchain, because of its proof-of-___ (PoW) consensus mechanism, proved too slow to serve as a platform for efficiently supporting applications.

work

Originally developed as a cryptocurrency exchange and built on the Ethereum blockchain, ___ (BNB) developed its own blockchain based on PoA and boasts a transaction time of 60 transactions per second.

Binance

Like Bitcoin and Litecoin, the Dogecoin blockchain is a Blank______ blockchain.

proof-of-work (PoW)

The native cryptocurrency of the Cardano blockchain is called ___.

ADA

An agreement where the terms are written on a blockchain is referred to as a ___ contract.

smart

Because Solana (SOL) is a proof-of-stake (PoS) blockchain, it is very popular for creating Blank______ (NFTs) and as a platform for building applications.

non-fungible tokens

Assets are wrapped using Ethereum Request for Blank______ (ERC) protocols in order to connect them to the Ethereum blockchain.

Comments

In an attempt to reduce cryptocurrency volatility, developers created ___, which are pegged or "tethered" to a less volatile asset such as gold or U.S. dollars.

stablecoins

To remedy the slow transaction time issue associated with PoW blockchains such as Ethereum 1.0 and Bitcoin, ___ blockchains were created, allowing for far faster transactions.

PoS

Select three common means of tethering stablecoins.

collateralize with non-currency assets

collateralize with cryptocurrency

collateralize with a corresponding currency

Binance's blockchain, which it calls a "Smart Chain," uses the Blank______ consensus mechanism.

proof-of-authority (PoA)

Bitfinex developed the largest stablecoin (by market capitalization). This stablecoin, tethered to the U.S. dollar, is called ___.

Tether (USDT)

Unlike Bitcoin or Ethereum, which are proof-of-work (PoW) blockchains, Cardano is a proof-of-___ (PoS) blockchain.

stake

Which three of the following statements regarding USD Coin (USDC) are correct?

Its developer, Circle Ltd., routinely publishes the results of third-party audits of its collateral.

It is the second-largest stablecoin by market capitalization.

Many investors believe that it is a safer stablecoin than USDT.

Unlike Bitcoin or Ethereum, which are proof-of-work (PoW) blockchains, ___ (SOL) is a proof-of-stake (PoS) blockchain.

Solana

In May 2022, TerraUSD (UST) and Luna collapsed when Bitcoin and Ethereum values dropped precipitously. UST was a __, meaning its value was theoretically pegged to and collateralized to the U.S. dollar

stablecoin

Pegged or "tethered" to a less volatile asset such as gold or U.S. dollars, ___ provide a more conservative investment than other cryptocurrencies.

stablecoins

Which three of the following statements are true regarding Dai (DAI)?

It uses game theory and overcollateralization with Ethereum to ensure its value.

It is pegged to the U.S. dollar.

If the price of Ethereum drops precipitously, the value of DAI could also fall.

Stablecoins are pegged or ___ to a less volatile asset such as gold or U.S. dollars.

tethered

If all parties wanted to update a smart contract, they would have to build an additional contract, called ___.

a proxy contract

Which three of the following statements are true regarding Tether (USDT)?

Tether is pegged to the U.S. dollar.

The largest stablecoin by market capitalization is Tether (USDT).

Tether has been sued for not being able to prove that its stablecoin is not adequately collateralized.

Traditional finance (TradFi) uses centralized organizations such as banks and credit unions to facilitate transactions for customers. ___ uses smart contracts built on blockchains.

Decentralized finance (DeFi)

Because it submits to and routinely publishes the results of third-party audits, many investors believe USD Coin (USDC) is a safer ___ than Tether (USDT).

stablecoin

One potential positive impact of DeFi is that because of the anonymous nature of the Internet, DeFi makes discrimination impossible. DeFi stands for ___ finance.

decentralized

Select three true statements regarding TerraUSD (UST) and Luna.

UST used smart contracts and algorithms to peg the value of 1 UST to $1 U.S. by overcollateralizing with other cryptocurrencies such as Bitcoin and Ethereum.

In May 2022, TerraUSD and Luna collapsed when Bitcoin and Ethereum value dropped precipitously.

In April 2022, it was the third largest stablecoin by market cap.

Often equated to a co-op, a decentralized ___ organization (DAO) provides a means for individuals to unite in support of a shared cause.

autonomous