Understanding Money and Blockchain Concepts

Money

Medium of exchange, unit of account, store of value.

Medium of Exchange

Payment mechanism for goods and services.

Store of Value

Maintains worth over time; resists depreciation.

Unit of Account

Allows comparison of values and total wealth.

Forms of Money

Includes commodity, representative, and fiat money.

Commodity Money

Physical token with intrinsic or extrinsic value.

Representative Money

Claim on an underlying asset; backed by value.

Fiat Currency

Government-issued money with no intrinsic value.

Intrinsic Value

Inherent usefulness of an item, like grain.

Extrinsic Value

Value due to scarcity or desirability of an item.

Barter

Exchange of goods without using money.

Double Coincidence of Wants

Both parties must want what the other offers.

Dollar as Medium of Exchange

Widely accepted for payment globally.

Dollar as Unit of Account

Many assets priced in USD; global commodity standard.

Dollar as Store of Value

Poor long-term value; purchasing power declines.

Hyperinflation

Extreme inflation leading to loss of money's value.

CPI

Measures changes in price of a basket of goods.

Short-Term Store of Value

Dollar maintains value for immediate transactions.

Long-Term Store of Value

Other assets may preserve value better over time.

Tally Sticks

Historical form of representative money for transactions.

Promissory Note

Written promise to pay a specified amount.

Government Regulation

Establishes value of fiat currency through authority.

Public Confidence

Trust in currency's value; essential for fiat money.

Gold-Backed Paper

Representative money redeemable for gold.

Purchasing Power

Value of money in terms of goods/services.

Value Stability

Good commodity money should maintain consistent value.

Price Inflation

General increase in prices, reducing money's value.

Assets for Value Preservation

Housing, land, and investments are more reliable.

Legal Tender

Currency that must be accepted for debts.

Fiat Currency

Government-issued currency not backed by physical commodities.

Representative Money

Currency representing a claim on a commodity.

Concierge Act

Established the first USD based on the decimal system.

Alexander Hamilton

First US Treasury Secretary, advocated for strong finance.

First Bank of the United States

Established in 1791 to manage federal funds.

Cash Advantages

Immediate, no third-party control, anonymity, security.

Cash Disadvantages

Limited scalability, security risks, lack of records.

Digital Money Advantages

Convenient, secure, easy tracking, globally accessible.

Digital Money Disadvantages

Third-party dependence, transaction fees, identity requirements.

Blockchain

Decentralized public ledger for recording transactions.

Cryptography

Secures transactions using mathematical algorithms.

Immutable

Recorded blocks cannot be altered after confirmation.

Transparent

Public access to verify blockchain transactions.

Decentralized

No single authority controls the blockchain ledger.

Secure

Cryptographic hashing ensures data integrity.

Transaction Fees

Costs associated with processing digital payments.

Anonymity in Cash

No identity verification required for cash transactions.

Global Accessibility

Digital money usable across borders with exchanges.

Security Risks of Cash

Cash can be lost, stolen, or counterfeited.

Record-Keeping in Digital Money

Automated tracking for budgeting and tax reporting.

Dependence on Third Parties

Banks and processors control digital transaction access.

Privacy Concerns

Digital payments can be tracked or misused.

Immediate Settlement

Cash transactions are final without intermediaries.

Central Repository

First Bank managed federal funds and currency issuance.

Blockchain Security

Ensures integrity of blockchain transactions.

Unauthorized Modifications

Prevents changes to the blockchain ledger.

User Identity Protection

Safeguards user identities and transaction details.

Public-Key Cryptography

Uses public and private keys for transaction security.

Hashing

Converts data into a fixed-length digital fingerprint.

Cryptography

Process of using codes to secure information.

Key-Based Cryptography

Uses keys for authentication and security.

Hash-Based Cryptography

Ensures data integrity using cryptographic hashing.

Encryption

Converts plain text into cipher using a key.

Decryption

Reverses encryption to retrieve original message.

Symmetric Encryption

Uses the same key for encryption and decryption.

Asymmetric Encryption

Uses public/private keys for secure communication.

Monaalphabetic Substitution

Substitutes letters using a single alphabet.

Caesar's Cipher

Shifts letters by a fixed number in the alphabet.

Polyalphabetic Substitution

Uses multiple alphabets for substitution.

Vigenere Cipher

Advanced cipher using multiple polyalphabetic codes.

Key Requirements

Both parties need the encryption key.

Key Compromise

If key is compromised, communication security fails.

Encryption Key Size

Measured in bits, determines encryption strength.

Key Length Importance

Longer keys increase security against brute-force attacks.

128-bit Key

Offers 2^128 possible key combinations.

256-bit Key

Offers 2^256 possible keys, extremely secure.

Cryptographic Hashing

One-way function converting input to fixed-length string.

Avalanche Effect

Small input changes yield completely different outputs.

Password Storage

Uses hashing to securely store passwords.

Digital Signatures

Ensures authenticity and integrity of digital messages.

Blockchain Security

Utilizes hashing for secure blockchain transactions.

Deterministic

Same input always produces the same hash.

Quick to compute

Hash value computed efficiently for any message.

Irreversible

Infeasible to recreate original message from hash.

Unique

Infeasible to find two messages with same hash.

Avalanche Effect

Small input change results in drastically different hash.

Input Data

Any data given to a hash function.

Binary Conversion

Input is converted into binary format (0s and 1s).

Hash Function

Processes binary data using cryptographic algorithms.

Fixed-length Output

Hash function produces unique fixed-length output.

SHA-256

Specific hash function producing 256-bit output.

Padding

Input padded to multiple of 512 bits.

512-bit Block

Data split into 512-bit segments for processing.

Message Schedule

64 rounds of operations applied to data.

Compression Function

Iteratively compresses hash values during processing.

Collision Resistant

No two different inputs produce the same hash.

Preimage Resistant

Impossible to reverse hash to original data.

Blockchain

Decentralized ledger recording transactions across nodes.

Chronological Order

Transactions grouped and added to chain sequentially.

Block Contents

Includes transactions, unique hash, and previous block's hash.

Genesis Block

First block in a blockchain, no previous reference.