Accounting Information Systems - Blockchain

- Upside-down mortgages due to the burst of the housing bubble

- Complex financial instruments that passed risk through to the public

- Bailouts of major banks

Financial Crisis Of 2008

When was the Bitcoin whitepaper released?

October 31, 2008

What are the 5 subjects that the Bitcoin whitepaper shows considerable knowledge in?

1. Cryptography

2. Computer Science

3. Economics

4. Psychology

5. Technical Writing

The protocols / platform / software

Bitcoin

The digital currency

bitcoin

How many transactions can Bitcoin process?

7 transactions per second

How are new bitcoins released?

- Coinbase transactions, which represent rewards granted when new blocks are created

- New blocks added every 10 minutes

Is Bitcoin inflationary or deflationary currency and what does that mean?

1. Deflationary Currency,

2. Value increase over time and it discourages spending

What conflict does deflationary currency present for Bitcoin?

Bitcoin only has value if people use it, but why use it if its value goes up over time?

What is the first block in the blockchain called

Genesis Block

Is comprised of individual blocks of data and these blocks have size limitations

Blockchain

What are the 2 important things for the structure of blockchain?

1. The blocks must remain in order and cannot be changed

2. Blocks can only be added to the end of the blockchain, but not removed from the blockchain (Append Only)

Starts from the genesis block and then continues through numbered blocks

Blockchain Ledger

Individual transactions that can only store a limited amount of data

Blocks

Can be shared / replicated / distributed

Ledger

Transactions must be verified and the must be a consensus (51%) on the data added in the blocks

Interaction Protocol

What 5 problems does blockchain solve?

1. Direct exchanges of value

2. Removes the middle-men of transactions

3. Eliminates the double-spend problem

4. Enables the creation of scarce digital assets

5. Advances network resiliency

Why does this matter to accountants?

- Blockchain creates a new form of ledger that allows the balancing of transactions among all parties/entities in its ecosystem using a shared ledger

What are the three types of blockchain structures?

1. Centralized

2. Decentralized

3. Distributed

Full power node that can processes everything (single device)

Full Node

Need more than 1 device to fully power and process transactions

Lightweight Node

Anyone has the ability to participate in writing (i.e., adding) transactions to the blockchain

Permissionless Blockchain

Authorized parties only have the ability to participate in writing (i.e., adding) transactions to the blockchain

Permissioned Blockchain

Anyone has the ability to read (i.e., view) the blockchain ledger and submit new transactions

Public Blockchain

Authorized parties only have the ability to read (i.e., view) the blockchain ledger and submit new transactions

Private Blockchain

What 2 types of blockchain is Bitcoin?

Public and Permissionless

How is an address derived in Bitcoin (In Order)?

1. Cryptographic seed

2. Private Key

3. Public Key

4. Blockchain Address

Random information used to create key pairs

Cryptographic Seed

A number derived from the cryptographic seed that needs to be kept secret

Private Key

A number derived from the private key

Public Key

A number derived from the public key

Public Blockchain Address

Using multiple different private keys to unlock an account

Multisig

Using multiple parts of the same private key to access an account

Sharding

What is stored in the Bitcoin Wallet?

Private Key

What are the 4 types of wallets?

1. Hot storage wallets

2. Cold storage wallets

3. Full node wallet

4. Lightweight wallet

Need Internet connection to access

Hot Storage Wallet

You don't need internet connection to access

Cold Storage Wallet

One full power device can be used to access

Full Node Wallet

Need more than one device to access

Lightweight Wallet

What verifies each transaction received for appropriateness?

Nodes

Validated transactions are stored in a Full Node's ________

Memory Pool (mempool)

Who take these validated transactions and works to add (confirm) them into blocks

Miners

The process of adding transactions to blocks, which then become a part of the permanent blockchain ledger

Mining

How do blocks get added to blockchain?

By solving a puzzle

Involves running any digital content through an algorithm to produce a fixed-length string of letters and numbers to uniquely represent the content

Hashing

2 different hash files that produce the same result

Hash Collisions

All hashes until you reach the root hash

Merkle Tree

- Data from individual transactions are hashed, then hashes are hashed together until all transactions are used to create a single _____

- Becomes part of the data represented in the Block

Root Hash

What does the amount of zeros determine in hashing the block header?

- The Difficulty

- More Zeros = More Difficult

The one data input to the block header that miners can change is the _______

Nonce

Miners repeatedly apply a different nonce to the block header data until they generate a hash that begins with at least a certain number of zeros

Proof-of-Work / Mining

What does a miner that finds a correct nonce receive?

1. Block reward (i.e., newly issued bitcoins)

2. Fees

-Reward issued in the coinbase transaction is cut in half

-Occurs every 4 years or 210,000 blocks

Block Reward Halving

- nonces tried per second

-Currently in the trillions-per-second

Hash Rate

What are the 4 evolutions of mining tools?

1. Central Processing Unit (CPU)

2. Graphical Processing Unit (GPU)

3. Application-Specific Integrated Circuits (ASICs)

4. Mining Pools

Block that is not built on in the blockchain

Orphaned Block

If a node tries to introduce a fraudulent transaction (or change a broadcasted transaction), the nonce produced from the Proof-of-Work will not work for the other nodes

Byzantine Fault Tolerance