6. The Blockchain

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Questions and Answers

What is the primary problem that blockchain seeks to solve?

Lack of security in digital transactions

The double-spending problem (correct)

High transaction fees associated with banks

The difficulty of tracking physical assets

What role do trusted intermediaries, such as banks, play in traditional transactions?

They generate proof of transactions

They facilitate regional currency exchanges

They prevent fraud in physical cash transactions

They act as a proof of possession for digital assets (correct)

Which statement best describes the original intent of blockchain technology?

To create a centralized authority for cryptocurrency

To establish a framework for digital currency regulation

To eliminate the need for physical cash entirely

To generate computational proof of transaction order (correct)

In the context of blockchain, what does the term 'peer-to-peer' indicate?

Transactions occur directly between buyers and sellers without intermediaries Signup and view all the answers

What assurance does a digital bank provide in a transaction involving digital currency?

Confirms the availability of funds before a purchase Signup and view all the answers

What must be achieved for an attacker to successfully rewrite block 1234?

The new X must cause SHA(“…X”) to start with '00000'. Signup and view all the answers

Which of the following statements about finding X is correct?

The difficulty of finding X increases as more blocks are added. Signup and view all the answers

What is the effect of a successfully mined block 1234 with a new X value?

All subsequent blocks must be recalculated to match the new hash. Signup and view all the answers

How is the security of the blockchain primarily ensured?

Via the proof-of-work consensus mechanism. Signup and view all the answers

What is the primary purpose of the SHA256 function in the context of blockchain?

To ensure the integrity and verifiability of blocks. Signup and view all the answers

What is the significance of the block ID in a blockchain?

It serves as a unique identifier for each block. Signup and view all the answers

What is the primary challenge faced by an attacker in winning consensus within a blockchain network?

Presenting the longest blockchain to the network. Signup and view all the answers

Which of the following factors can diminish the chance of an attacker winning in a blockchain network?

Increasing the number of honest nodes added to the network. Signup and view all the answers

In the context of blockchain blocks 1234 to 1237, which statement is true?

Block 1235 does not reference block 1234 correctly. Signup and view all the answers

How does the Poisson probability model contribute to understanding security in blockchain?

It demonstrates how attacker success chances change with network size. Signup and view all the answers

What is primarily established by blockchain technology in contrast to traditional systems?

Trust in code Signup and view all the answers

What does the term 'peer-to-peer distributed timestamp server' refer to in the context of blockchain?

A system that ensures all users have the same transaction record Signup and view all the answers

What happens in tampering attempt 1 when 'Mis-repeating' occurs?

Funds are transferred incorrectly due to duplicate records Signup and view all the answers

What is likely the primary concern that blockchain addresses regarding trust?

Manipulation and fraud in transactions Signup and view all the answers

In the computational proof of transactions, how does blockchain verify a transaction?

Through the use of cryptographic signatures Signup and view all the answers

What underlying principle does social capital rely on in relation to trust?

Personal relationships and networking Signup and view all the answers

Why is tampering attempt 2, 'Re-writing Records', a significant issue?

It undermines the integrity of the entire transaction history Signup and view all the answers

What do the terms 'Buyer B' and 'Seller A' represent in the context of blockchain?

Digital identifiers for individuals in a transaction Signup and view all the answers

How does the legal classification of cryptoassets differ from traditional physical assets?

Cryptoassets are categorized as incorporeal rights, recognized by common law as things in action. Signup and view all the answers

What role does mutual faith play in the recognition of cryptoassets as currency?

Cryptoassets derive their exchange value from a collective belief in their worth. Signup and view all the answers

In the context of Bybit v Ho Kai Xin and others, what is the relationship between possession and action regarding cryptoassets?

The holder of a crypto asset has an incorporeal right that is classified as a thing in action. Signup and view all the answers

What does the court need to assess regarding societal views toward cryptoassets?

Whether to recognize mutual faith and its implications on cryptoasset valuation. Signup and view all the answers

Which statement describes a characteristic of tokens in relation to off-chain assets?

Tokens are links to real-world assets and enable their tokenization. Signup and view all the answers

How are smart contracts fundamentally implemented in the context of cryptoassets?

They are implemented as code on the Ethereum blockchain. Signup and view all the answers

What conclusion can be drawn about the physical manifestation of cryptoassets?

The private/public key system is described as a physical manifestation in digital terms. Signup and view all the answers

What is the main challenge confronted by legislators regarding the nature of cryptoassets?

Understanding how to regulate assets that are inherently digital and non-physical. Signup and view all the answers

Study Notes

Blockchain Definition

Key technology which solves the double-spending problem by generating computational proof of the chronological order of transactions.

Understanding the Double-Spend Problem

A double-spend occurs when someone tries to spend the same digital asset (like a cryptocurrency) in two different transactions.

The Solution

The blockchain uses a peer-to-peer distributed timestamp server that creates a shared ledger of transactions across the network, ensuring that each transaction is only recorded once.

Proof-of-Work (POW) Consensus and Tamper-Proofing

The POW consensus mechanism makes it computationally expensive to tamper with the blockchain due to the need to solve complex mathematical problems to add new blocks.
The attacker would need to outpace the honest nodes in the network to create a longer blockchain and win consensus.
The probability of an attacker succeeding drops exponentially as the number of honest nodes increases and the computational power differential grows.

Legal Characterizations of Cryptoassets

The Bybit v Ho Kai Xin case suggests that while Cryptoassets are not physical assets, they can be defined and identified in the digital world.
These Cryptoassets can be traded and valued as holdings, meeting the criteria of the Ainsworth formula for property.
While not permanent in the traditional sense, they are identified and valued through their digital manifestation.
The court recognizes that their value is based on a collective act of mutual faith similar to traditional currency.
Whether this constitutes the court recognizing existing societal faith or creating a new one is a complex question with implications for both law and technology.

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Description

This quiz covers the fundamental concepts of blockchain technology, including definitions, the double-spend problem, and consensus mechanisms like Proof-of-Work. Understand how blockchain secures digital transactions and prevents fraud through decentralized systems.