Cryptocurrency Fundamentals Quiz

Chapter 3: Blockchain Applications

• Cryptocurrencies are digital or virtual currencies secured by cryptography, making counterfeiting nearly impossible.
• Bitcoin was the first cryptocurrency, created in 2008 and now dominates the market with the largest market capitalization. Other cryptocurrencies launched after Bitcoin are called altcoins.
• Crypto assets are cryptographically secured digital representations of value or contractual rights, using distributed ledger technology, transferrable electronically.
• Crypto assets include seven categories:
  • Cryptocurrencies (e.g., Bitcoin, Litecoin): similar to traditional currencies for payments.
  • Protocol tokens: enable decentralized applications (dApps), transaction fees based on utilized resources.
  • Utility tokens: fund projects (e.g., Initial Coin Offerings - ICOs), used with dApps.
  • Security tokens: represent ownership in real-world assets (e.g., shares, bonds, real estate).
  • Stable coins: aim for stable prices, often backed by traditional currencies (e.g., USD). Facilitate exchanges and enhance market efficiency.
    • Examples: USDT, USDC, DAI.
  • Crypto collectibles/NFTs: unique/indivisible tokens, can be 100% virtual or based on real-world assets. Examples: Bored Ape Yacht Club, real estate.
  • Natural assets tokens: simplify trades of raw materials and natural resources (e.g., gold, silver).

Smart Contracts

• Smart contracts are self-executing programs automating contract actions, trackable and irreversible.
• Main steps: pre-defined contract terms, triggered events, automated execution, and settlement on blockchain.
• Benefits: trust, security, accuracy, efficiency, and cost savings.
• Limitations: irreversible mistakes, complexity, high execution costs, and legal hurdles.

Decentralized Applications (dApps)

• dApps are software programs running on blockchain or peer-to-peer (P2P) networks.

Decentralized Autonomous Organizations (DAOs)

• DAOs operate with no central authority, governed by smart contracts. Token holders participate in decision-making.

ID Management

• Decentralized Identity Management (DID) allows users control over personal data, enables interoperability, reduces fraud, and offers direct validation.

Zero-Knowledge Proofs (ZKP)

• ZKP allows verifying information securely without fully revealing it.
• Benefits include higher privacy and trust, enhanced security, and limiting leak risks.

Blockchain Layers

• Blockchains have five layers: hardware, layer 0 (foundational networks), layer 1 (consensus networks), layer 2 (enhanced scalability networks), and application layers.

Blockchain Trilemma

• The trilemma balances scalability, decentralization, and security; growth (scalability) is achieved while speed and low costs are maintained.

Decentralization and Protection

• Decentralization distributes control across nodes, enhancing protection against hacks (e.g., 51% attacks).

Use Cases of Blockchain

• Blockchain has applications in various sectors including supply chain, healthcare, real estate.
• Uses such as tracking assets, enabling real-time tracking, managing properties, anti-counterfeiting, and managing epidemic tracking are examples.

Test your knowledge on the basics of cryptocurrency and blockchain technology. This quiz covers definitions, functions of different types of tokens, and the implications of smart contracts. Explore key aspects of blockchain that are revolutionizing various industries.