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Are users of Bitcoin truly anonymous?
No, they are merely pseudonyms. Addresses could potentially be linked to private individuals. However, Nakamoto advises to use a new set of keys for every transaction.
What is meant by saying that a currency is a unit of account?
A unit of account is something that can be used to value goods and services, record debts and make calculations. Money is considered to be such a unit of account and is therefore divisible, fungible and countable. During the Introduction of the Euro this suffered as people would still compute the prices in the old currency
What is meant by an account-based system?
Overnight deposit accounts are held at monetary financial institutions (MFIs)
What was the very basic initial proposal of Nakamoto?
To implement an electronic coin that can be exchanged in a fully decentralized peer-to-peer network, where all participants are equal. Meaning they share the same information and have the same rights
Name some of the current flaws in Bitcoin!
Why is a consensus mechanism needed in Bitcoin?
It is used to agree on a history of events in a decentralized and pseudonymous network. Which is important to prevent double spending.
What actions do FIs perform when it comes to wire transfers?
They keep the records, varify the legitimacy of transactions, prevent double spending and ensure the privacy of transactions.
What is a Bitcoin fork?
If an honest miner finds that a transaction in the latest block is not legit (e.g. digital signature does not match public key) it can choose to extend the chain from the second-to -last block thus creating two "ends" of the chain = fork.
If every honest miner does so and the honest miners have the majority of the CPU power the honest chain will be eventually the longest
What functions does money have?
It is a means of payment, a unit of account and a store of value
This is not a legal tender. It is rather a bank's promise to deliver the legal tender on demand.
Solely trust in fiat currency is necessary but not sufficient for trust in digital money.
Moreover trust in the banking system is needed. This means trust in security of deposits and trust in the payment infrastructure.
The government plays here an important role by regulating banks, issuing deposit insurance, etc.
How did trust in fiat money emerge in the first place and why do we keep believing in it?
Money is a legal tender meaning that by law cash is avalid means of payment unless there is a specific (ex-ante) agreement to the contrary.
Money is scarce. This is achieved by a monopoly of the central banks, who are producing and distributing fiat money exclusively. Eventhough they use normal banks as intermediaries.
Money is hard to forge. High security standard make it hard to copy money.
By law no economic agent is forced to accept currency - not even the central bank!
All of this does not apply to bank money!
How does Bitcoin make sure that nodes do not cheat?
Only the longest chain is valid. If in the furute a block is no longer part of the longest chain, all transaction in it become invalid --> miners of such blocks lose their compensation ex-post.
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