Banking And Financial Intermediation at Universität Wien | Flashcards & Summaries

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Lernmaterialien für Banking and Financial Intermediation an der Universität Wien

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TESTE DEIN WISSEN

Are users of Bitcoin truly anonymous?

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TESTE DEIN WISSEN

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.

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TESTE DEIN WISSEN

What is meant by saying that a currency is a unit of account?

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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

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What is meant by an account-based system?

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Overnight deposit accounts are held at monetary financial institutions (MFIs)

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TESTE DEIN WISSEN

What was the very basic initial proposal of Nakamoto?

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TESTE DEIN WISSEN

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

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TESTE DEIN WISSEN

Name some of the current flaws in Bitcoin!

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TESTE DEIN WISSEN
  • The vicious cycle of CPU power - the more CPU power a miner uses, the more CPU power other miners need to invest to keep their success rates intact.
  • The more valuable BTC becomes, the more attractive it is to attack the network.
  • As BTC prices increase, total energy usage of the network must increase to guarantee security of the network.
  • The energy use is not required for technical reasons, it only serves to preserve the correct economic incentives for miners.
  • If all miners would commit to use less energy, transactions could be processed at significantly lower social costs - this is not a nash euqilibrium as an attack becomes more attractive.
  • Free entry in the mining market ensures that miners make small profits. When BTC prices increase, more miners enter the market --> vicious cycle.
Lösung ausblenden
TESTE DEIN WISSEN

Why is a consensus mechanism needed in Bitcoin?

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TESTE DEIN WISSEN

It is used to agree on a history of events in a decentralized and pseudonymous network. Which is important to prevent double spending.

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TESTE DEIN WISSEN

What actions do FIs perform when it comes to wire transfers?

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TESTE DEIN WISSEN

They keep the records, varify the legitimacy of transactions, prevent double spending and ensure the privacy of transactions.

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TESTE DEIN WISSEN

What is a Bitcoin fork?

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TESTE DEIN WISSEN

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

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TESTE DEIN WISSEN

What functions does money have?

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TESTE DEIN WISSEN

It is a means of payment, a unit of account and a store of value

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TESTE DEIN WISSEN
Are bank deposits also a legal tender? 
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TESTE DEIN WISSEN

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.

Lösung ausblenden
TESTE DEIN WISSEN

How did trust in fiat money emerge in the first place and why do we keep believing in it?

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TESTE DEIN WISSEN

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!

Lösung ausblenden
TESTE DEIN WISSEN

How does Bitcoin make sure that nodes do not cheat?

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TESTE DEIN WISSEN

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.

Lösung ausblenden
  • 455173 Karteikarten
  • 7693 Studierende
  • 102 Lernmaterialien

Beispielhafte Karteikarten für deinen Banking and Financial Intermediation Kurs an der Universität Wien - von Kommilitonen auf StudySmarter erstellt!

Q:

Are users of Bitcoin truly anonymous?

A:

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.

Q:

What is meant by saying that a currency is a unit of account?

A:

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

Q:

What is meant by an account-based system?

A:

Overnight deposit accounts are held at monetary financial institutions (MFIs)

Q:

What was the very basic initial proposal of Nakamoto?

A:

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

Q:

Name some of the current flaws in Bitcoin!

A:
  • The vicious cycle of CPU power - the more CPU power a miner uses, the more CPU power other miners need to invest to keep their success rates intact.
  • The more valuable BTC becomes, the more attractive it is to attack the network.
  • As BTC prices increase, total energy usage of the network must increase to guarantee security of the network.
  • The energy use is not required for technical reasons, it only serves to preserve the correct economic incentives for miners.
  • If all miners would commit to use less energy, transactions could be processed at significantly lower social costs - this is not a nash euqilibrium as an attack becomes more attractive.
  • Free entry in the mining market ensures that miners make small profits. When BTC prices increase, more miners enter the market --> vicious cycle.
Mehr Karteikarten anzeigen
Q:

Why is a consensus mechanism needed in Bitcoin?

A:

It is used to agree on a history of events in a decentralized and pseudonymous network. Which is important to prevent double spending.

Q:

What actions do FIs perform when it comes to wire transfers?

A:

They keep the records, varify the legitimacy of transactions, prevent double spending and ensure the privacy of transactions.

Q:

What is a Bitcoin fork?

A:

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

Q:

What functions does money have?

A:

It is a means of payment, a unit of account and a store of value

Q:
Are bank deposits also a legal tender? 
A:

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.

Q:

How did trust in fiat money emerge in the first place and why do we keep believing in it?

A:

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!

Q:

How does Bitcoin make sure that nodes do not cheat?

A:

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.

Banking and Financial Intermediation

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