Cryptocurrency Issuance and Payment Systems Study Guide

Glossary

Term Definitions Cryptocurrency A digital or virtual currency that uses cryptographic principles to secure transactions and control the creation of new units. Blockchain A continuously growing list of records, called blocks, that are linked and secured using cryptography. Private blockchain A permissioned blockchain where there are restrictions on participants and access rights. Public blockchain A decentralized and open blockchain where anyone can participate and verify transactions. Transaction A transfer of value within a blockchain network. Currency issuance transaction A transaction that creates and issues new units of cryptocurrency. Currency payment transaction A transaction that transfers existing units of cryptocurrency between users. Unique random number A unique number or identifier that is used once in every transaction to prevent replay attacks. Public key Part of a cryptographic key pair used for encryption and address generation in cryptocurrency transactions. Private key Part of a cryptographic key pair used for decryption and signature generation in cryptocurrency transactions. Signature value A digital signature created using a private key to verify the authenticity of a transaction. Balance database A database that stores all user cryptocurrency balances. Hash function A function that maps data of arbitrary size to a fixed-size hash value. Merkle tree A data structure used to efficiently verify the integrity of data in large datasets. Representative hash value represents the hash value of the root node of the Merkle tree. Anchor condition triggers a predefined condition for registering data to a public blockchain. Block header A portion of a block that contains metadata about the blockchain block. Undelayed payment A cryptocurrency payment transaction that is processed immediately. Delayed payment A cryptocurrency payment transaction that is processed after a certain condition is met. Offset A process used to settle two or more related transactions that involve the same parties but for opposite amounts.

Short answer questions

Explain the difference between private and public blockchains.

Private blockchains are permissioned and have restrictions on participants and access rights, while public blockchains are decentralized and open, allowing anyone to participate.

What role do unique random numbers play in cryptocurrency transactions?

Unique random numbers prevent replay attacks, ensuring that each transaction is unique and cannot be copied by malicious actors.

Describe the verification process for cryptocurrency issuance transactions.

The server verifies the transaction's data format, currency recipient ID, currency issuer's public key, and signature value to ensure its validity.

What is a balance database and how is it maintained in a cryptocurrency system?

The balance database stores all user cryptocurrency balances and is updated based on processed currency issuance and payment transactions, reflecting changes in balances after each transaction.

Explain the role of hash functions in securing cryptocurrency transactions.

Hash functions are used to create unique and tamper-proof representations of transactions, ensuring data integrity and security.

How are Merkle trees used to verify blockchain transactions?

Merkle trees allow for efficient verification of the integrity of data in large datasets, thereby enabling efficient verification and confirmation of blockchain transactions.

What is an anchor condition and what role does it play in registering data to a public blockchain?

An anchor condition is a predefined condition that, once met, triggers the registration of data (e.g., a representative hash value) to a public blockchain.

Distinguish between non-delayed and delayed cryptocurrency payment transactions.

Non-delayed payments are processed immediately, while delayed payments are postponed until certain conditions are met (e.g., sufficient balance).

Describe how delayed cryptocurrency payment transactions are settled through offsets.

When sufficient funds are received in connection with delayed payment transactions, offsets are performed to match and settle these transactions, ensuring that payments are completed even when the initial balance is insufficient.

What steps are required to register a new user into a cryptocurrency system?

The new user needs to submit a registration request to the server, provide their public key, and sign a random number with their private key for verification, similar to the registration process of a currency issuer.

Essay Questions

Discuss the advantages and disadvantages of using private and public blockchains in cryptocurrency systems.

Analyze the effectiveness of using Merkle trees and representative hash values to ensure blockchain data integrity.

Evaluate the impact of undelayed and delayed cryptocurrency payment transactions on different use cases.

Design a mechanism for securely managing and updating the balance database in a distributed cryptocurrency system.

Explore the potential of integrating smart contracts into the described cryptocurrency system to enable more complex transaction scenarios.