Blockchain transaction device

Cryptocurrency Derivatives Trading System

Short Answer Question

What is cryptocurrency?

Explain the role of Proof of Work (PoW) in cryptocurrency.

What is mining difficulty and how does it affect miners' profitability?

What is the main uncertainty faced by miners that this invention solves?

Explain the contract list data structure used in this invention and list its key data fields.

Describe the account funding process in this invention.

Explain the cryptocurrency deposit process in this invention.

Outline how the trading and clearing system works in this invention.

What is mark-to-market and how does it work in this invention?

Describe the process of final settlement in this invention.

Answer

Cryptocurrency is a digital asset that can be used as a store of value or a medium of exchange, and transactions are usually recorded using a decentralized network.

Proof of Work (PoW) is a consensus mechanism used to verify cryptocurrency transactions and add them to the blockchain. Miners compete to verify transactions by solving complex mathematical problems, and the first miner to find a solution is rewarded with newly created cryptocurrency.

Mining difficulty refers to the difficulty for miners to successfully add new blocks to the blockchain. The difficulty is adjusted based on the network hash rate to maintain a stable block generation time. Higher difficulty means that miners need more computing power to find a solution, which reduces profitability.

The main uncertainty faced by miners that this invention solves is the amount of cryptocurrency they ultimately produce and the price at which they sell it.

The contract list data structure defines the terms of the trading contract, and key data fields include: underlying cryptocurrency, contract size (expressed in hash rate), price quote format, minimum price increment, contract market value, expiration date, settlement method and settlement procedure.

The customer instructs his bank to transfer fiat currency to the clearing bank. After receiving the payment, the clearing bank notifies the clearing house, which verifies the deposit and updates the customer's account balance.

The customer instructs his wallet provider to transfer cryptocurrency to the clearing house's wallet address. The blockchain network processes the transfer, and the clearing house verifies the deposit and updates the customer's account balance.

The customer submits an order to buy or sell a contract through the trading system. The matching engine matches the order, and the clearing system processes the settlement, updating the customer's position and account balance.

Marking to market refers to the valuation of open positions based on market prices on a regular basis (usually daily). In this invention, the trading system calculates the daily settlement price, and the clearing system calculates and settles the profit and loss of each account based on the settlement price.

When the contract expires, the trading system obtains the final difficulty value from the blockchain and calculates the final settlement price. The clearing system calculates the final settlement obligations of each account based on the final settlement price and updates the account balance to reflect the final settlement result.

Thesis Title

Analyze in detail how the present invention reduces the income uncertainty of cryptocurrency miners.

Compare and contrast the physical delivery settlement mechanism used in the present invention with the settlement mechanism used in other cryptocurrency derivatives trading platforms.

Evaluate the potential impact of the present invention on the liquidity and price discovery of the cryptocurrency market.

Discuss the challenges and opportunities faced by extending the present invention to other proof-of-work-based cryptocurrencies.

Analyze the potential problems faced by implementing the present invention in one's own country or region from a legal and regulatory perspective.

Key Glossary

Term Definition Blockchain A decentralized distributed ledger that records the history of all cryptocurrency transactions. Block A block of data in the blockchain that contains verified transaction information. Proof of Work (PoW) A consensus mechanism where miners compete to verify transactions by solving complex mathematical problems. Mining refers to the process by which miners verify transactions and add them to the blockchain through the proof-of-work mechanism. Mining Difficulty The difficulty of a miner successfully adding a new block to the blockchain. Hash rate A measure of the number of hash calculations that mining hardware can perform per second. Nonce An arbitrary number added to the block header that changes the hash of the block. Difficulty Target The maximum value that a block hash must be below in order for the block to be added to the blockchain. Marking to Market The process of periodically valuing open positions based on market prices. Settlement The process by which the clearing system updates the balances of each account based on the results of a trade. Trading System An electronic platform that allows clients to submit buy and sell orders. Matching Engine A system that matches buy and sell orders based on predefined logic. Clearing System An institution responsible for settling trades, managing risk, and securing trades. Contract List Data Structure A data structure that defines the terms of a trade contract.