Cryptocurrency Core Concepts Flashcards

What is the Byzantine Generals Problem and its relevance to blockchain?

Answer: A distributed computing challenge of achieving consensus among untrusted participants

The Byzantine Generals Problem describes the challenge of reaching agreement among nodes when some may act maliciously, which blockchain consensus mechanisms solve.

Which cryptographic algorithm does Bitcoin use to generate public-private key pairs?

Answer: Elliptic Curve Digital Signature Algorithm (ECDSA)

Bitcoin uses ECDSA over the secp256k1 elliptic curve to generate key pairs and sign transactions.

What is a hierarchical deterministic (HD) wallet?

Answer: A wallet that generates an entire tree of key pairs from a single seed phrase

HD wallets (BIP32) derive unlimited child key pairs from one master seed, allowing single backup to restore all accounts.

What is the difference between a hot wallet and a cold wallet?

Answer: Hot wallets are connected to the internet; cold wallets are kept offline

Hot wallets maintain an active internet connection for convenience, while cold wallets remain offline to reduce attack surface.

What is a multi-signature (multisig) wallet?

Answer: A wallet requiring M-of-N private key signatures to authorize a transaction

Multisig wallets require a predefined minimum number of keys (e.g., 2-of-3) to sign before any transaction is broadcast.

What distinguishes a cryptocurrency coin from a token?

Answer: Coins operate on their own native blockchain; tokens are built on existing blockchains

Coins (like BTC or ETH) are native assets of their own blockchain, while tokens (like ERC-20 tokens) are created on top of existing platforms.

What is the purpose of a nonce in Bitcoin mining?

Answer: To provide a variable miners adjust to find a hash below the target difficulty

Miners repeatedly increment the nonce (number used once) in the block header until the resulting hash satisfies the network's difficulty target.