BUS 410 ACTUAL FINALS QUESTIONS AND
ANSWERS SET A+
✔✔Is Bitcoin Money - ✔✔1) Means of payment
- $: Everyone accepts
- BTC: Not everyone accepts
2) Store of value
- $: Stable
- BTC: Volatile
3) Unit of Account
- both divisible
4) Governance
- $: Government backed
- BTC: Decentralized
5) Transaction verification
- $: controlled authorization process
- BTC: Validators and miners
✔✔Regulatory Uncertainty with Crypto - ✔✔- There is no one who controls crypto so
you can't really have control over it
- People still don't know if the government will ban or promote it
✔✔Bitcoin Cycle 2013 - ✔✔Went from $100 to $1000 because people were becoming
more interested in crypto. The exchange (Mt. Gox) was hacked and people lost
confidence and dropped to $100
✔✔Bitcoin cycle in 2017 - ✔✔- Rise of initial coin offerings
- Strong media attention
- The bust happened because there was human panicking because the government
was increasing their regulations on crypto
✔✔Bitcoin Cycle 2020 - ✔✔- There is monetary expansion globally
- Increased risk-taking for everyone
- Funds began investing in bitcoin
, - Interest rates began to increase and people began putting their money in NON-risky
assets.
✔✔Bitcoin and Interest rates - ✔✔When interest rates increase, bitcoin decreases
✔✔Stable coins - ✔✔Give crypto users a digital dollar that can move through blockchain
networks.
- must be backed by a real dollar
✔✔Crypto-collateralized Stable Coins - ✔✔Crypto asset instead of dollars, and in
exchange you get a stablecoin. Requires overcollateralization.
✔✔Algorithmic Stable Coins - ✔✔If prices rise above $1, the system increases supply to
bring the price down
✔✔Algorithmic Stable Coins - Terra - ✔✔Not backed by USDC and was backed by
another crypto called Luna
- UST fell below $1.
- People exchanged their UST for newly created LUNA.
- The system had to create enormous quantities of LUNA.
- The rapidly increasing LUNA supply caused LUNA's price to collapse.
- As LUNA became worthless, people lost confidence that it could support UST.
- Even more people sold UST.
- More LUNA was created, making LUNA even less valuable.
✔✔What is decentralized finance (DeFi) - ✔✔- Users interact through the blockchain
protocol
- No government
- Smart contracts replace banks as intermediaries
✔✔Risks of DeFi - ✔✔- Limited regulation (in Defi someone can charge you 100%
interest)
- Not really any consumer protections
- Vulnerable to hacks and security errors
- Over collateralization
✔✔Micro drivers of Crypto growth - ✔✔1) Ease of use
2) Transaction costs (Gas fees)
3) Trust in the technology
4) Network effect
✔✔What are gas fees - ✔✔Payment made by users to execute transactions or run
programs on a blockchain network
ANSWERS SET A+
✔✔Is Bitcoin Money - ✔✔1) Means of payment
- $: Everyone accepts
- BTC: Not everyone accepts
2) Store of value
- $: Stable
- BTC: Volatile
3) Unit of Account
- both divisible
4) Governance
- $: Government backed
- BTC: Decentralized
5) Transaction verification
- $: controlled authorization process
- BTC: Validators and miners
✔✔Regulatory Uncertainty with Crypto - ✔✔- There is no one who controls crypto so
you can't really have control over it
- People still don't know if the government will ban or promote it
✔✔Bitcoin Cycle 2013 - ✔✔Went from $100 to $1000 because people were becoming
more interested in crypto. The exchange (Mt. Gox) was hacked and people lost
confidence and dropped to $100
✔✔Bitcoin cycle in 2017 - ✔✔- Rise of initial coin offerings
- Strong media attention
- The bust happened because there was human panicking because the government
was increasing their regulations on crypto
✔✔Bitcoin Cycle 2020 - ✔✔- There is monetary expansion globally
- Increased risk-taking for everyone
- Funds began investing in bitcoin
, - Interest rates began to increase and people began putting their money in NON-risky
assets.
✔✔Bitcoin and Interest rates - ✔✔When interest rates increase, bitcoin decreases
✔✔Stable coins - ✔✔Give crypto users a digital dollar that can move through blockchain
networks.
- must be backed by a real dollar
✔✔Crypto-collateralized Stable Coins - ✔✔Crypto asset instead of dollars, and in
exchange you get a stablecoin. Requires overcollateralization.
✔✔Algorithmic Stable Coins - ✔✔If prices rise above $1, the system increases supply to
bring the price down
✔✔Algorithmic Stable Coins - Terra - ✔✔Not backed by USDC and was backed by
another crypto called Luna
- UST fell below $1.
- People exchanged their UST for newly created LUNA.
- The system had to create enormous quantities of LUNA.
- The rapidly increasing LUNA supply caused LUNA's price to collapse.
- As LUNA became worthless, people lost confidence that it could support UST.
- Even more people sold UST.
- More LUNA was created, making LUNA even less valuable.
✔✔What is decentralized finance (DeFi) - ✔✔- Users interact through the blockchain
protocol
- No government
- Smart contracts replace banks as intermediaries
✔✔Risks of DeFi - ✔✔- Limited regulation (in Defi someone can charge you 100%
interest)
- Not really any consumer protections
- Vulnerable to hacks and security errors
- Over collateralization
✔✔Micro drivers of Crypto growth - ✔✔1) Ease of use
2) Transaction costs (Gas fees)
3) Trust in the technology
4) Network effect
✔✔What are gas fees - ✔✔Payment made by users to execute transactions or run
programs on a blockchain network
