Bitcoin aims to add a new block about every ten minutes on average, and a payment can confirm with no bank in between. Confirmation time for any single payment varies, and a pending transaction can wait much longer when many other transactions are queued ahead of it. A private equity fund ties up capital for years. Both count as alternatives. Only one asks you to understand cryptographic hashing, validator economics, and why a smart contract bug can drain funds that no intermediary can recover.
A distributed ledger is a shared record of who owns what, replicated across multiple nodes, the computers that each keep a copy of the ledger. Who controls it varies. On a public ledger anyone can run a node, while a permissioned ledger is run by a central party or a consortium. A blockchain is a specific type of distributed ledger that records transactions in sequential, cryptographically linked blocks. Each block contains a hash of the previous block.
Common mistakes
- Collapsing every 51% attack harm into one mechanism. Majority PoW hash power lets an attacker reorganize recent blocks and double-spend its own coins. It does not hand over other users' private keys. Accepting invalid transactions or changing rules requires control of the rule-enforcing nodes or governance.
- Calling a centralized exchange DeFi. DeFi is decentralized and permissionless by definition. Coinbase and Binance are centralized intermediaries. Trap: "a centralized exchange that offers crypto lending" described as a DeFi protocol.
- Misreading when impermanent loss exists. Impermanent loss is a shortfall versus simply holding, measured at current prices, and it exists before you withdraw. It disappears if the price ratio returns to its deposit level, and withdrawing while prices are diverged realizes it.
Bottom line
- CAIA splits digital assets into four categories (Payments, Token Currencies, DeFi, Web 3.0). A blockchain cannot simultaneously maximize decentralization, security, and scalability; public chains favor the first two, private chains favor scalability and control.
- PoW uses miners and a SHA-256 nonce hunt (Bitcoin). PoS uses validators and staked collateral with slashing (Ethereum). DPoS has token holders delegate voting power to third parties, concentrating control.
- Four stablecoin types: fiat-collateralized, crypto-collateralized, commodity-backed, algorithmic. Judge risk by collateral, redemption, and stabilization design; algorithmic coins may or may not hold collateral, and Terra is the failure case. CBDCs are central-bank-issued, fiat-backed digital cash.
- DeFi spans six application categories (DEXs, oracles, lending/borrowing, insurance, yield farming, derivatives). DeFi lending swaps borrower screening for programmed overcollateralization, and yield comes from trading fees, borrower interest, or consensus rewards.
Exam shortcut
If a question asks you to classify a digital-asset risk, sort it by source: financial and investment, technology, protocol choice, or other. Smart contract risk is a technology risk, not a universal answer. If a question asks which stablecoin is riskiest, compare collateral, redemption, and stabilization design; algorithmic coins may or may not hold collateral, and Terra is the failure case.
The full lesson (about 10,583 words, 71 min read) adds 2 worked examples, all 9 common mistakes, a self-check, free in the app.
Learning objectives
- dlt blockchains
- smart contracts defi
- bitcoin
- ethereum
- payments tokens
- defi web3
- institutional portfolios
- modern portfolios
- risks challenges
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