F.3. Emerging Tech: AI, Cloud, Blockchain

Question 1

What is artificial intelligence?

(AI)

Answer 1

A field in computer science dedicated to creating “intelligent” computers that can simulate human intelligence processes.

Question 2

What are the two categories of artificial intelligence?

Answer 2

• Weak AI (Narrow AI)
• Strong AI (Artificial General Intelligence)

Modern large language models blur the line somewhat between weak AI and strong AI. Unlike traditional narrow (weak) AI, they can handle diverse tasks, although they still are not truly “conscious” or capable of genuine reasoning in the strong AI sense.

Question 3

What is weak artificial intelligence?

Answer 3

An AI system that can simulate human cognitive functions but is not actually conscious and is designed to perform a specific task.

Question 4

What is an example of weak artificial intelligence?

Answer 4

Apple’s Siri voice recognition software

Siri is a trademark of Apple Inc., registered in the U.S. and other countries.

Question 5

What is strong artificial intelligence?

Answer 5

A theoretical AI system equal to human intelligence, capable of reasoning, making judgments, learning, and solving problems without human intervention.

Question 6

What are large language models?

(LLMs)

Answer 6

Large language models (LLMs) such as ChatGPT, Claude, Google’s Gemini, or Microsoft’s Copilot are artificial intelligence systems trained on vast amounts of text data to understand and generate human-like language.

ChatGPT is a registered trademark of OpenAI.

Claude is a registered trademark of Anthropic, PBC.

Gemini is a registered trademark of Google LLC.

Copilot is a registered trademark of Microsoft Corporation.

Question 7

Is ChatGPT an example of weak AI or strong AI?

Answer 7

It is somewhere in between. Unlike traditional narrow (weak) AI, large language models like ChatGPT can handle diverse tasks, although they still are not truly “conscious” or capable of genuine reasoning in the strong AI sense.

Question 8

What does machine learning, an artificial intelligence process, include?

Answer 8

Machine learning is a process whereby computers can learn by using algorithms to interpret data in order to predict outcomes and learn from feedback.

Question 9

What do computer vision and machine vision, processes within the broad field of artificial intelligence, do?

Answer 9

They focus on enabling computers to interpret and understand visual information from images.

• Computer vision applications use specialized deep learning models designed for processing visual data by recognizing patterns. The systems include cameras, image sensors, and image processing software.
• Machine vision refers to industrial and manufacturing applications where vision systems perform inspection, measurement, quality control, robotic part picking, and defect detection in products.

Question 10

What is the role of artificial intelligence in accounting?

Answer 10

AI can automate repetitive tasks, allowing accountants to focus on advisory services and ensuring data interpretation is useful for decision making.

Question 11

What should be considered when instituting artificial intelligence?

Answer 11

• Re-imagine processes, rather than using AI to replicate existing processes
• Activities to be performed should be those that are standardized and not often changed
• Document automated processes
• Review data quality, both input and output
• Identify potential exceptions and errors and investigate

Question 12

What is cloud computing?

Answer 12

A method of outsourcing IT functions to increase capacity or add capabilities without investing in new infrastructure.

Question 13

What are the three types of cloud computing resources?

Answer 13

• Software as a Service (SaaS)
• Platform as a Service (PaaS)
• Infrastructure as a Service (IaaS)

Question 14

What is Software as a Service?

(SaaS)

Answer 14

It provides the capability to use the provider’s applications running on a cloud infrastructure, accessible from various client devices.

Question 15

What is Platform as a Service?

(PaaS)

Answer 15

It provides the capability to deploy consumer-created applications onto the cloud infrastructure using operating systems, programming languages, libraries, services, and tools provided by the cloud provider.

Question 16

What is Infrastructure as a Service?

(IaaS)

Answer 16

It provides the capability to deploy and run software, including operating systems and applications, on the cloud provider’s infrastructure. The consumer does not manage or control the underlying cloud infrastructure but does have control over its deployed operating systems, storage, and applications.

Question 17

What are the benefits of cloud computing?

Answer 17

• Scalability
• Reduced investment in hardware/software
• Automatic software updates
• Accessibility from anywhere
• Advanced computing power

Question 18

What are the limitations of cloud computing?

Answer 18

• Internet reliability concerns
• Service quality monitoring necessary
• Security concerns
• Limited customization
• Data governance challenges
• Expected cost savings may not materialize.

Question 19

What is a blockchain?

Answer 19

A decentralized and distributed platform that is a record of transactions in chronological order, used to store and share information among network participants.

Packages, or blocks, containing the transactions are secured using cryptography, and the chain of blocks is stored on multiple computers.

Question 20

In the context of blockchain, what is a peer-to-peer (P2P) network?

Answer 20

A decentralized network of computers that share information and resources directly without a centralized server.

Question 21

What are nodes in a peer-to-peer network in the context of a blockchain?

Answer 21

Computers on a peer-to-peer network that keep the network running by participating in the relay of information. A node sends information to a few other nodes, which in turn relay the information to additional nodes, and so forth, to spread information around the network.

Question 22

What is the role of full nodes in a blockchain network?

Answer 22

They each store a complete copy of the blockchain, validate transactions, and maintain consensus among nodes.

Question 23

In the context of a blockchain, what is a distributed ledger?

Answer 23

A database held by each full node in a network, updated by each full node independently, passed around the network, and maintained without a central authority.

Question 24

What is “consensus” on a blockchain network?

Answer 24

Agreement among a majority (51% or more) of the nodes on the value of the data, that is, the transactions, to be included in the ledger.

Question 25

# Define: Cryptocurrency

Answer 25

A virtual currency secured by strong cryptography. It is decentralized and transferable from one user to another directly on a peer-to-peer network.

Question 26

What is public-key cryptography?

Answer 26

A system using pairs of keys, public and private, for identification (the public key), and authentication and encryption (the private key). ## Footnote Cryptocurrencies are based on public-key cryptography.

Question 27

What is a digital wallet as used with cryptocurrencies?

Answer 27

A tool used to access cryptocurrencies that stores a user's private and public keys needed to transact in cryptocurrencies.

Question 28

What is hashing in the context of a blockchain, and what is it used for?

Answer 28

A mathematical process that converts data of any size into a fixed-length string of characters called a **hash** or **hash value**. It creates a unique digital “fingerprint” for data. On a blockchain, hashing is used to create secure links between blocks, verify data has not been changed, and, in Proof of Work systems, to create the mathematical puzzle that miners must solve.

Question 29

What is a satoshi in the context of bitcoin?

Answer 29

The smallest unit of bitcoin cryptocurrency, equal to one 100-millionth of one bitcoin token.

Question 30

What are mining nodes?

Answer 30

Full nodes on a blockchain network that use Proof of Work as its consensus protocol. They group transactions into blocks and add them to the blockchain.

Question 31

What is a **block** on a blockchain?

Answer 31

A package of data that contains and confirms a group of validated transactions on a blockchain, like a page in a digital ledger. Each block has two main parts: a block header that contains metadata ("data about data” or information about the actual transaction data), and the block body that contains the actual transaction data.

Question 32

What is Proof of Work (PoW) on a blockchain?

Answer 32

The consensus protocol used on a Proof of Work blockchain that requires members to solve a mathematical puzzle to validate transactions on a blockchain.

Question 33

What is a **consensus algorithm** and what is it used for on a blockchain?

Answer 33

It ensures that a majority of nodes on the network agree that the transactions are validated and authentic. Consensus algorithms are used on a blockchain to prevent a user from spending the same digital currency more than once.

Question 34

What is a **confirmation** on the Bitcoin network?

Answer 34

When a block has been validated and added to the blockchain, the transactions it contains are said to have received one **confirmation**, meaning they have been processed and recorded by the network.

Question 35

How many confirmations does a transaction need before it is considered secure (not likely to be changed or reversed) on the Bitcoin network?

Answer 35

After six confirmations (six blocks added after the block containing the specific transaction), which takes approximately 60 minutes. ## Footnote Each additional confirmation exponentially decreases the risk that a prior transaction could be changed or reversed.

Question 36

What is Proof of Stake (PoS) on a blockchain?

Answer 36

An alternative consensus protocol to Proof of Work, requiring significantly fewer resources than Proof of Work and using validators (also called staking nodes or stakers) to create new blocks and validate transactions based primarily on the amount of cryptocurrency they hold and are willing to "stake" or lock up as collateral.

Question 37

What is the difference between **mining** and **minting** on blockchains?

Answer 37

* Mining is used in **Proof of Work** (PoW) networks to create new cryptocurrency units. * Minting is used in **Proof of Stake** (PoS) networks. ## Footnote Both processes create new units of cryptocurrency and add validated transactions to their respective blockchains.

Question 38

What is **time to finality** on a blockchain?

Answer 38

The time required before a transaction can be considered permanent and essentially irreversible on the blockchain, which occurs when a transaction has received enough confirmations that the computational cost of reversing it becomes prohibitively expensive, even for a well-resourced attacker.

Question 39

What is the role of the Commodity Futures Trading Commission in cryptocurrency oversight?

Answer 39

Oversight of digital currencies considered commodities.

Question 40

What is the role of the U.S. Securities & Exchange Commission in cryptocurrency oversight?

Answer 40

Claims federal jurisdiction over digital currencies considered securities.

Question 41

# Define: Digital currency

Answer 41

A digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value. It is a piece of computer code that represents ownership of a digital asset that can be used to transact business.

Question 42

# Define: Convertible virtual currency

Answer 42

Virtual currencies that have an equivalent value in real currency or that can act as a substitute for real currency.

Question 43

What is the role of the Financial Crimes Enforcement Network Division (FinCEN) of the U.S. Treasury in cryptocurrency oversight?

Answer 43

Has regulatory authority over money service businesses and treats certain cryptocurrency businesses as money services businesses that are subject to Bank Secrecy Act requirements. ## Footnote Businesses that exchange cryptocurrency for fiat currency, transfer cryptocurrencies between persons, or provide certain custody services must register with FinCEN as money services businesses and must file Suspicious Activity Reports for transactions that raise red flags.

Question 44

What is the role of the Financial Action Task Force (FATF) in cryptocurrency regulation?

Answer 44

The FATF maintains anti-money laundering and counter-terrorist financing standards that cover "virtual assets" and "virtual asset service providers" (VASPs). It has issued guidance that VASPs, including cryptocurrency exchanges, wallet providers, and other intermediaries, should be regulated similarly to traditional financial institutions. It has stated that operators of cryptocurrency networks should collect data on users’ activities. ## Footnote The FATF is an intergovernmental organization founded in 1989 to combat money laundering, terrorist financing, and other threats to the integrity of the international financial system. It does not have regulatory authority, but its recommendations are effectively mandatory for any entity wishing to participate in the global financial system.

Question 45

How does the U.S. Internal Revenue Service treat virtual currencies like bitcoin?

Answer 45

The IRS treats virtual currencies as property, meaning gains are taxed like capital gains on investment securities or real property. ## Footnote Fee income earned by miners is also taxable, and spending cryptocurrency is treated as selling it, with tax due on the difference between the value of the amount spent and its cost.

Question 46

What is a stablecoin?

Answer 46

A type of cryptocurrency that is intended to track a fiat currency. ## Footnote Stablecoins offer some price stability similar to that of fiat currencies. Stablecoins may be backed by fiat currency reserves or other mechanisms to maintain their value.

Question 47

What distinguishes a public blockchain from a private blockchain?

Answer 47

* Public blockchain: Open to anyone, decentralized, and distributed. * Private blockchain: Limited to approved participants, not decentralized, but distributed. ## Footnote Public blockchains allow any participant to function as a full node, while private blockchains are controlled by a central authority.

Question 48

What are the primary risks associated with cryptocurrency?

Answer 48

* Operational risks * Cybersecurity risks * Speculative risks * Fraud and manipulation risk ## Footnote These risks include regulatory uncertainties, potential for hacking, price volatility, and the presence of fraudsters in the market.

Question 49

What is a smart contract?

Answer 49

A set of promises specified in digital form, including protocols within which the parties perform on these promises. ## Footnote Smart contracts are self-executing and perform actions based on specified conditions, such as delivery of an asset or a change in a reference rate.

Question 50

What are some uses of smart contracts on blockchains?

Answer 50

* Ensuring the authenticity of a product * Protecting intellectual property * Managing supply chain transactions * Automating on-demand manufacturing * Automating premium payments and claims on insurance contracts * Tracking products from their sources to the consumers * Transferring real property titles * Tracking the provenance of high-value items to protect against theft, forgery, and fraud ## Footnote Smart contracts can automate processes and ensure transparency and security in various applications, including supply chain management and intellectual property protection.

Question 51

What is the significance of governance standards for smart contracts?

Answer 51

They are important for assigning responsibility for smart contract design and operation, establishing dispute resolution mechanisms, regulating standards for smart contracts, and addressing risks presented by smart contracts. ## Footnote Good governance helps address risks and ensures the proper design and operation of smart contracts.

Question 52

What are the benefits of smart contracts?

Answer 52

* Can authenticate counter-party identities using digital signatures * Can access outside information to trigger actions * Can self-execute actions * Reduce counter-party and settlement risk * Prevent unauthorized modifications * Enhance market activity and efficiency * May reduce negotiation costs * May reduce transaction times and manual processes * Can automate regulatory reporting

Question 53

What are the limitations and risks associated with smart contracts?

Answer 53

* Dependence on accurate information and code * Subject to existing laws and regulations * Operational, technical, and cybersecurity risks * Potential for fraud and manipulation ## Footnote Smart contracts may not function properly due to input or coding errors, and they are susceptible to hacking and manipulation.

Question 54

What is a "51% attack" in blockchain networks?

Answer 54

An attack where one entity or group controls the majority of the computing power on the network, allowing them to create a competing blockchain (called a malicious fork) and potentially double-spend currency. ## Footnote 51% attacks exploit the principle that the longest blockchain is considered the true one, and they are more feasible on smaller networks.

Question 55

# True or False: Blockchain networks are completely secure and cannot be hacked.

Answer 55

False ## Footnote Despite their supposed immutability, blockchain networks can be hacked, especially smaller or less active ones.

Question 56

What vulnerabilities might smart contracts have?

Answer 56

Bugs in their coding that leave them open to being hacked. ## Footnote These vulnerabilities can be exploited by attackers to manipulate or disrupt the intended function of the smart contract.