CBCP Cryptocurrency and Digital Tokens Questions and Answers — Questions and Answers
Question 1: A digital artist wants to issue a limited edition series of 100 unique, provably scarce digital art pieces on the Ethereum blockchain. Each piece must have a distinct identifier and be individually ownable and transferable. Which token standard is specifically designed for this purpose?
- ERC-20
- ERC-721 (Correct answer)
- ERC-777
- ERC-1155
Correct answer: ERC-721
The ERC-721 standard is designed for non-fungible tokens (NFTs), where each token is unique and not interchangeable. This makes it the ideal choice for representing ownership of one-of-a-kind assets like digital art, collectibles, or real estate. ERC-20, in contrast, is for fungible tokens, where each token is identical to another, like a cryptocurrency.
Question 2: Which of the following best describes the primary characteristic of a fungible token?
- Each token has a unique identifier and metadata.
- It represents ownership of a specific, unique real-world asset.
- Each unit of the token is interchangeable and has the same value as any other unit. (Correct answer)
- It cannot be divided into smaller fractional parts.
Correct answer: Each unit of the token is interchangeable and has the same value as any other unit.
Fungibility is the property of an asset where individual units are interchangeable and indistinguishable from one another. For example, one US dollar is equal in value to any other US dollar. Fungible tokens, like those based on the ERC-20 standard, exhibit this property, making them suitable for use as currencies or utility tokens. Non-fungible tokens (NFTs), by contrast, are unique.
Question 3: An organization plans to raise capital by issuing digital tokens that represent ownership shares in the company. This process will be conducted in full compliance with securities regulations, providing investors with rights similar to traditional stockholders, such as dividends and voting rights. What is this type of fundraising event called?
- Initial Coin Offering (ICO)
- Initial Exchange Offering (IEO)
- Security Token Offering (STO) (Correct answer)
- Decentralized Autonomous Organization (DAO) Launch
Correct answer: Security Token Offering (STO)
A Security Token Offering (STO) is a process where a company issues blockchain-based tokens that are classified as securities. These tokens represent ownership of an underlying asset, such as company equity or real estate, and must comply with financial regulations. This contrasts with an ICO, which often involved the sale of 'utility tokens' and frequently operated in a less regulated environment.
Question 4: A new stablecoin is being designed to maintain a 1:1 peg with the US dollar. The issuer holds an equivalent amount of actual US dollars and short-term government securities in a fully audited bank account as a reserve. What type of stablecoin collateralization model does this represent?
- Crypto-collateralized
- Algorithmic
- Commodity-collateralized
- Fiat-collateralized (Correct answer)
Correct answer: Fiat-collateralized
This model describes a fiat-collateralized stablecoin. The stability of the token's value is derived from being backed by a reserve of fiat currency (like USD) or highly liquid, safe assets like government bonds. Crypto-collateralized stablecoins are backed by other cryptocurrencies, while algorithmic stablecoins use smart contracts to manage supply and maintain the peg without direct collateral.
Question 5: The process of creating a digital representation of a real-world asset on a blockchain, thereby enabling fractional ownership and increased liquidity, is known as:
- Tokenization (Correct answer)
- Decentralization
- Sharding
- Mining
Correct answer: Tokenization
Tokenization is the process of converting rights to a real-world asset into a digital token on a blockchain. This can apply to a wide range of assets, including real estate, art, and company equity. A key benefit is the ability to divide an asset into smaller, fractional parts, making it more accessible to a wider range of investors and potentially increasing its liquidity.
Question 6: A user wants to interact with a decentralized finance (DeFi) protocol. The protocol uses a cryptocurrency that is divisible to eight decimal places and where every unit of the currency is identical and interchangeable with another. Which Ethereum token standard is MOST likely used for this cryptocurrency?
- ERC-721
- ERC-1155
- ERC-20 (Correct answer)
- ERC-1400
Correct answer: ERC-20
The ERC-20 standard is designed for fungible tokens, which are interchangeable and divisible, making them ideal for use as cryptocurrencies within DeFi applications and exchanges. ERC-721 is for unique, non-fungible tokens. ERC-1155 is a multi-token standard that can handle both fungible and non-fungible tokens, but ERC-20 is the specific and most common standard for fungible cryptocurrencies on Ethereum.
CBCP Cryptocurrency and Digital Tokens Questions and Answers
A digital artist wants to issue a limited edition series of 100 unique, provably scarce digital art pieces on the Ethereum blockchain.
Each piece must have a distinct identifier and be individually ownable and transferable.
Which token standard is specifically designed for this purpose?