CBCP Cryptocurrency and Digital Assets 3 — Questions and Answers
Question 1: What is 'DeFi yield farming'?
- Mining cryptocurrency using agricultural computing hardware
- Providing liquidity or staking assets in DeFi protocols to earn rewards and interest (Correct answer)
- Generating NFTs representing real-world agricultural assets
- A method of validating transactions on Proof of Stake networks
Correct answer: Providing liquidity or staking assets in DeFi protocols to earn rewards and interest
Yield farming involves strategically deploying crypto assets across DeFi protocols to maximize returns through interest, fees, and governance token rewards.
Question 2: Which attack vector exploits the order of transactions within a block for profit?
- Sybil attack
- Eclipse attack
- Maximal Extractable Value (MEV) (Correct answer)
- 51% attack
Correct answer: Maximal Extractable Value (MEV)
MEV refers to the maximum value extractable by miners/validators by reordering, inserting, or censoring transactions within blocks they produce.
Question 3: What is the 'Lightning Network' designed to solve for Bitcoin?
- Double-spend attacks on the main chain
- Scalability by enabling off-chain payment channels that settle on Bitcoin's base layer (Correct answer)
- Privacy by obscuring sender and receiver addresses
- Mining centralization by distributing hash power
Correct answer: Scalability by enabling off-chain payment channels that settle on Bitcoin's base layer
The Lightning Network creates bidirectional payment channels off-chain, enabling fast and cheap Bitcoin microtransactions that settle on-chain only when channels close.
Question 4: How does an 'Automated Market Maker' (AMM) determine token prices?
- By matching buy and sell orders from users in an order book
- Using a mathematical formula based on the ratio of token reserves in a liquidity pool (Correct answer)
- By referencing prices from centralized exchanges every 30 seconds
- Through a committee of validators who vote on fair market prices
Correct answer: Using a mathematical formula based on the ratio of token reserves in a liquidity pool
AMMs use algorithmic pricing formulas (e.g., x*y=k) that adjust prices automatically based on the ratio of assets held in the liquidity pool.
Question 5: What is a 'crypto dusting attack'?
- Flooding the network with tiny transactions to cause congestion and raise fees
- Sending tiny amounts of cryptocurrency to wallets to de-anonymize owners by tracking subsequent transactions (Correct answer)
- Generating fake blocks to temporarily fork the blockchain
- Overloading a node with invalid transaction requests
Correct answer: Sending tiny amounts of cryptocurrency to wallets to de-anonymize owners by tracking subsequent transactions
Dusting attacks send tiny 'dust' amounts to many wallets; if recipients move those funds, analysts can cluster and link addresses to reveal wallet ownership.
Question 6: What does 'proof of reserves' mean in the cryptocurrency exchange context?
- A government audit confirming an exchange's legal registration
- A cryptographic verification that an exchange holds sufficient assets to cover all customer deposits (Correct answer)
- A smart contract that automatically reimburses users if an exchange is hacked
- A blockchain record of all trades executed on a centralized exchange
Correct answer: A cryptographic verification that an exchange holds sufficient assets to cover all customer deposits
Proof of reserves uses Merkle trees and cryptographic attestations to verify an exchange holds 1:1 (or more) backing for all customer funds.
Question 7: Which property of Bitcoin prevents the same UTXO from being spent twice in a valid transaction?
- The Merkle tree structure of each block
- Full nodes independently verifying that each input references an unspent output in the UTXO set (Correct answer)
- The mining difficulty adjustment algorithm
- The SHA-256 hash chaining between blocks
Correct answer: Full nodes independently verifying that each input references an unspent output in the UTXO set
Every full node maintains a UTXO set and rejects any transaction attempting to reference an already-spent output, making double-spending detectable without a trusted third party.
CBCP Cryptocurrency and Digital Assets 3
What is 'DeFi yield farming'?