CBCP Cryptocurrency and Digital Tokens 2 — Questions and Answers
Question 1: Which consensus mechanism does Ethereum currently use after 'The Merge' in 2022?
- Proof of Work
- Proof of Stake (Correct answer)
- Delegated Proof of Stake
- Proof of Authority
Correct answer: Proof of Stake
Ethereum transitioned from Proof of Work to Proof of Stake via 'The Merge' in September 2022, reducing its energy consumption by ~99.95%.
Question 2: What is the primary function of a token's 'vesting schedule' in a cryptocurrency project?
- To determine token price at launch
- To release tokens gradually over time to prevent large sell-offs (Correct answer)
- To calculate staking rewards
- To set the initial token supply
Correct answer: To release tokens gradually over time to prevent large sell-offs
Vesting schedules lock tokens and release them incrementally to align team and investor incentives with long-term project health.
Question 3: What distinguishes a 'security token' from a 'utility token' under US regulatory frameworks?
- Security tokens are always fungible; utility tokens are not
- Security tokens represent ownership or investment interest and are subject to SEC regulation (Correct answer)
- Utility tokens require KYC; security tokens do not
- Security tokens can only be issued on Ethereum
Correct answer: Security tokens represent ownership or investment interest and are subject to SEC regulation
Security tokens pass the Howey Test—representing an investment of money in a common enterprise with expectation of profits—and therefore fall under SEC jurisdiction.
Question 4: In the context of cryptocurrency, what is a 'dust attack'?
- A DDoS attack on blockchain nodes
- Sending tiny amounts of crypto to wallets to track and de-anonymize owners (Correct answer)
- A method of front-running transactions
- Spamming the mempool with low-fee transactions
Correct answer: Sending tiny amounts of crypto to wallets to track and de-anonymize owners
Dust attacks involve sending negligible amounts of cryptocurrency to wallets to analyze transaction patterns and potentially link addresses to real identities.
Question 5: What does 'tokenomics' primarily refer to?
- The technical protocol for token transfers
- The economic design of a token including supply, distribution, and incentive structures (Correct answer)
- The legal framework for token issuance
- The exchange listing process for new tokens
Correct answer: The economic design of a token including supply, distribution, and incentive structures
Tokenomics encompasses all economic aspects of a token: total supply, emission schedule, allocation, burn mechanisms, and how incentives align stakeholders.
Question 6: Which type of cryptocurrency wallet stores private keys on a device not connected to the internet?
- Hot wallet
- Custodial wallet
- Cold wallet (Correct answer)
- Exchange wallet
Correct answer: Cold wallet
Cold wallets (hardware wallets, paper wallets) keep private keys offline, significantly reducing exposure to online hacking threats.
Question 7: What is the purpose of a 'token burn' mechanism in cryptocurrency?
- To penalize validators for double-signing
- To permanently remove tokens from circulation, reducing supply (Correct answer)
- To convert utility tokens into security tokens
- To reset a token's price to its initial value
Correct answer: To permanently remove tokens from circulation, reducing supply
Token burns permanently destroy tokens by sending them to an unspendable address, reducing circulating supply which can create deflationary pressure.
CBCP Cryptocurrency and Digital Tokens 2
Which consensus mechanism does Ethereum currently use after 'The Merge' in 2022?