Practice Test Geeks(CCE) Certified Cryptocurrency Expert Practice Test
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Types and Classification of Cryptocurrencies Flashcards

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  1. What is the fundamental difference between a cryptocurrency 'coin' and a cryptocurrency 'token'?

    Answer: Coins operate on their own native blockchain (e.g., BTC on Bitcoin, ETH on Ethereum); tokens are built on top of an existing blockchain platform using smart contracts

    Coins (like Bitcoin, Ether, Litecoin) are native to their own independent blockchains. Tokens (like USDC, UNI, LINK) are created on top of existing blockchains using smart contract standards like ERC-20. Tokens leverage an existing blockchain's security and infrastructure without needing to build their own consensus mechanism.

  2. Privacy coins are a category of cryptocurrency designed to enhance transaction anonymity. Which of the following is the best example of a privacy coin, and what technology does it use?

    Answer: Monero (XMR) — uses ring signatures, stealth addresses, and RingCT to obscure sender, receiver, and transaction amounts by default

    Monero is the leading privacy coin, using three complementary technologies: ring signatures (mix the sender's transaction with others), stealth addresses (one-time addresses for recipients), and RingCT (hides transaction amounts). Privacy is the default for all Monero transactions. Other privacy coins include Zcash (optional shielded transactions using zk-SNARKs) and Dash (CoinJoin mixing).

  3. Stablecoins are a major category of cryptocurrency. Which of the following correctly describes the three main types of stablecoins and their stabilization mechanisms?

    Answer: Fiat-collateralized (backed 1:1 by USD or similar, e.g., USDC), crypto-collateralized (over-collateralized by crypto assets, e.g., DAI), and algorithmic (supply adjusted by algorithms without collateral, e.g., the failed TerraUSD)

    The three primary stablecoin models are: (1) Fiat-collateralized — each token is backed 1:1 by held fiat (USDT, USDC); (2) Crypto-collateralized — over-collateralized by volatile crypto to absorb price swings (MakerDAO's DAI); (3) Algorithmic — no collateral; supply is algorithmically expanded or contracted to maintain the peg (TerraUSD's catastrophic failure in 2022 highlighted the risks of this model).

  4. In securities law, the 'Howey Test' is used to determine whether a cryptocurrency token qualifies as a security. What are the four elements of the Howey Test?

    Answer: There must be (1) an investment of money, (2) in a common enterprise, (3) with an expectation of profit, (4) derived from the efforts of others

    The Howey Test originates from a 1946 US Supreme Court case. If a token meets all four criteria — investment of money in a common enterprise expecting profit from others' efforts — it is a security and must comply with securities laws. The SEC has used this test to classify many crypto tokens (e.g., XRP, various ICO tokens) as unregistered securities.

  5. What is a 'governance token,' and what rights does it typically grant to holders within a DeFi protocol?

    Answer: A token that gives holders voting power over protocol decisions such as fee structures, treasury allocation, smart contract upgrades, and new feature proposals

    Governance tokens (such as UNI for Uniswap, COMP for Compound, AAVE for Aave) grant holders proportional voting rights in a protocol's DAO. Token holders can propose and vote on changes to the protocol — adjusting parameters, allocating treasury funds, or approving new smart contracts. The more governance tokens held, the more voting weight a participant has.

  6. Which of the following best describes a 'utility token' and how it differs from a security token?

    Answer: A utility token grants access to a specific product or service within a blockchain ecosystem (not an investment contract); a security token represents an investment in an enterprise with expectation of profit, subject to securities regulation

    Utility tokens (e.g., Filecoin's FIL for storage, Basic Attention Token for advertising) provide access to a platform's service rather than representing an ownership stake or profit expectation. Security tokens are explicitly investment vehicles representing equity, debt, or profit-sharing rights and must comply with securities laws. The distinction is legally significant: improperly classifying a security token as a utility token can result in regulatory action.