CCE Cryptocurrency Core Concepts 4 — Questions and Answers
Question 1: What is the Byzantine Generals Problem and its relevance to blockchain?
- A cryptography flaw allowing key theft in multi-signature wallets
- A distributed computing challenge of achieving consensus among untrusted participants (Correct answer)
- A scaling limitation in proof-of-work networks
- A regulatory problem faced by crypto exchanges in the EU
Correct answer: A distributed computing challenge of achieving consensus among untrusted participants
The Byzantine Generals Problem describes the challenge of reaching agreement among nodes when some may act maliciously, which blockchain consensus mechanisms solve.
Question 2: Which cryptographic algorithm does Bitcoin use to generate public-private key pairs?
- RSA-2048
- AES-256
- Elliptic Curve Digital Signature Algorithm (ECDSA) (Correct answer)
- SHA-3
Correct answer: Elliptic Curve Digital Signature Algorithm (ECDSA)
Bitcoin uses ECDSA over the secp256k1 elliptic curve to generate key pairs and sign transactions.
Question 3: What is a hierarchical deterministic (HD) wallet?
- A wallet requiring multiple hardware devices to authorize transactions
- A wallet that generates an entire tree of key pairs from a single seed phrase (Correct answer)
- A wallet managed by a decentralized autonomous organization
- A wallet that automatically converts crypto to stablecoins during volatility
Correct answer: A wallet that generates an entire tree of key pairs from a single seed phrase
HD wallets (BIP32) derive unlimited child key pairs from one master seed, allowing single backup to restore all accounts.
Question 4: What is the difference between a hot wallet and a cold wallet?
- Hot wallets store large amounts; cold wallets store small amounts
- Hot wallets are connected to the internet; cold wallets are kept offline (Correct answer)
- Hot wallets support all cryptocurrencies; cold wallets support only Bitcoin
- Hot wallets use hardware encryption; cold wallets use software encryption
Correct answer: Hot wallets are connected to the internet; cold wallets are kept offline
Hot wallets maintain an active internet connection for convenience, while cold wallets remain offline to reduce attack surface.
Question 5: What is a multi-signature (multisig) wallet?
- A wallet supporting multiple cryptocurrency types simultaneously
- A wallet requiring M-of-N private key signatures to authorize a transaction (Correct answer)
- A wallet with multiple password layers for authentication
- A wallet shared between multiple exchanges
Correct answer: A wallet requiring M-of-N private key signatures to authorize a transaction
Multisig wallets require a predefined minimum number of keys (e.g., 2-of-3) to sign before any transaction is broadcast.
Question 6: What distinguishes a cryptocurrency coin from a token?
- Coins have higher market capitalization than tokens
- Coins operate on their own native blockchain; tokens are built on existing blockchains (Correct answer)
- Tokens can only represent non-fungible assets; coins are always fungible
- Coins are regulated by governments; tokens operate without oversight
Correct answer: Coins operate on their own native blockchain; tokens are built on existing blockchains
Coins (like BTC or ETH) are native assets of their own blockchain, while tokens (like ERC-20 tokens) are created on top of existing platforms.
Question 7: What is the purpose of a nonce in Bitcoin mining?
- To encrypt transaction data before broadcasting
- To provide a variable miners adjust to find a hash below the target difficulty (Correct answer)
- To assign a unique identifier to each wallet address
- To prevent double-spending of UTXOs
Correct answer: To provide a variable miners adjust to find a hash below the target difficulty
Miners repeatedly increment the nonce (number used once) in the block header until the resulting hash satisfies the network's difficulty target.
CCE Cryptocurrency Core Concepts 4
What is the Byzantine Generals Problem and its relevance to blockchain?