CCE Cryptocurrency Core Concepts 5 — Questions and Answers
Question 1: What is a stablecoin and what mechanism does a fiat-collateralized stablecoin use?
- A coin pegged to gold reserves held in a vault
- A cryptocurrency maintaining price stability by holding fiat currency reserves equal to its supply (Correct answer)
- A coin whose price is stabilized by algorithmic supply adjustments alone
- A cryptocurrency with capped supply issued only by central banks
Correct answer: A cryptocurrency maintaining price stability by holding fiat currency reserves equal to its supply
Fiat-collateralized stablecoins like USDC maintain a 1:1 peg by holding equivalent fiat reserves in custodian bank accounts.
Question 2: What is an Initial Coin Offering (ICO)?
- A government-authorized coin launch regulated by the SEC
- A fundraising method where a project sells new tokens to early investors (Correct answer)
- An exchange listing event for newly created cryptocurrencies
- A miner auction for newly minted block rewards
Correct answer: A fundraising method where a project sells new tokens to early investors
An ICO is a crowdfunding mechanism where blockchain projects issue and sell tokens to raise capital, similar to a startup's IPO.
Question 3: What is the blockchain trilemma as described by Vitalik Buterin?
- The three main types of cryptocurrency fraud: scams, hacks, and rug pulls
- The trade-off between achieving decentralization, security, and scalability simultaneously (Correct answer)
- The three regulatory hurdles cryptocurrencies face: AML, KYC, and tax compliance
- The conflict between miners, developers, and users in governance decisions
Correct answer: The trade-off between achieving decentralization, security, and scalability simultaneously
The blockchain trilemma states that a blockchain can typically optimize for only two of three properties: decentralization, security, and scalability.
Question 4: What is 'double spending' and how does Bitcoin prevent it?
- Spending the same UTXO twice; prevented by requiring two transaction confirmations
- Spending the same UTXO twice; prevented by the distributed ledger and consensus rules (Correct answer)
- Accidentally sending twice the intended amount; prevented by wallet confirmation dialogs
- Paying double the gas fee; prevented by automatic fee estimation algorithms
Correct answer: Spending the same UTXO twice; prevented by the distributed ledger and consensus rules
Double spending is attempting to use the same coins in two transactions; Bitcoin's distributed ledger and longest-chain consensus prevent it by making conflicting transactions detectable.
Question 5: What does 'on-chain' vs. 'off-chain' refer to in cryptocurrency?
- On-chain = confirmed; off-chain = rejected transactions
- On-chain = recorded directly on the blockchain; off-chain = settled outside the main chain (Correct answer)
- On-chain = public transactions; off-chain = private shielded transactions
- On-chain = mainnet; off-chain = testnet activity
Correct answer: On-chain = recorded directly on the blockchain; off-chain = settled outside the main chain
On-chain transactions are permanently recorded on the blockchain ledger, while off-chain transactions occur through external channels (like payment channels) without immediate ledger entries.
Question 6: What is the role of a blockchain oracle?
- A node that predicts future cryptocurrency prices using AI
- A service that supplies real-world external data to smart contracts on-chain (Correct answer)
- A validator that audits smart contract code before deployment
- A protocol that bridges assets between different blockchains
Correct answer: A service that supplies real-world external data to smart contracts on-chain
Oracles bridge the gap between blockchains and external data sources, enabling smart contracts to use real-world information like prices or weather data.
Question 7: What is 'slippage' in the context of cryptocurrency trading?
- The delay between placing an order and its execution
- The difference between an expected trade price and the actual executed price (Correct answer)
- The fee charged by decentralized exchanges per swap
- The loss incurred when withdrawing from a liquidity pool early
Correct answer: The difference between an expected trade price and the actual executed price
Slippage is the price difference between when a trade is initiated and when it executes, often caused by low liquidity or large order sizes.
CCE Cryptocurrency Core Concepts 5
What is a stablecoin and what mechanism does a fiat-collateralized stablecoin use?