CCI Smart Contracts and DeFi Investigations 2 — Questions and Answers
Question 1: What is a Decentralized Exchange (DEX)?
- A cryptocurrency exchange operated by a government agency
- A platform that facilitates peer-to-peer crypto trading via smart contracts without a central authority (Correct answer)
- An exchange that operates across multiple countries under a single license
- A hardware wallet used for secure trading
Correct answer: A platform that facilitates peer-to-peer crypto trading via smart contracts without a central authority
A DEX is a peer-to-peer marketplace where transactions occur directly on the blockchain through smart contracts, without a central intermediary controlling funds or requiring identity verification.
Question 2: Why is tracing funds through DeFi protocols particularly challenging for cryptocurrency investigators?
- DeFi protocols are not recorded on any blockchain
- Smart contracts automatically encrypt all transaction data end-to-end
- DeFi protocols can route funds across multiple pools, contracts, and chains, obscuring the trail (Correct answer)
- All DeFi transactions require government approval before execution
Correct answer: DeFi protocols can route funds across multiple pools, contracts, and chains, obscuring the trail
DeFi protocols create investigative challenges because funds can rapidly pass through multiple smart contracts, liquidity pools, and cross-chain bridges, creating complex layered transaction trails that are difficult to follow.
Question 3: What is the primary purpose of a security audit in smart contract development?
- To register the contract with regulatory authorities
- To identify vulnerabilities and coding flaws before deployment (Correct answer)
- To increase the contract's transaction throughput speed
- To reduce gas fees for end users
Correct answer: To identify vulnerabilities and coding flaws before deployment
Smart contract audits involve expert review of code to identify security vulnerabilities, logic errors, and potential exploits before the contract is deployed to the immutable blockchain.
Question 4: What is a re-entrancy attack in smart contract security?
- An attack where the same transaction is broadcast multiple times to the network
- When an attacker forces a smart contract to call an external contract before completing its own state updates (Correct answer)
- A type of Sybil attack targeting validator nodes in a network
- An exploit that reverses already-confirmed blockchain transactions
Correct answer: When an attacker forces a smart contract to call an external contract before completing its own state updates
A re-entrancy attack occurs when a malicious contract repeatedly calls back into the victim contract before the first execution's state updates are complete, allowing repeated unauthorized fund withdrawals.
Question 5: What is a liquidity pool in DeFi?
- A reserve of cryptocurrency held in cold storage by a centralized exchange
- A group of investors who coordinate large block trades to move markets
- A smart contract holding reserves of two or more tokens to enable automated trading (Correct answer)
- A cold storage solution for institutional crypto investors
Correct answer: A smart contract holding reserves of two or more tokens to enable automated trading
A liquidity pool is a collection of funds locked in a smart contract that provides liquidity for decentralized trading, with liquidity providers earning a share of trading fees in return.
Question 6: In Ethereum, what does 'gas' represent?
- The native cryptocurrency used to pay validators on the Ethereum network
- The computational fee required to execute transactions and smart contract operations (Correct answer)
- A measure of the blockchain's total storage capacity
- The speed rating at which transactions are confirmed per second
Correct answer: The computational fee required to execute transactions and smart contract operations
Gas is the unit measuring the computational work required to execute operations on the Ethereum network, with users paying gas fees denominated in ETH to compensate miners or validators.
Question 7: What is a governance token in DeFi?
- A token issued by government agencies for blockchain compliance purposes
- A token that grants holders voting rights over protocol decisions and upgrades (Correct answer)
- A stablecoin used exclusively for paying transaction fees on a protocol
- A token that represents fractional ownership of physical real-world assets
Correct answer: A token that grants holders voting rights over protocol decisions and upgrades
Governance tokens grant holders the right to vote on protocol changes, parameter adjustments, and treasury decisions, giving them decentralized influence over a DeFi protocol's development.
CCI Smart Contracts and DeFi Investigations 2
What is a Decentralized Exchange (DEX)?