Crypto Trading Crypto Basics 2 — Questions and Answers
Question 1: What is dollar-cost averaging (DCA) in crypto investing?
- Buying only when prices drop
- Investing a fixed amount at regular intervals regardless of price to reduce the impact of volatility (Correct answer)
- Converting all savings to crypto
- Trading daily for profit
Correct answer: Investing a fixed amount at regular intervals regardless of price to reduce the impact of volatility
DCA involves consistently investing the same amount over time, which averages out the purchase price and reduces the risk of investing everything at a peak.
Question 2: What is a cryptocurrency exchange?
- A physical marketplace
- A platform where users can buy, sell, and trade cryptocurrencies (Correct answer)
- A type of blockchain
- A government agency
Correct answer: A platform where users can buy, sell, and trade cryptocurrencies
Crypto exchanges are platforms (centralized like Coinbase/Binance or decentralized like Uniswap) that facilitate buying, selling, and trading of cryptocurrencies.
Question 3: What is a 'rug pull' in crypto?
- A cleaning service
- A scam where developers abandon a project and run away with investors' funds (Correct answer)
- A legitimate trading strategy
- A type of token burn
Correct answer: A scam where developers abandon a project and run away with investors' funds
Rug pulls are fraudulent schemes where project creators drain liquidity or abandon the project after attracting investor funds, leaving tokens worthless.
Question 4: What is staking in cryptocurrency?
- Gambling with crypto
- Locking up cryptocurrency to support network operations and earn rewards (Correct answer)
- Selling crypto at a loss
- Creating new cryptocurrency
Correct answer: Locking up cryptocurrency to support network operations and earn rewards
Staking involves locking tokens in a Proof of Stake network to help validate transactions. In return, stakers earn rewards, similar to earning interest.
Question 5: What is a DEX?
- A type of cryptocurrency
- A Decentralized Exchange — a peer-to-peer platform for trading crypto without intermediaries (Correct answer)
- A digital wallet
- A government regulation
Correct answer: A Decentralized Exchange — a peer-to-peer platform for trading crypto without intermediaries
DEXs like Uniswap allow users to trade directly from their wallets using smart contracts, without a centralized authority holding funds.
Question 6: What is gas in blockchain transactions?
- Fuel for computers
- The fee paid to process and validate transactions on networks like Ethereum (Correct answer)
- A type of cryptocurrency
- Physical gas that powers mining equipment
Correct answer: The fee paid to process and validate transactions on networks like Ethereum
Gas fees compensate miners/validators for the computational work required to process transactions. Fees vary based on network congestion.
Crypto Trading Crypto Basics 2
What is dollar-cost averaging (DCA) in crypto investing?