Cryptocurrency Cryptocurrency 2 — Questions and Answers
Question 1: What is a 'hard fork' in the context of blockchain technology?
- A backward-compatible protocol upgrade
- A permanent divergence creating two separate blockchains (Correct answer)
- A temporary split that automatically resolves
- A method of encrypting private keys
Correct answer: A permanent divergence creating two separate blockchains
A hard fork creates a permanent divergence in the blockchain, resulting in two separate and incompatible chains after a certain block.
Question 2: Which consensus mechanism does Ethereum use after 'The Merge' in 2022?
- Proof of Work
- Delegated Proof of Stake
- Proof of Stake (Correct answer)
- Proof of Authority
Correct answer: Proof of Stake
Ethereum transitioned from Proof of Work to Proof of Stake during 'The Merge' in September 2022, drastically reducing its energy consumption.
Question 3: What is a 'gas fee' in the Ethereum network?
- A fee paid to miners for including transactions in a block (Correct answer)
- A penalty for failed smart contract execution
- A subscription fee for using the Ethereum network
- A tax imposed by the Ethereum Foundation
Correct answer: A fee paid to miners for including transactions in a block
Gas fees are payments made to compensate miners (or validators post-Merge) for the computational energy required to process and validate transactions.
Question 4: What does 'DeFi' stand for in the cryptocurrency space?
- Digital Finance
- Decentralized Finance (Correct answer)
- Distributed Fiat
- Deferred Financial Instruments
Correct answer: Decentralized Finance
DeFi stands for Decentralized Finance, referring to financial services built on blockchain networks that operate without traditional intermediaries like banks.
Question 5: What is an 'NFT'?
- A type of stablecoin pegged to the US dollar
- A fungible token used for governance voting
- A non-fungible token representing unique digital ownership (Correct answer)
- A network fee token on Ethereum
Correct answer: A non-fungible token representing unique digital ownership
An NFT (Non-Fungible Token) is a unique cryptographic token on a blockchain that certifies ownership of a specific digital or physical asset.
Question 6: What is the primary purpose of a cryptocurrency 'whitepaper'?
- A legal document filed with the SEC
- A technical and conceptual overview of a cryptocurrency project (Correct answer)
- A list of all token holders at launch
- An audit report by a third-party security firm
Correct answer: A technical and conceptual overview of a cryptocurrency project
A whitepaper is a document that outlines the technical details, use case, tokenomics, and vision of a cryptocurrency project, most famously exemplified by Bitcoin's whitepaper by Satoshi Nakamoto.
Question 7: What is 'yield farming' in DeFi?
- Mining new tokens using specialized hardware
- Lending or staking crypto assets to earn rewards or interest (Correct answer)
- Purchasing land in a blockchain-based virtual world
- Using bots to arbitrage price differences across exchanges
Correct answer: Lending or staking crypto assets to earn rewards or interest
Yield farming involves depositing or lending cryptocurrency assets into DeFi protocols to generate returns in the form of interest, fees, or governance tokens.
Cryptocurrency Cryptocurrency 2
What is a 'hard fork' in the context of blockchain technology?