Cryptocurrency Cryptocurrency 3 — Questions and Answers
Question 1: What is a 'seed phrase' (or recovery phrase) in crypto?
- A password used to log into a crypto exchange
- A series of words that can restore access to a crypto wallet (Correct answer)
- A cryptographic hash of the private key
- A two-factor authentication code
Correct answer: A series of words that can restore access to a crypto wallet
A seed phrase is a human-readable series of 12 or 24 words that serves as the master backup for a cryptocurrency wallet, allowing recovery of all associated keys.
Question 2: What is 'slippage' in the context of decentralized exchanges (DEXs)?
- A security vulnerability in smart contracts
- The difference between the expected price and the actual execution price of a trade (Correct answer)
- A fee charged by liquidity providers
- The delay between transaction broadcast and confirmation
Correct answer: The difference between the expected price and the actual execution price of a trade
Slippage occurs when the price of an asset changes between the time a trade is submitted and when it is executed, often due to low liquidity or high volatility.
Question 3: Which organization created the Ripple (XRP) cryptocurrency?
- Ripple Labs (Correct answer)
- The XRP Foundation
- JPMorgan Chase
- Binance Holdings
Correct answer: Ripple Labs
Ripple Labs created the XRP Ledger and the XRP token, primarily designed to facilitate fast and low-cost international money transfers.
Question 4: What is a 'rug pull' in cryptocurrency?
- A sudden market crash caused by whale sell-offs
- A scam where developers abandon a project and abscond with investor funds (Correct answer)
- A technical failure in a smart contract causing fund loss
- A regulatory seizure of a crypto exchange's assets
Correct answer: A scam where developers abandon a project and abscond with investor funds
A rug pull is an exit scam where the creators of a cryptocurrency project suddenly withdraw all liquidity or funds, leaving investors with worthless tokens.
Question 5: What is the main function of a 'liquidity pool' in a DEX?
- To store users' private keys securely
- To provide a reserve of tokens enabling automated trading (Correct answer)
- To validate transactions on the blockchain
- To issue new tokens through an ICO
Correct answer: To provide a reserve of tokens enabling automated trading
A liquidity pool is a smart contract holding reserves of two or more tokens that enables automated, permissionless trading on decentralized exchanges via algorithms like AMMs.
Question 6: What does 'KYC' stand for in the context of cryptocurrency exchanges?
- Keep Your Coins
- Know Your Customer (Correct answer)
- Key Your Credentials
- Kinetic Yield Calculation
Correct answer: Know Your Customer
KYC (Know Your Customer) is an identity verification process required by regulated exchanges to comply with anti-money laundering laws and prevent financial crime.
Question 7: What is 'impermanent loss' in DeFi?
- A permanent loss of funds due to a hack
- A temporary loss experienced by liquidity providers when token prices diverge (Correct answer)
- The reduction in value due to transaction fees
- A loss caused by smart contract bugs
Correct answer: A temporary loss experienced by liquidity providers when token prices diverge
Impermanent loss is the difference in value between holding tokens in a liquidity pool versus simply holding them, occurring when the price ratio of the deposited assets changes.
Cryptocurrency Cryptocurrency 3
What is a 'seed phrase' (or recovery phrase) in crypto?