Cryptocurrency Cryptocurrency 4 — Questions and Answers
Question 1: What is the 'Lightning Network' designed to solve?
- Ethereum's high gas fees
- Bitcoin's slow transaction speed and scalability issues (Correct answer)
- The double-spend problem on altcoin networks
- Regulatory compliance for crypto exchanges
Correct answer: Bitcoin's slow transaction speed and scalability issues
The Lightning Network is a Layer 2 payment protocol built on Bitcoin that enables fast, low-cost transactions by creating off-chain payment channels.
Question 2: What is a 'stablecoin'?
- A cryptocurrency with very low market cap
- A crypto asset designed to maintain a stable value, often pegged to a fiat currency (Correct answer)
- A coin that can only be used on one specific blockchain
- A term for Bitcoin during low-volatility periods
Correct answer: A crypto asset designed to maintain a stable value, often pegged to a fiat currency
Stablecoins are cryptocurrencies designed to minimize price volatility by pegging their value to a stable asset like the US dollar, gold, or through algorithmic mechanisms.
Question 3: What happened to the Terra (LUNA) ecosystem in May 2022?
- It was acquired by Binance for $10 billion
- Its algorithmic stablecoin UST lost its peg, causing a catastrophic collapse (Correct answer)
- It successfully launched a major network upgrade
- It was delisted from all major exchanges due to regulatory issues
Correct answer: Its algorithmic stablecoin UST lost its peg, causing a catastrophic collapse
In May 2022, the TerraUSD (UST) algorithmic stablecoin lost its dollar peg, triggering a death spiral that wiped out nearly $40 billion in market capitalization within days.
Question 4: What is 'cold storage' in cryptocurrency?
- Keeping crypto on a centralized exchange for safekeeping
- Storing private keys on a device that is never connected to the internet (Correct answer)
- A method of freezing crypto assets during a legal dispute
- Archiving old blockchain transaction data
Correct answer: Storing private keys on a device that is never connected to the internet
Cold storage refers to keeping cryptocurrency private keys completely offline (e.g., hardware wallets or paper wallets) to protect them from online hacks and theft.
Question 5: What is the purpose of an Initial Coin Offering (ICO)?
- To allow existing holders to burn their tokens for rewards
- To raise capital for a new cryptocurrency project by selling tokens to investors (Correct answer)
- To officially launch a coin on a major centralized exchange
- To merge two separate blockchain networks
Correct answer: To raise capital for a new cryptocurrency project by selling tokens to investors
An ICO is a fundraising method where a new cryptocurrency project sells its tokens to early investors to raise development capital, similar to an IPO in traditional finance.
Question 6: Which of the following best describes a 'smart contract'?
- A legal agreement between a crypto exchange and its users
- Self-executing code stored on a blockchain that runs when predefined conditions are met (Correct answer)
- An AI system that manages cryptocurrency portfolios
- A multi-signature wallet requiring approvals from multiple parties
Correct answer: Self-executing code stored on a blockchain that runs when predefined conditions are met
A smart contract is self-executing code deployed on a blockchain that automatically enforces the terms of an agreement when its specified conditions are triggered.
Question 7: What is 'tokenomics'?
- A branch of economics studying government-issued digital currencies
- The economic design and supply mechanics of a cryptocurrency token (Correct answer)
- A trading strategy based on technical analysis
- The tax regulations applied to crypto gains
Correct answer: The economic design and supply mechanics of a cryptocurrency token
Tokenomics refers to the economic model of a cryptocurrency, including its total supply, distribution, inflation rate, utility, and incentive structures that drive its value.
Cryptocurrency Cryptocurrency 4
What is the 'Lightning Network' designed to solve?