Download Cryptocurrency Questions And Answers PDF
1. What are the three major characteristics of money that Bitcoin possesses?
Answer: Bitcoin is divisible (splittable into smaller units digitally), serves as a unit of account (valued in other currencies despite volatility), and is portable (easily transferable across borders without fees).
2. What are the five core components of blockchain technology?
Answer: Blockchain consists of a tamper-resistant ledger, consensus methodology for data approval, encryption protocols (e.g., SHA-256), full nodes for network management, and a peer-to-peer (P2P) transaction system reducing intermediaries.
3. What is interoperability in the context of blockchain?
Answer: Interoperability is a blockchain’s ability to transfer data effectively with other blockchain platforms and technology applications.
4. How do scaling and interoperability issues affect blockchain adoption?
Answer: Scaling and interoperability challenges limit transaction processing, network capacity, and data transfer between blockchains and other systems, hindering commercial adoption and potentially causing implementation failures.
5. How is blockchain helpful for e-commerce?
Answer: Blockchain, particularly stablecoins, enables low-cost, efficient digital payments for e-commerce, similar to platforms like Venmo or PayPal, leveraging demand for P2P transactions.
6. What constitutes a blockchain network?
Answer: A blockchain network comprises agents verifying transactions via consensus, with permanent, cryptographically recorded data that cannot be erased.
7. What are the differences between public and private blockchains?
Answer: Public blockchains have anonymous users, slower transactions due to scalability, and open participation, while private blockchains have known users, faster transactions, and restricted participation.
8. What are two major benefits of blockchain in supply chain management?
Answer: Blockchain enables tracing product origins (e.g., contaminated food) and prevents counterfeiting by tracking goods, reducing the need to destroy entire inventories.
9. What is a block in blockchain, and what are its components?
Answer: A block is a data structure recording transactions, permanent once validated. It includes a header (version number, timestamp, difficulty target, nonce, previous hash, Merkle root) and transaction data.
10. What are two major properties of a blockchain network?
Answer: Decentralization (no single authority controls data) and immutability (data cannot be altered, ensuring security via cryptographic hashing).
11. What is a Merkle hash tree, and what is its role in blockchain?
Answer: A Merkle hash tree organizes data for efficient verification, with leaf nodes as transaction hashes and the Merkle root in the block header summarizing all transaction hashes to ensure data integrity.
12. What is a public blockchain, and what are three current applications?
Answer: A public blockchain is permissionless, allowing universal access. Applications include Bitcoin/Zcash (financial networks), Ethereum/EOSIO (distributed computing), and Sia (decentralized markets).
13. How do public blockchains ensure transaction rule adherence?
Answer: Public blockchains use consensus protocols and incentive mechanisms (e.g., Bitcoin’s reward system) to enforce rules, preventing invalid transactions or selfish mining.
14. Why are predefined mechanisms needed for public blockchain protocol changes?
Answer: Predefined rules manage protocol updates in decentralized systems, aligning stakeholder interests and reducing conflicts, though hard forks can bypass these mechanisms.
15. How does Proof of Work (PoW) enhance tamper resistance in public blockchains?
Answer: High mining costs in PoW increase the resources needed for attacks (e.g., 51% attack), making tampering more difficult and enhancing blockchain security.
16. What are three advantages of private blockchains for enterprise use?
Answer: Private blockchains offer easier internal control setup, faster transaction processing due to simpler consensus, and enhanced P2P activity with varied access levels.
17. How do stablecoins differ from decentralized cryptocurrencies?
Answer: Stablecoins are pegged to assets (e.g., fiat, gold), issued by centralized entities, and may not have issuance limits, unlike decentralized cryptocurrencies.
18. How do Central Bank Digital Currencies (CBDCs) differ from other stablecoins?
Answer: CBDCs are issued by central banks, backed by government authority, and may not use blockchain, unlike other stablecoins issued by private entities.
19. Why is consumer privacy relevant to CBDCs?
Answer: CBDCs enable government transaction tracking, potentially reducing privacy, blocking undesirable purchases, or aiding surveillance, requiring safeguards against abuse.
20. Are the costs of Proof of Work (PoW) justified?
Answer: PoW costs (energy, equipment) are justified for high-security needs (e.g., real estate) but may be excessive for frequent, low-value transactions like retail payments.
21. What is a cryptographic token?
Answer: A cryptographic token is a blockchain-native asset representing programmable assets or access rights, managed by smart contracts.
22. What differentiates Web 3.0 from Web 2.0?
Answer: Web 3.0 is decentralized, eliminates intermediaries, and enables P2P value transfers via a universal state layer, unlike the centralized Web 2.0.
23. What is a utility token, and how does it differ from a SoV/MoE token?
Answer: Utility tokens grant access to digital products/services within a blockchain, while SoV/MoE tokens (e.g., Bitcoin) are used as stores of value or mediums of exchange.
24. What are smart contracts, and how are they used in blockchain?
Answer: Smart contracts are coded rules in blockchain software that enforce terms automatically, reducing human interpretation and enabling controlled, legal transactions.
25. How does blockchain improve data security and transfer?
Answer: Blockchain enhances efficiency (faster data access), lowers costs (removes third-party fees), and improves security (decentralized, transparent data reduces hacking risks).
26. How does blockchain improve traceability and transparency in business?
Answer: Blockchain enables continuous tracking of goods/information (e.g., food safety, supply chains) and provides transparent, real-time data access for better analysis.
27. Why is interoperability a challenge for blockchain implementation?
Answer: Lack of standardized data-sharing methods between blockchains and other systems hinders efficiencies and enterprise adoption.
28. Why is decentralization important for blockchain interoperability?
Answer: Decentralization prevents private sector control for profit, fostering an open ecosystem with user choice, though interoperability gaps risk centralization.
29. How does blockchain integrate with AI applications?
Answer: Blockchain ensures data completeness and accuracy for AI, improving multi-organization collaboration and enabling more accurate AI inferences.
30. How are cryptocurrencies classified by U.S. government entities?
Answer: The CFTC views them as commodities, the IRS as property, the SEC as securities (circumstantially), and courts as quasi-tangible property, lacking a unified classification.
31. Does a standard cyber insurance policy cover blockchain breaches?
Answer: Cyber insurance may not cover blockchain losses due to decentralized custody issues, though cryptocurrency losses might be covered with specific endorsements.
32. How does the SEC regulate cryptocurrencies and blockchain?
Answer: The SEC applies securities laws using the Howey test, classifying crypto transactions as investment contracts if they involve money, common enterprise, profit expectation, and issuer efforts.
33. How are cryptocurrencies taxed in the U.S.?
Answer: The IRS treats cryptocurrencies as property, applying capital gains/losses rules based on the difference between sales price and cost basis.
34. What attributes of blockchain require special implementation considerations?
Answer: Decentralization, synchronization, traceability, immutability, security, scalability, auditability, and programmability require addressing legal, technical, and operational challenges.
35. How does blockchain improve shareholder voting?
Answer: Blockchain enhances transparency of share ownership, verifies owners via keys, and optimizes vote tabulation, deterring fraud.
36. Why is blockchain adoption challenging in healthcare?
Answer: Barriers include technical limitations (e.g., transaction speed, data storage), single-point failure risks in permissioned blockchains, smart contract verification, and compliance with HIPAA/GDPR.
37. How does blockchain verify real estate ownership?
Answer: Blockchain verifies ownership by recording a chain of title, ensuring valid, transparent transfers and uncovering liens or claims.
38. Why are permissioned blockchains preferred for supply chains?
Answer: Permissioned blockchains ensure privacy for confidential supply chain data, restricting access to authorized members.
39. How does blockchain reduce counterfeiting in supply chains?
Answer: Blockchain’s shared ledger tracks product origins, making counterfeiting difficult as data are irrefutable and transparent.
40. How does blockchain improve auditing?
Answer: Blockchain provides validated, distributed data, reducing evidence-gathering needs and enabling auditors to focus on complex transactions and controls.
41. What is a cryptocurrency?
Answer: Cryptocurrency is digital or virtual currency secured by cryptography, enabling secure transactions and storage.
42. What is a public key synonymous with?
Answer: A public key is synonymous with a crypto wallet address, used to receive cryptocurrency transactions.
43. What is a node?
Answer: A node is a computer or device connected to other computers, each holding a copy of a blockchain, facilitating its decentralized operation.
44. What is Bitcoin?
Answer: Bitcoin is a digital currency operating without central control, functioning as a decentralized currency.
45. What is fiat currency?
Answer: Fiat currency is government-issued money not backed by physical goods, such as the U.S. dollar.
46. What is decentralized currency?
Answer: Decentralized currency is currency not controlled by any government, like Bitcoin, operating on a peer-to-peer network.
47. Why does Bitcoin’s fixed supply limit matter?
Answer: Bitcoin’s limit of 21 million coins creates scarcity, potentially increasing its value over time as demand grows.
48. How does blockchain keep Bitcoin transactions safe?
Answer: Blockchain spreads transaction data across many computers, making it difficult for hackers to access all data, enhancing security.
49. What does 'mining' Bitcoin mean?
Answer: Mining Bitcoin involves checking and recording transactions on the blockchain, with miners earning Bitcoin as a reward.
50. How could Bitcoin change the way banks work?
Answer: Bitcoin offers a decentralized way to handle money, reducing banks’ control over transactions and potentially challenging traditional banking systems.
51. How do you calculate the cost and profit of a Bitcoin investment?
Answer: For an investment of 0.025 BTC at $40,000 per BTC:
- Initial cost: 0.025 × $40,000 = $1,000.
- New value after 12.5% increase: $40,000 × 1.125 = $45,000; 0.025 × $45,000 = $1,125.
- Profit: $1,125 – $1,000 = $125.