CFP Blockchain & Cryptocurrency Integration 2 — Questions and Answers
Question 1: A fintech firm wants to issue digital securities on a blockchain. Which regulatory framework in the US most directly governs this activity?
- Bank Secrecy Act (BSA)
- Securities Act of 1933 and SEC regulations (Correct answer)
- Gramm-Leach-Bliley Act (GLBA)
- Electronic Fund Transfer Act (EFTA)
Correct answer: Securities Act of 1933 and SEC regulations
Digital securities (security tokens) fall under SEC jurisdiction and must comply with the Securities Act of 1933, including registration or exemption requirements.
Question 2: What is the primary function of a Layer-2 blockchain solution such as the Lightning Network?
- To replace the base blockchain entirely with a faster chain
- To process transactions off-chain and settle final states on the main chain (Correct answer)
- To add additional validator nodes to the main chain consensus
- To encrypt all transaction data before storing it on-chain
Correct answer: To process transactions off-chain and settle final states on the main chain
Layer-2 solutions process transactions off the main blockchain and periodically settle net results on-chain, dramatically increasing throughput and reducing fees.
Question 3: A DeFi lending protocol uses an Automated Market Maker (AMM). What determines the exchange rate between two assets in an AMM pool?
- Order book matching between buyers and sellers
- A central pricing oracle set by the protocol's board
- A mathematical formula based on the ratio of assets in the liquidity pool (Correct answer)
- Interest rate parity from traditional forex markets
Correct answer: A mathematical formula based on the ratio of assets in the liquidity pool
AMMs use algorithms like the constant product formula (x*y=k) where prices are determined by the relative quantities of assets in the liquidity pool.
Question 4: Which consensus mechanism is used by Ethereum after 'The Merge' in September 2022?
- Proof of Work (PoW)
- Delegated Proof of Stake (DPoS)
- Proof of Stake (PoS) (Correct answer)
- Proof of Authority (PoA)
Correct answer: Proof of Stake (PoS)
Ethereum transitioned from Proof of Work to Proof of Stake with 'The Merge,' reducing energy consumption by approximately 99.95%.
Question 5: In blockchain terminology, what is a '51% attack'?
- A hack exploiting a smart contract vulnerability in 51 lines of code
- When a single entity gains majority hash power and can rewrite recent transaction history (Correct answer)
- A regulatory action shutting down 51% of exchange nodes
- A phishing scheme targeting 51% of a network's validator nodes
Correct answer: When a single entity gains majority hash power and can rewrite recent transaction history
A 51% attack occurs when one entity controls over half the network's mining or validation power, enabling double-spend attacks by reorganizing recent blocks.
Question 6: A Central Bank Digital Currency (CBDC) differs from a stablecoin primarily because:
- CBDCs are always decentralized while stablecoins are centralized
- CBDCs are issued and backed directly by a government central bank (Correct answer)
- Stablecoins are legal tender while CBDCs are not
- CBDCs always operate on public permissionless blockchains
Correct answer: CBDCs are issued and backed directly by a government central bank
CBDCs are direct liabilities of the central bank, representing official government-issued digital money, unlike stablecoins issued by private entities.
Question 7: What does 'gas' represent in the Ethereum network?
- The energy cost to mine a new block
- A unit measuring computational effort required to execute operations on the network (Correct answer)
- The fee paid to external oracles for data feeds
- The collateral locked in a smart contract during deployment
Correct answer: A unit measuring computational effort required to execute operations on the network
Gas measures the computational work required for operations on Ethereum; users pay gas fees in ETH to compensate validators for processing transactions.
CFP Blockchain & Cryptocurrency Integration 2
A fintech firm wants to issue digital securities on a blockchain.
Which regulatory framework in the US most directly governs this activity?