True or False
18 important questions on True or False
A problem of proof-of-stake as a consensus mechanism is that nothing is really at stake. 3 (PTS)
- False
- Validators commit financial resources rather than computing power and are required to 'stake' a certain amount of cryptocurrency as collateral; stakers earn rewards
- If they validate fraudulent transactions or otherwise act maliciously, they stand to lose this stake; stakers are disciplined via penalties
Proof-of-work is more easily scalable than proof-of-stake. 3 (PTS)
- False
- PoS promises greater scalability and throughput than PoW, since transactions and blocks can be approved more quickly, without the need for complex equations to be solved while the energy intensive PoW can make it less scalable from an environmental and resource perspective
- PoW can face challenges in accommodating increasing transaction volumes while maintaining decentralisation and security
The stablecoin DAI can be used to lever crypto investments. (3 PTS)
- True
- Buy DAI with deposited ETH and reinvest that amount into crypto-assets (leverage)
- However if collateral value is no longer sufficient to collateralize the generated DAI, the collateral will be liquidated
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The stablecoin DAI can be used to hedge crypto investments. (3 PTS)
- True
- Using DAI as a hedge provides a level of protection against market volatility and helps you avoid the risk of significant losses
- Exchange DAI into fiat-currency or lock into DAI savings rate (DSR) contract (hedge)
The stablecoin DAI is as risky as the US Dollar, which it is pegged to. (3 PTS)
- False
- It has its own set of risks, particularly related to the decentralised nature of its operation, collateral and market dynamics
- It is important to remember that while DAI aims to maintain a stable value, it might not be completely immune to price fluctuations, especially during extreme market conditions
Providers of liquidity in liquidity pools face impermanent loss when one asset in the liquidity pool appreciates in value. (2 PTS)
- True
- Impermanent loss occurs when the value of the assets held in the liquidity pool diverges from what the liquidity provider would have had if they simple held the assets, the skewed balance points to impermanent loss
Decentralized, permissionless proof-of-work blockchains guarantee the immutability of their (governance) protocols. (4 PTS)
- False
- Even though immutability is prioritised, it isn't guaranteed since it can be influenced by factors like network consensus, governance, the level od decentralisation and the security of the network
- Code can be overwritten/overruled (51% attacks)
- The blockchain community and participants play a vital role in maintaining and upholding the principles of immutability
Decentralized, permissionless proof-of-stake blockchains guarantee the immutability of their (governance) protocols. (4 PTS)
- False
- They are designed to provide a robust governance model that can facilitate protocol upgrades without the need for contentious hard forks
- However, the degree of immutability depends on the network's level of decentralisation, the security of the network, token distribution, and the consensus of the community
- Decentralized PoS blockchains aim to prioritise immutability, but its not an absolute guarantee and can still be influenced by various factors
Permissioned blockchains provide better protection against a “51% attack”. (3 PTS)
- True
- Compared to permissionless blockchains, permissioned blockchains can provide better protection due to their controlled and known validator set
- However, they come with trade-offs related to centralisation and restricted access, making the choice between permissioned and permissionless blockchains dependent on the specific needs and goals of a particular project or use case
If you want to provide liquidity to a liquidity pool that swaps Ether into Tether, you need to add either Ether or Tether to the liquidity pool. (3 PTS)
- False
- Liquidity providers have to add both Ether and Tether in exactly the ratio
- Liquidity pools are pairs of assets in a way to earn returns on your cryptocurrency holdings by facilitating trading and liquidity and where providers deposit an equal value of both assets into the pool
An automated market maker determines the exchange rate in liquidity pools by applying a constant sum function. (2 PTS)
- False
- AMMs determines the exchange ratio by applying a constant production function (x*y = constant product)
Decentralized exchanges operating liquidity pools do not allow for arbitrage. (3 PTS)
- False
- Liquidity pools are subject to price fluctuations based on supply and demand
- Traders can identify price discrepancies between a liquidity pool and another exchange to act on the arbitrage opportunity
The token BAT is a non-fungible token. (3 PTS)
- False
- Basic Attention Token is a fungible utility token that operates on the Ethereum blockchain
- Unlike non-fungible tokens, BAT is interchangeable with on another and have equal value
The main purpose of the segregate witness upgrade was to increase the number of Bitcoin transactions that can be included in one block. (3 points)
- True
- SegWit was activated as a backward-compatible soft fork, it introduced several key changes to the Bitcoin protocol with the primary goal of improving the network's scalability and transaction efficiency
- By segregating the witness data, SegWit effictively increased the block's capacity for transaction data without changing the block size limit, this allowed more transactions to be included in a block and reduced the congestion on the Bitcoin network potentially lowering transaction fees
The ASIC producer Bitmain will profit from Ethereum’s switch to proof-of-stake. (3 points)
- False
- Bitmain primarily manufactures hardware for PoW blockchains, which is a different consensus mechanism from PoS
- In a PoS system there is no mining in the traditional sense, and ASIC's are not required
The dollar reward for mining a block of Bitcoin transactions has been strictly decreasing over time. (3 PTs)
- False
- BTC rewards halve every 210,000 blocks
- But the BTC $-price has steadily increased such that the dollar reward has gone up quite dramatically over time
ICO's continue to raise proceeds comparable to the size of the U.S. IPO market (3 PTs)
- False
- ICO activity and fundraising levels are not currently comparable to the U.S. IPO market
- The landscape for blockchain fundraising has shifted toward more compliant and regulated approaches, such as STOs and IEOs
A liquidity-pool based DEX uses a constant product function to determine the exchange rate at which currencies can be exchanged (3 PTs)
- True
- The constant product function requires a liquidity trader wishing to exchange one currency into another currency to balance off added liquidity and withdrawn liquidity such that the product of both liquidities stays constant
- The constant product function ensures that larger trades have a stronger impact on the exchange rates, ensuring that arbitrage traders bring prices back to market prices
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