CRYPTO-CURRENCY & BLOCKCHAIN TECHNOLOGY

Question 1

What is cryptocurrency?

Answer 1

A digital or virtual currency that utilizes blockchain technology for security and record-keeping.

Question 2

Describe the key characteristics of blockchain technology.

Answer 2

Secure: Employs cryptography for protection.
Decentralized: No central control, operates on a distributed network.
Immutable: Records cannot be altered or deleted.
Transparent: Transactions are often visible to all network members.

Question 3

How does blockchain support cryptocurrency?

Answer 3

Provides a ledger to record all cryptocurrency transactions.
Ensures security and prevents fraudulent transactions.
Maintains the decentralized nature of cryptocurrencies.

Question 4

What factors led to the creation of cryptocurrencies?

Answer 4

Loss of faith in traditional currencies (fiat money) due to events like the 2007 Subprime Crisis.
Dissatisfaction with banks and their transaction fees.

Question 5

Who is Satoshi Nakamoto?

Answer 5

The anonymous person (or group) that created Bitcoin, the first cryptocurrency.

Question 6

When was Bitcoin introduced and what is its supply limit?

Answer 6

Bitcoin was launched in 2009 with a total supply limit of 21 million coins.

Question 7

Name other popular cryptocurrencies besides Bitcoin.

Answer 7

Ethereum, Litecoin, Dogecoin, Ripple, Laxmicoin (and many others).

Question 8

Can blockchain be used for things other than cryptocurrency?

Answer 8

Yes! Blockchain can be used to securely store various types of data, including:
Supply chain records
Medical records
Voting systems
Identity verification

Question 9

Why were early cryptocurrencies created?

Answer 9

Anarchist groups disliked traditional banks/card companies (transaction fees, etc.) and lost faith in fiat money after the 2007 U.S. Subprime Crisis.

Question 10

Who created Bitcoin and when?

Answer 10

Satoshi Nakamoto (anonymous) in 2009.

Question 11

Besides cryptocurrency, what else can blockchain store?

Answer 11

Any type of data (e.g., contracts, medical records, supply chain information)

Question 12

Why is blockchain considered “decentralized”?

Answer 12

Data is not controlled by a single entity, but distributed across a network of computers.

Question 13

What is a cryptocurrency wallet?

Answer 13

A digital storage solution for your cryptocurrency, allowing you to hold, send, and receive digital assets.

Question 14

What’s the difference between a hot wallet and a cold wallet?

Answer 14

Hot wallets are connected to the internet; cold wallets are offline.

Question 15

Give an example of a hot wallet.

Answer 15

Software wallets (apps on your phone), exchange wallets, web-based wallets.

Question 16

Give an example of a cold wallet.

Answer 16

Hardware wallets (like USB devices), paper wallets.

Question 17

Why are hot wallets considered less secure?

Answer 17

Because they are connected to the internet, they are more vulnerable to hacks or cyberattacks.

Question 18

What is the main security advantage of a cold wallet?

Answer 18

Since they’re offline, they are far less susceptible to hacking attempts, keeping your cryptocurrency safer.

Question 19

Besides security, what’s a downside of cold wallets?

Answer 19

They are less convenient to use for frequent transactions.

Question 20

I want the most secure way to store a large amount of cryptocurrency. What type of wallet is best?

Answer 20

A cold wallet.

Question 21

I need to make occasional cryptocurrency transactions and prioritize ease of use. Should I use a hot or cold wallet?

Answer 21

A hot wallet would likely be a better fit.

Question 22

What factors should I consider when deciding between a hot wallet and a cold wallet?

Answer 22

The amount of cryptocurrency you hold, how frequently you transact, and your priority level for security vs. convenience.

Question 23

What happened to the price of Bitcoin between November 2021 and June 2022?

Answer 23

Bitcoin’s price fell dramatically from roughly $70,000 to $20,000.
This represents a loss of approximately 70%.
This decline was mirrored in the prices of many other cryptocurrencies.

Question 24

Explain the term “Crypto Winter”.

Answer 24

“Crypto Winter” refers to an extended period of low prices and depressed market sentiment in the cryptocurrency market.
It is often triggered by significant price drops, like the one Bitcoin experienced.
Experts sometimes use this term to suggest that prices might remain low for a considerable length of time.

Question 25

What is Binance?

Answer 25

Binance is a popular online cryptocurrency exchange.
It has been linked to negative news reports about fraud and scams.

Question 26

Describe the FTX situation.

Answer 26

FTX was a major cryptocurrency exchange that filed for bankruptcy.
This led to significant financial losses for many investors.
The founder/CEO of FTX was arrested on charges of fraud.
Money from over 10 lakh (1 million) investors was lost.

Question 27

Why are cryptocurrency exchanges targets for scams?

Answer 27

Lack of strong regulation: The cryptocurrency market is still relatively new and lacks the same level of oversight as traditional financial markets.
Anonymity: Cryptocurrency transactions can be somewhat anonymous, making it easier for scammers to hide their tracks.
Complexity: Many people don’t fully understand how cryptocurrency works, making them vulnerable to scams.

Question 28

What are major challenges associated with cryptocurrencies?

Answer 28

High electricity consumption in mining
Potential for tax evasion
Price volatility
Potential for fraud
Lack of intrinsic value

Question 29

Why is the concentration of cryptocurrency ownership a concern?

Answer 29

Large investors (“whales”) have significant power to manipulate the market by controlling supply and influencing prices.

Question 30

What are two organizations actively working on international cooperation for cryptocurrency regulation?

Answer 30

OECD (Organisation for Economic Co-operation and Development)
G20 (Group of major economies)

Question 31

What kind of regulatory approach does the document recommend for the cryptocurrency market?

Answer 31

The document suggests regulations that are similar to those in place for traditional stock markets to increase oversight and accountability.

Question 32

What are the tax implications for cryptocurrency profits in India according to the 2022 Budget?

Answer 32

Income Tax: A flat 30% tax (plus 4% cess) is levied on profits generated from the sale or transfer of cryptocurrencies.
TDS: 1% Tax Deducted at Source (TDS) is applicable on all cryptocurrency transfers exceeding certain thresholds.