True or False

Question 1

In Bitcoin, your private key allows you to verify whether a transaction has been signed with the correct public key.

Answer 1

FALSE: it is the other way around. The Public key can be used to verify if the transaction has been signed with the correct private key.

Question 2

The largest share of the Bitcoin miner’s income is generated via transaction fees.

Answer 2

FALSE: Bitcoin miners generate income mostly via creating blocks (get 6.25BTC for each correct block), however via transaction fee they get only 0.00001 BTC per kilobyte.

Question 3

Blocks on the Ethereum blockchain contain fewer transactions than blocks on the Bitcoin blockchain. Therefore, Bitcoin can process more transactions per second.

Answer 3

FALSE: ethereum works with gas and 1 block has a gas limit of 30 million. A standard ETH transaction ‘costs’ minimal 21,000 gas, resulting in approx. 1,400 transactions per block.
a Bitcoin block is approximately 1 MB and the size of a transaction is at least 250 bytes. This means 1 block contains maximum 4,000 transactions. So, it is true that the amount of transactions in 1 block in Ethereum network is less than in BTC blockchain.
But, this does not mean that bitcoin can process more transactions per second. Ethereum blocks are created every 12 seconds, so the transactions per second are 1,400 / 12 = 116 transactions per second. Bitcoin blocks are created every 10 minutes, so the transactions per second are 4,000 / 600 = 7 transactions per second.

Question 4

The monetary policy of Ethereum is more flexible than the monetary policy of Bitcoin.

Answer 4

TRUE: There is no upward limit for the total amount of ETH that can be issued, but bitcoin has 21 million of BTC. BTC and ETH is difficult to be treated as national currencies or markets to provide classic analysys in the monetary policy, though we still can argue that since BTC has a limited supply and ETH is not, ETH is more flexible. Furthermore, ETH has an uncovered endowment as Buterin and Wood, who are actually capable of providing alterations or at least have a large bargain power within the developers community. Hereafter, based on those two arguments, I would clearly say that ETH has more flexible monetary policy than BTC.

Question 5

Sokolov (2021) demonstrates that Bitcoin enables ransomware attacks.

Answer 5

False. He examines how users respond to congestion in Bitcoin blockchain caused by spikes in transaction demand for settlement during ransomware attacks. He does not claim whether Bitcoin enables the attacks or not.

Question 6

The price for Ethereum Gas depends on the demand for transactions on the Ethereum blockchain.

Answer 6

TRUE: The exact price of the gas is determined by supply and demand between the network’s miners, who can decline to process a transaction if the gas price does not meet their threshold, and users of the network who seek processing power.

Question 7

Gas denotes the amount of Ether which needs to be paid for a transaction.

Answer 7

FALSE: gas refers to the unit that measures the amount of computational effort required to execute specific operations on the Ethereum network. If you want to know the transaction costs in Ether, you have to multiply the amount of gas needed with the gas price.
Transaction fee = Gas * Gas Price

Question 8

Fees for transactions to be recorded on the Ethereum blockchain solely depend on the computational effort to record a transaction on the Ethereum blockchain.

Answer 8

FALSE: “the computational effort to record a transaction on the Ethereum blockchain” is reflected in gas. The formula for transaction fees is as follows:
Transaction fee = Gas * Gas price = Gas* (Base fee+tip)
Here you see that the transaction fee depends on gas AND the gas price.

Question 9

Deploying a smart contract onto the Ethereum Blockchain does not require Gas.

Answer 9

FALSE: Gas reflects the amount of computational effort required to execute specific operations on the Ethereum network.” You need to deploy your smart contract for it to be available to users of an Ethereum network. To deploy a smart contract, you merely send an Ethereum transaction containing the compiled code of the smart contract without specifying any recipient. since you deploy it via a transaction, it requires gas. based on the amount of gas and the gas price, you pay a certain transaction fee (in ETH)

Question 10

Easley, O’Hara, and Basu (2019) show that transaction fees increase whenever the (coinbase) reward for mining a block goes down

Answer 10

FALSE: research indicates that transaction fees are driven by queuing problems, not by reduction in miner rewards. If you want for your transaction to be executed faster, you will need to pay larger premiums.

Question 11

Bitcoin provides real anonymity to its users.

Answer 11

FALSE: anonymity is “interacting without a name”. With BTC you do not use your real name, but a pseudo-identity (your address). So Bitcoin provides pseudonimity

Question 12

A problem of proof-of-stake as a consensus mechanism is that nothing is really at stake.

Answer 12

FALSE: consider ethereum 2.0: proof-of-stake. the staker sends 32 Ether to a staking deposit contract located on the mainnet to activate and run a validator. if they are dishonest, the stakers risk losing all their staked Ether, so there is Ether at stake.

Question 13

Proof-of-work is more easily scalable than proof-of-stake.

Answer 13

FALSE: POW is less scalable because it exploits computational power to execute transactions, thus during the peak loads it is not possible to fit in more transactions in the same time frame and thus it is not scalable. POS consensus allows mining in a network according to the ratio of the staker to the whole amount of circulation. It doesn’t involve such a huge amount of computational power and thus in this sense is more likely to scale.

Question 14

The stablecoin DAI can be used to lever crypto investments.

Answer 14

TRUE: you can send ERC20 tokens (for example ETH) with a value of 150$, which the MakerVault will then lock in as collateral. with a collateral ratio of 150%, then the MakerVault mints maximum DAI worth of $100. with this DAI worth 100$ i can buy again ETH worth 100 $. This ETH I can put in lock in the MakerVault again, receiving DAI worth 66$ etc. I have now ETH worth 250 $ dollar in the fault, with a initial investment of 150 $. you are now more exposed to price fluctuations of ETH.

Question 15

The stablecoin DAI can be used to hedge crypto investments.

Answer 15

TRUE.you can put your ETH in a MakerVault contract. This ETH get locked in as collateral and you will get an X amount of DAI (depending on the current ETH price and the collateral ratio). You swap this DAI in dollars and you have your profit for sure. if ETH crashes, you still have your dollars. if ETH would continue to rise, you could free the ETH again from this MakerVault contract and sell the ETH. you can also use a DAI Savings Rate (DSR) contract

Question 16

The stablecoin DAI is as risky as the US Dollar, which it is pegged to.

Answer 16

FALSE: In DAI not all its reserves are stable assets, Thus More volatility occurs. Stablecoins like Dai attempt to maintain a value of $1, but there can be fluctuations here and there. Dai’s price has both exceeded $1.10 and gone under $0.90 for brief periods of time

Question 17

Providers of liquidity in liquidity pools face impermanent loss when one asset in the liquidity pool appreciates in value.

Answer 17

TRUE: as can be seen in the graph, impermanent loss happens no matter which direction the price changes. The only thing impermanent loss cares about is the price ratio relative to the time of deposit. the bigger the change, the bigger the impermanent loss.

Question 18

Decentralized, permissionless proof-of-work blockchains guarantee the immutability of their (governance) protocols.

Answer 18

FALSE: (governance) protocols are code. code can be overwritten/ overruled (code is NOT immutable!). To overwrite governance protocols in a proof-of-work blockchain, you need to reach consensus, implying that a majority of the nodes should be in favor of the change.

Question 19

Decentralized, permissionless proof-of-stake blockchains guarantee the immutability of their (governance) protocols.

Answer 19

TRUE: However, as we have seen recently in Ethereum Classic 51% attack, immutability could be broken if the network is small and not decentralized enough. However, Ethereum 2.0 won’t have such problems by introduction proof-of-stake that work by selecting validators in proportion to their quantity of holdings in the associated cryptocurrency.

Question 20

Permissioned blockchains provide better protection against a “51% attack”

Answer 20

TRUE. In permissioned BC it is not possible to perform a 51% attack to gain the governance of it. As the network is permissioned, there is some kind of entity, that decide which rights each participant would have. In most of the times, governance rights are not distributed among general public, thus it is not possible to brake rules with the control of 51%+ of the nodes.

Question 21

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.

Answer 21

FALSE: if you want to be a liquidity provider you have to add BOTH Ether and Tether. to be more specific to have to add both in the same ratio as the pool. so if the pool consists out of 100 ETH and 2,000 Tether (1:20), and you want to add 10 ETH, you have to add 200 Tether (1:20)

Question 22

An automated market maker determines the exchange rate in liquidity pools by applying a constant sum function.

Answer 22

FALSE: it determines the exchange rate by applying a constant PRODUCT function.

Question 23

Decentralized exchanges operating liquidity pools do not allow for arbitrage.

Answer 23

False. DEX’s are such an entities that obey predetermined algorithm. They are not aware of that some particular user is an arbitrageur. Though they constantly try to defend pools from the attacks of arbitrage trading. It might be done through the pool size, AMMs and oracles.

Question 24

The token BAT is a non-fungible token.

Answer 24

FALSE: the BAT (Brave Attention Token) token – which runs on the Ethereum blockchain – serves as a means of payment within the Brave browser. Consequently, this type of token is fungible: “one token is like the other, all tokens generated from the same smart-contract have the same value.”

Question 25

“A utility token is not a security according to US regulation”

Answer 25

FALSE. Utility tokens can also depend on the efforts of a third party and promise a financial return and thus satisfy the Howey test.”