Section 2 Short Answer

1. With reference to the qualities of money (durability, portability, divisibility, uniformity, limited supply, and acceptability), explain why gold is not a common medium of exchange (3 marks)

2. Nicolas would like to set up a bitcoin mining farm. What are the main features of the location he should take into consideration when deciding which country to set up in?

3. Bitcoin block rewards halve every 4 years approximately. By 2150 there will be no block rewards how would you expect the network to function after 2150?

4. What is a smart contract? Give an example of something a smart contract can be used for

5. Tim and Sean were both mining Ethereum in 2019. They both found block 25 at almost exactly the same time. How will this soft fork be resolved for block 26? Will either/both of them receive a reward of new Ethereum?

6. Identify and briefly explain 3 differences between Ethereum and Bitcoin

7. What are the 4 pillars of a security according to the SECs Howey Test?

8. TAB is undertaking an ICO. There are expected to be thousands of users wanting to swap their ETH for TAB tokens when the ICO contract goes live in block 6,123,123. Answer the following questions: How will users orders be prioritized by validators? What would you expect to happen to the base fee and block fullness on the contract opening? How would you go about trying to ensure your order is picked up by validators? What will happen to requests to buy TAB when the allocation is exhausted?

9. Algorithmic Stablecoin AAUD tracks the Australian Dollar 1:1. It has a volatility coin ALGO. You can swap between AAUD and ALGO at the current price of ALGO. Imagine the price of AAUD is 1.15 AUD how would you use arbitrage to make a profit? Define each of the steps, and identify the resulting profit (in % terms).

10. The stablecoin trilemma involves peg-stability, capital efficiency and decentralization. Define each of these three components

11. Why were Hybrid DEXs able to replace fully on-chain DEXs so rapidly?

12. Name two examples of benefits small investors may receive by allowing their funds to be managed by a protocol such as Yearn

13. Describe 3 benefits provided to investors of liquid staking

14. Why would a decentralized oracle be preferred to a centralized oracle? Provide at least 2 reasons with brief explanations

15. If a centralized exchange fails, are you likely to suffer any loss? Explain why/why not?

16. Why does the bitcoin protocol suggest spending the entire contents of an address and sending the change to a completely new address?

17. Why did the darknet only gain popularity as an online drugs marketplace after the introduction of Bitcoin?

18. I want to trade my ERC20 token STAR on the Solana blockchain. What would be the steps I would follow using the wormhole bridge to achieve this?

19. The blockchain trilemma includes three features decentralization, scalability and security. Define each of these characteristics

20. Equities could be issued simply on the Ethereum blockchain using the ERC20 standard. What issues do you think investors might face in trading/holding these shares?

21. Explain the difference between pseudoanonymity and anonymity? (2 marks) Explain which type would you experience in the Bitcoin network?

22. Explain 2 techniques employed by privacy coins to preserve privacy

23. Why do you think DeFi has been able to offer financial services much more cheaply than TradFi?

24. How do centralized and decentralized exchanges differ in their approach to: Custody KYC requuirements Settlement Transparency of Trading

25. Name and briefly explain 2 advantages and 2 disadvantages of Decentralized Exchanges