Open Questions Blockchain

Assume you own one coin of the cryptocurrency “Fork-a-lot”. A hard fork creates “Fork-a-lot” and “Fork-a-lot Classic”. Which coin will you own after the hard fork?

You own both: your pre-fork UTXO/account state is copied to both chains at the fork block. | Your balance is identical on both ledgers at snapshot time, but market values may diverge; you must control the private keys and use a wallet pointing to each chain to access the respective coins.

What are the four key innovations that Nakamoto integrated into Bitcoin?

1) Hash‑chained, timestamped blocks that make history tamper‑evident. | 2) Proof‑of‑Work with difficulty adjustment to secure the ledger against Sybil attacks. | 3) Longest‑chain consensus over a P2P network to resolve conflicts without a central authority. | 4) Incentive mechanism (block reward + fees) that pays miners to enforce the rules.

What are the three key questions a distributed consensus mechanism needs to answer? What are Bitcoin’s answers?

1) Who maintains the ledger? → Thousands of independent nodes storing and validating the chain. | 2) Who decides which transactions are valid and in what order? → Miners propose PoW blocks; nodes accept the longest valid chain. | 3) Who mints new coins? → Miners via the block subsidy paid to the winning block.

What is a mining pool?

A cooperative of miners who combine hash power and share rewards according to contributed work (e.g., PPS/FPPS). | Pools reduce reward variance for small miners, smooth income, and allow steady payouts while keeping expected value close to solo mining (minus pool fees).

What is the economic rationale behind mining in a pool rather than solo?

Risk‑sharing and variance reduction: solo miners face long waiting times between rewards; a pool pays small, frequent shares, increasing the certainty equivalent. | Pools may offer lower payout variance, steadier cash flow, and better utilisation of hardware at the cost of a fee and some centralisation.

Explain the impossibility triangle (blockchain trilemma per Abadi & Brunnermeier).

You cannot simultaneously maximise decentralisation, correctness, and cost‑efficiency. | If decentralised and correct, it’s costly; if decentralised and cheap, correctness can fail (misreporting); if correct and cheap, free entry is incompatible—market power or permissioning creeps in. Designs pick a point on this frontier.

Name and explain one recent layer‑2 innovation that addresses PoW chain scalability.

Rollups (Optimistic or ZK): execute transactions off‑chain, post data/validity proofs on L1. | They inherit L1 security while increasing throughput and lowering fees; batches compress many L2 txs into one L1 commitment, reducing congestion without sacrificing final settlement security.

If I give you a SHA‑256 hash of my name, can you verify whether the hash is indeed H(name)?

Yes, if you also give the name: compute SHA‑256(name) and compare to the digest. | Without the plaintext, finding a preimage is infeasible due to preimage resistance; only trial‑and‑error (brute force/dictionary) could succeed for weak inputs.

What is the purpose of Ethereum’s Beacon chain?

Coordinate Proof‑of‑Stake: manage validators and staking balances, provide randomness for committees/leader selection, drive block proposal/attestation, and finality. | It acts as the PoS consensus layer that later coordinates shards and the execution layer; it does not itself execute user contracts/tx logic.

AMM pool has 3,000 ETH and 9,000,000 USDT. You swap 50,000 USDT to ETH. How many ETH do you get?

Constant product: k=3,000×9,000,000=27,000,000,000. New USDT reserve=9,050,000. New ETH reserve=k/9,050,000≈2,983.425. | ETH out=3,000−2,983.425≈16.575 ETH (ignoring fees).

Follow‑up: What is the exchange rate after the swap (USDT per ETH)?

Post‑trade reserves: 2,983.425 ETH and 9,050,000 USDT. | Price=USDT/ETH≈9,050,000/2,983.425≈3,033.43 USDT per ETH (ignoring fees).

What are the main differences between Bitcoin and Ethereum? (give six)

Purpose: BTC=peer‑to‑peer money; ETH=programmable smart‑contract platform. | Scriptability: BTC limited scripting; ETH Turing‑complete EVM. | State model: BTC UTXO vs ETH account/state. | Consensus: BTC PoW; ETH PoS (post‑Merge). | Block/gas: shorter block time and gas market on ETH (EIP‑1559). | Monetary policy: BTC fixed cap; ETH flexible with issuance + burn.

Every 210,000 blocks the Bitcoin mining reward is reduced. By what percentage?

50% (a halving) each 210,000 blocks, roughly every four years.

What is the difference between a staker and a validator in Ethereum?

Staker: deposits ETH to activate validators (32 ETH per validator; can run multiple or delegate via pools). | Validator: an active role selected to propose/attest blocks; subject to rewards/penalties and slashing; effective balance capped at 32 ETH for rewards.

What is an ERC‑20 token?

The fungible token standard on Ethereum: a common interface (e.g., totalSupply, balanceOf, transfer, approve/transferFrom, events) enabling wallets/DEXs to interoperate seamlessly with any compliant token.

Name and explain two major concerns about Tether (USDT).

1) Reserves opacity/quality: unclear backing composition and liquidity; risk of run or de‑peg if redemptions spike. | 2) Systemic/market integrity risk: alleged price support/pushed issuance and limited regulatory oversight; a failure could transmit stress across crypto markets.

Is Filecoin a coin, a security token, or a utility token? Why?

Utility token: FIL is used to pay for storage/retrieval and to collateralise storage deals; miners earn FIL for providing verifiable storage—rights to use the network, not ownership claims on Protocol Labs’ cash flows.

Is Filecoin a security under U.S. securities law? Why?

Likely a security at issuance (SAFT/ICO context), utility in use. | Howey test: (1) investment of money ✔; (2) common enterprise ✔; (3) expectation of profit from network growth and token appreciation often marketed ✔; (4) profits primarily from efforts of others (Protocol Labs/core devs) ✔ → thus fundraising tokens likely securities.

Name three benefits of utility tokens.

1) Bootstrapping demand/incentives: align early users via rewards/discounts. | 2) Network effects without equity: participation rights without ceding corporate control. | 3) Programmability/global reach: micro‑payments, automated fees, and borderless access with instant settlement.

How does Szabo define smart contracts?

“A set of promises, specified in digital form, including protocols within which the parties perform on these promises.” | In practice: code that enforces contract terms automatically when predefined conditions are met.

What is the difference between a hard fork and a soft fork?

Soft fork: backward‑compatible rule change; old nodes still accept new blocks. | Hard fork: non‑backward‑compatible change that splits the chain unless everyone upgrades; ledger history up to the fork is shared, then diverges.

What are the two key innovations coming with Ethereum 2.0?

1) Proof‑of‑Stake consensus replacing PoW (energy‑efficient, slashing‑secured). | 2) Sharding (and data availability sampling): horizontal partitioning to scale throughput by distributing data/validation across shards, coordinated by the Beacon chain.

What is the role of oracles in smart contracts? Give one example.

Oracles feed off‑chain data into on‑chain logic in a verifiable way. | Example: Chainlink price feeds used by MakerDAO/Aave/Uniswap to trigger liquidations, set collateral ratios, or bound trade execution prices.

You add 10 ETH and 35,000 DAI to a pool (10% share). After a month the pool earned 0.5 ETH fees and ETH price rose 150%. What is your net profit in ETH from providing liquidity?

Using constant‑product math, your post‑move share is ≈6.3246 ETH + 55,339.86 DAI (worth 6.3246 ETH at 8,750 DAI/ETH) = 12.6492 ETH, plus 0.05 ETH fees = 12.6992 ETH. | HODL counterfactual = 10 ETH + (35,000/8,750)=4 ETH = 14 ETH → net −1.3008 ETH (impermanent loss despite fees).

How does MakerDAO’s MakerVault enable leverage on crypto?

Lock volatile collateral (e.g., ETH) and mint DAI up to a collateral ratio (e.g., 150%). | Use minted DAI to buy more ETH and repeat (looping) → larger exposure than initial capital; risk: liquidation if collateral value falls or fees accrue.

How does MakerDAO’s MakerVault allow hedging a crypto position?

Deposit ETH, mint DAI, and sell/park DAI (USD‑stable) to lock in value; if ETH falls, your stable DAI preserves purchasing power. | Alternatively, mint DAI and short ETH (sell ETH or derivatives), offsetting downside while keeping upside optionality by later repaying DAI to unlock ETH.

According to Cong, Li, Wang (2021), what determines utility‑token value? Explain in lay terms.

Value is driven by aggregate transactional demand for using the platform (not discounted cash flows). | Layman’s terms: the more people need the token to do things in the network (pay fees, access services), and the more often they use it, the higher its price.

Name three advantages of a Security Token Offering (STO) vs a traditional IPO.

1) Fractionalisation & global access to illiquid assets with lower minimums. | 2) Programmable compliance/settlement (fewer intermediaries, faster T+0–T+1). | 3) Lower issuance/administration costs and continuous digital cap‑table management.

Regulators should treat Tether like a bank. Do you agree?

Agree (with nuance). | Bank‑like liabilities (redeemable at par) + maturity/liquidity transformation → run risk; bank‑style supervision (reserves, audits, liquidity requirements, disclosure) reduces systemic risk and regulatory arbitrage. | But implementation should preserve on‑chain utility and avoid stifling credible stablecoin innovation.

Name and explain three reasons why regulators worry about cryptocurrencies.

1) Investor/consumer protection: scams, hacks, mis‑selling, extreme volatility. | 2) AML/CFT & sanctions evasion: pseudonymous transfers across borders. | 3) Financial‑stability risk: runs on stablecoins/DeFi contagion, leverage, and interconnectedness with TradFi.

What is an ERC‑20 token? (short)

Ethereum standard for fungible tokens with a common interface (transfer, approve, events) enabling wallets and DEXs to interoperate.

What is an ERC‑721 token?

Ethereum standard for non‑fungible tokens (NFTs) where each token ID is unique and not interchangeable; used for collectibles, rights, and provenance.

What is the purpose of the Howey test?

To determine whether an arrangement is an investment contract (a security) under U.S. law, which then triggers securities‑regulation requirements.

What constitutes a security under the Howey test?

An investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others (promoters/third parties).

Describe the evolutionary steps from Uniswap v1 to v4.

v1: ETH–ERC20 pairs, basic x·y=k AMM. | v2: ERC20–ERC20 pools + TWAP oracles + flash swaps. | v3: Concentrated liquidity ranges, multiple fee tiers, LP NFTs. | v4: Singleton architecture + hooks for custom logic (e.g., dynamic fees, on‑chain orders) and improved efficiency.

Explain the strategy behind “Sandwiching”.

Attacker detects a victim’s swap, front‑runs by buying to push price up, the victim executes at a worse price, then attacker back‑runs by selling to capture the spread. | Profit comes from manipulating slippage; mitigations include private order flow, batch auctions, and tighter slippage limits.

What is Maximum Extractable Value (MEV) in blockchains?

The extra value a block producer/searcher can capture by reordering, including, or excluding transactions in a block (e.g., arbitrage, liquidations, sandwiches). | It arises from control over transaction sequencing and can be mitigated via fair ordering, PBS, or batch auctions.