312-82 Sample Questions Answers

TheFinancial Action Task Force (FATF)definesVirtual Asset Service Providers (VASPs)in its guidelines to include entities that engage in theexchange of virtual assets for fiat currencyand thetransfer of virtual assets. This categorization is part of the FATF's efforts to regulate and monitor the flow of virtual assets to mitigate risks associated with illicit activities.

Key Details:

Exchange and Conversion Services: FATF recognizes companies that offer exchange services between virtual assets and fiat currencies as VASPs. These services are critical for converting virtual assets into forms that can be readily used in traditional markets.

Transfer Services: VASPs that facilitate the transfer of virtual assets are also within the FATF’s regulatory scope. This includes services that manage, transfer, or act as intermediaries in the movement of virtual assets between users, ensuring these transactions are conducted transparently and within regulatory frameworks.

Therefore,C. Exchange virtual assets for fiat currencyandD. Transfer virtual assetsare the correct answers, as they align with the FATF's definition of VASPs.

The UTXO (Unspent Transaction Output) model establishes a chain of ownership by using digital signatures. In this model, each transaction consists of inputs (from previous UTXOs) and outputs (new UTXOs), and ownership is transferred by the current owner signing the transaction. This digital signature is then verified by the recipient, ensuring a secure and traceable chain of ownership.

Key Details:

Functionality of UTXO: UTXO is a fundamental part of Bitcoin’s transaction model. When a transaction occurs, it consumes previous outputs as inputs, generating new UTXOs. Each UTXO can only be spent once, and ownership is verified through cryptographic signatures.

Chain of Ownership: The UTXO model inherently creates a clear and verifiable chain of ownership, as each output is signed by the current owner and used as input for future transactions, maintaining a continuous and transparent record of asset transfers.

Security through Digital Signatures: UTXO-based transactions rely on digital signatures to authenticate and authorize asset transfers, ensuring that only the rightful owner can initiate a transaction.

Thus, D. UTXO is the correct answer, as it accurately describes the model where ownership is established through a chain of digital signatures.

Shardingis a scalability technique that splits tasks or data into smaller, more manageable pieces called "shards." These shards are then processed in parallel by multiple nodes in a network. By dividing the workload, sharding can significantly enhance the efficiency and speed of blockchain networks, which is especially beneficial for handling large transaction volumes and complex computations.

Key Details:

Purpose of Sharding: The main goal of sharding is to address blockchain scalability issues. By enabling the network to process transactions and data in parallel, it reduces the load on individual nodes, thus increasing the overall throughput of the blockchain.

How Sharding Works: In a sharded blockchain, each node only needs to process a portion of the total data rather than every single transaction on the network. Each shard is responsible for a subset of data and transactions, and only nodes within a particular shard need to validate its transactions.

Relevance in Blockchain: Sharding is crucial in large-scale blockchain networks like Ethereum, where high transaction volumes can lead to congestion. Ethereum 2.0, for example, incorporates sharding as a core feature to improve its scalability and transaction processing capacity.

Sharding is, therefore, the correct answer, as it directly refers to the method of dividing tasks for parallel processing in a distributed environment.

MicrosoftAzureis a blockchain development platform that enables the creation of custom private blockchains. Azure Blockchain Service provides tools and services that allow organizations to set up and manage consortium blockchain networks, customize smart contracts, and create tailored blockchain applications. Azure supports multiple blockchain frameworks, includingEthereumandHyperledger Fabric, making it versatile for both private and public network needs.

Key Details:

Azure Blockchain Service: This service facilitates the deployment of managed blockchain networks on the cloud, leveraging Azure's infrastructure to deliver scalability, security, and reliability for private and consortium blockchain applications.

Private Blockchain Capabilities: As a private blockchain service, Azure allows businesses to operate their blockchain in a controlled, permissioned environment. This offers greater control over data and participants, making it ideal for enterprise use cases like supply chain management, finance, and legal contracts.

Blockchain Framework Compatibility: Although Azure supports a variety of blockchain protocols, it primarily focuses on private blockchain deployments, allowing for detailed control over network participants and data visibility.

In summary, Microsoft Azure stands out as a flexible and comprehensive platform for private blockchain development, catering to enterprises with tailored solutions and extensive cloud-based services.

Proof of Elapsed Time (PoET)is a consensus mechanism that uses a Trusted Execution Environment (TEE) to ensure randomness and safety in the leader election process by enforcing a guaranteed wait time. Developed by Intel, PoET is particularly used in permissioned blockchain networks where a TEE can securely run code to determine which node is elected to propose the next block. This mechanism is efficient in terms of energy consumption and provides a fair method for selecting a leader without requiring intensive computational power.

Key Details:

Role of TEE in PoET: The TEE ensures that nodes wait for a random period before being eligible to propose a new block. This waiting period is verified by the TEE, which acts as a trusted third party to confirm that nodes have adhered to the assigned wait time.

Randomness and Security: PoET provides randomness in the leader selection process, reducing the chances of any node gaining an unfair advantage. It also promotes security by leveraging the TEE, which is designed to prevent tampering with the waiting time calculations.

Use Cases: PoET is mainly used in permissioned blockchain environments like Hyperledger Sawtooth, where nodes are pre-approved, and there is a need for a scalable yet secure consensus mechanism.

In summary, PoET is the correct answer as it directly refers to a consensus mechanism that utilizes a Trusted Execution Environment for leader election.

David Chaumfirst proposed the concept ofblind signaturesin the early 1980s as a way to create an untraceable digital currency. Chaum’s work laid the groundwork for digital privacy in financial transactions by enabling transactions to be signed without revealing the actual content of the transaction, thus maintaining user privacy.

Key Details:

Blind Signatures: A blind signature is a form of digital signature in which the content of a message is hidden (or "blinded") before being signed. This allows for privacy-preserving digital transactions, as the signer cannot see the actual content they are signing.

Application in Digital Currency: Chaum’s idea was foundational for the development of anonymous electronic cash systems. His work led to the creation of DigiCash in 1989, one of the earliest forms of digital currency focused on user privacy.

Influence on Modern Cryptocurrencies: Although Chaum’s DigiCash was not a blockchain-based system, his concepts of privacy and anonymous transactions greatly influenced the development of later cryptographic currencies and protocols, including Bitcoin.

Therefore,A. David Chaumis the correct answer, as he pioneered the use of blind signatures for anonymous digital currency.

Autility crypletis a component of Microsoft Azure Bletchley that provides essential services, such as encryption and data retrieval from external sources, to support blockchain applications. Bletchley is a Microsoft Azure project designed to enhance blockchain infrastructure by offering middleware services and tools for secure and efficient blockchain solutions.

Key Details:

Purpose of Utility Cryplets: Utility cryplets extend the functionality of blockchain networks by offering off-chain services, which include cryptographic operations, data encryption, and fetching information from external APIs or data sources. This enhances the capabilities of smart contracts by allowing them to securely interact with off-chain data.

Microsoft Azure Bletchley: As part of Microsoft’s blockchain ecosystem, Bletchley provides an environment that supports building, deploying, and managing blockchain applications. Cryplets are designed to facilitate secure, reliable, and scalable integration between on-chain and off-chain processes.

Use Cases: Utility cryplets are particularly useful in scenarios where blockchain applications need to access external data (like price feeds, identity verification, etc.) while ensuring data integrity and security.

Therefore,B. A part of Microsoft Azure Bletchley that is used to provide basic services such as encryption and basic data fetching from external sourcesis the correct answer, as it describes the function and purpose of utility cryplets within the Azure Bletchley project.

When you purchase bitcoins, they are storedin a bitcoin wallet. A bitcoin wallet is a digital tool that stores the cryptographic keys necessary to access and manage your Bitcoin holdings. It does not store physical bitcoins but instead holds the keys to access them on the blockchain.

Key Details:

Functionality of Bitcoin Wallets: Bitcoin wallets manage private and public keys. The private key is required to sign transactions, while the public key generates addresses that allow for receiving bitcoins. Without access to the private key, the user cannot spend or transfer their bitcoins.

Types of Bitcoin Wallets: Wallets can be software-based (such as mobile or desktop apps) or hardware-based (physical devices like a Ledger or Trezor). There are also online (custodial) wallets provided by exchanges, but these still technically store bitcoins within a wallet.

Not a Physical Storage: Bitcoins do not exist as physical files or objects. The wallet is an interface that interacts with the blockchain, where the actual records of ownership are maintained.

Thus,D. In a bitcoin walletis the correct answer, as bitcoins are stored in wallets that hold the keys necessary to interact with the Bitcoin blockchain.

Decentralized Applications (Dapps)are applications that run on a blockchain network and include embedded governance and business logic rules. Unlike traditional applications, Dapps are decentralized, meaning they operate on a peer-to-peer network rather than a centralized server, leveraging smart contracts to automatically enforce rules and protocols without intermediaries.

Key Details:

Characteristics of Dapps: Dapps are open-source, operate autonomously, and store data on a blockchain. They utilize smart contracts to handle various functions, from transaction processing to enforcing governance rules and executing business logic.

Smart Contracts: The embedded rules within Dapps are typically coded as smart contracts, which are self-executing contracts with the terms of the agreement directly written into lines of code. This ensures that all transactions and operations within the Dapp are transparent, immutable, and automatically enforced.

Use Cases: Dapps are commonly found in areas such as decentralized finance (DeFi), gaming, supply chain management, and social media, offering users more control and transparency compared to traditional applications.

In conclusion,Dapps (A)is the correct answer as it refers to computer programs running on a blockchain with embedded governance and business logic rules.

FinCENrequires money transmitters and companies involved in virtual currency (CVC) transmission to report suspicious transactions as part of their anti-money laundering (AML) responsibilities. This is in addition to maintaining an effective AML program and registering as a money service business (MSB).

Key Details:

AML Program: The program must be reasonably designed to detect and prevent the use of financial services for money laundering or terrorist financing.

Reporting Suspicious Activity: FinCEN mandates that companies must file Suspicious Activity Reports (SARs) for any transactions that appear to be potentially suspicious or indicative of illegal activities.

Regulatory Compliance: This requirement ensures that businesses adhere to federal regulations, contributing to a secure financial system by monitoring and reporting illicit activity.

Therefore,A. Report suspicious transactionsis the correct answer, as this is a key requirement for companies under FinCEN’s regulations regarding money transmission and virtual currencies.

Asoft forkis a change to a blockchain protocol that is backward-compatible, meaning it does not result in the creation of a new chain and does not require all client nodes to upgrade. Nodes that do not upgrade can still participate in the network, although they may not have access to all new features introduced by the soft fork.

Key Details:

Backward Compatibility: In a soft fork, updated nodes enforce the new rules, while non-updated nodes continue to follow the older protocol but remain part of the same blockchain. This contrasts with hard forks, where incompatibility leads to the creation of a new chain.

Use Cases: Soft forks are commonly used to implement protocol upgrades or adjustments that do not fundamentally alter the structure of the blockchain, such as increasing block size limits or adding new features that are optional.

Examples: An example of a soft fork is the Segregated Witness (SegWit) update on the Bitcoin blockchain, which was implemented to increase block capacity without splitting the chain.

Thus,B. Soft forkis the correct answer, as it refers to a backward-compatible update that does not require a new chain or mandatory upgrades from all nodes.

In Ethereum, there are two main types of transactions:Message CallandContract Creation. These transaction types enable Ethereum to support both the execution of contracts and interactions between accounts.

Key Details:

Message Call Transactions: These transactions involve interactions between externally owned accounts (EOAs) or between EOAs and smart contracts. Message calls are used to transfer Ether or invoke functions within existing smart contracts.

Contract Creation Transactions: This transaction type is used specifically to deploy new smart contracts on the Ethereum blockchain. During a contract creation transaction, the code for the new contract is included, which the network processes and stores at a unique address.

Exclusion of User Transactions: While “User” refers to EOAs, it is not a type of transaction itself in Ethereum. Transactions in Ethereum are categorized based on their purpose – either calling an existing contract (Message Call) or creating a new one (Contract Creation).

Thus,C. Message CallandD. Contract Creationare the correct answers, as they represent the two main transaction types in Ethereum.