Blockchain 101 Certification Tokens, Wallets & Digital Assets 2 — Questions and Answers
Question 1: What is the primary difference between a hot wallet and a cold wallet?
- Hot wallets store tokens on exchanges; cold wallets store tokens in smart contracts
- Hot wallets are connected to the internet; cold wallets are kept offline (Correct answer)
- Hot wallets use public keys; cold wallets use private keys only
- Hot wallets support NFTs; cold wallets only support fungible tokens
Correct answer: Hot wallets are connected to the internet; cold wallets are kept offline
Hot wallets maintain an active internet connection making them convenient but more vulnerable, while cold wallets are stored offline providing greater security.
Question 2: In blockchain, what does a private key allow its holder to do?
- View anyone's transaction history on the network
- Sign and authorize outgoing transactions from the associated address (Correct answer)
- Discover new blocks and earn mining rewards
- Generate a public blockchain address for others to send funds to
Correct answer: Sign and authorize outgoing transactions from the associated address
A private key is a secret cryptographic key used to sign transactions, proving ownership of funds at the associated address without revealing the key itself.
Question 3: What is a Hierarchical Deterministic (HD) wallet?
- A wallet that requires multiple signatures to approve any transaction
- A wallet that generates a tree of key pairs from a single master seed (Correct answer)
- A wallet specifically designed for institutional custody of digital assets
- A wallet that automatically swaps tokens to maintain a fixed portfolio ratio
Correct answer: A wallet that generates a tree of key pairs from a single master seed
HD wallets (BIP-32) derive an unlimited number of child key pairs from a single master seed, allowing easy backup and recovery of all addresses.
Question 4: What is a mnemonic seed phrase (recovery phrase) used for in cryptocurrency wallets?
- Encrypting transactions before they are broadcast to the network
- Backing up and restoring access to a wallet's private keys using human-readable words (Correct answer)
- Two-factor authentication when logging into a crypto exchange
- Generating a new wallet address for each incoming transaction
Correct answer: Backing up and restoring access to a wallet's private keys using human-readable words
A mnemonic seed phrase is a human-readable representation of a wallet's master seed, allowing complete wallet recovery on any compatible software.
Question 5: Which type of hardware device is considered one of the most secure methods for storing cryptocurrency private keys?
- A mobile phone with a dedicated crypto app
- A hardware security module (HSM) wallet like Ledger or Trezor (Correct answer)
- A browser extension wallet like MetaMask
- A custodial exchange account with 2FA enabled
Correct answer: A hardware security module (HSM) wallet like Ledger or Trezor
Hardware wallets store private keys in a secure chip that never exposes keys to connected computers, protecting against malware and online attacks.
Question 6: What is the key distinction between a custodial and a non-custodial wallet?
- Custodial wallets only hold NFTs; non-custodial wallets hold fungible tokens
- In a custodial wallet a third party controls the private keys; in non-custodial the user holds their own keys (Correct answer)
- Custodial wallets are hardware devices; non-custodial wallets are software applications
- Custodial wallets operate on private blockchains; non-custodial on public blockchains
Correct answer: In a custodial wallet a third party controls the private keys; in non-custodial the user holds their own keys
With a custodial wallet a service provider holds the private keys on the user's behalf, while a non-custodial wallet gives the user direct control over their own private keys.
Question 7: What is a multi-signature (multisig) wallet?
- A wallet that signs each transaction multiple times to prevent replay attacks
- A wallet that requires a defined number of separate private key signatures to authorize a transaction (Correct answer)
- A wallet that stores multiple types of cryptocurrencies in a single address
- A wallet that automatically signs recurring payments on a schedule
Correct answer: A wallet that requires a defined number of separate private key signatures to authorize a transaction
A multisig wallet requires M-of-N designated signers to approve a transaction, adding security by eliminating any single point of compromise.
Blockchain 101 Certification Tokens, Wallets & Digital Assets 2
What is the primary difference between a hot wallet and a cold wallet?