Blockchain Security Training Blockchain Wallet & Exchange Security 2

Question 1

What is the key security difference between a 'hot wallet' and a 'cold wallet' used by cryptocurrency exchanges?

Accepted Answer

Hot wallets are internet-connected and thus more vulnerable to remote attacks

Answer

Hot wallets maintain an active internet connection for liquidity, making them the primary target for remote hacking attempts.

Question 2

Why do major exchanges keep the majority of user funds in cold storage rather than hot wallets?

Accepted Answer

Offline storage eliminates the remote attack surface for the bulk of assets

Answer

Storing most assets offline means that even a full hot wallet compromise exposes only a small fraction of total funds.

Question 3

What security control do exchanges use to verify user identity and comply with anti-money laundering requirements?

Accepted Answer

Know Your Customer (KYC) verification

Answer

KYC procedures require users to submit government-issued ID, enabling exchanges to satisfy AML/CFT compliance obligations.

Question 4

What is a 'rug pull' in the context of DeFi exchange security?

Accepted Answer

Developers draining liquidity pools and abandoning a project after raising funds

Answer

In a rug pull, malicious project founders withdraw all pooled liquidity, rendering investors' tokens worthless and pocketing the funds.

Question 5

What is the purpose of enforcing withdrawal address whitelisting on a centralized exchange account?

Accepted Answer

It restricts withdrawals to pre-approved addresses, limiting attacker options even after credential theft

Answer

Whitelisting means a compromised account can only send funds to pre-verified addresses, neutralizing the attacker's ability to redirect withdrawals.

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