C4 C4 Wallet Security & Key Management

Question 1

What is a hierarchical deterministic (HD) wallet in the context of cryptocurrency?

Accepted Answer

A wallet that generates a tree of key pairs from a single seed phrase

Answer

A wallet that stores keys on a hardware device

Answer

A wallet managed by a centralized exchange

Answer

A wallet that requires multiple signatures for transactions

Question 2

Which BIP standard introduced the 12- or 24-word mnemonic seed phrase for wallet backup?

Accepted Answer

BIP39

Answer

BIP16

Answer

BIP32

Answer

BIP44

Question 3

What is the primary security advantage of a hardware wallet over a software wallet?

Accepted Answer

Private keys never leave the secure element and are not exposed to internet-connected devices

Answer

It is free to use

Answer

It supports more cryptocurrencies

Answer

It syncs faster with the blockchain

Question 4

What does a cold wallet refer to in cryptocurrency key management?

Accepted Answer

A wallet stored on a device that is never connected to the internet

Answer

A wallet that has run out of funds

Answer

A wallet used only for receiving transactions

Answer

A wallet protected by two-factor authentication

Question 5

In a multisignature (multisig) wallet setup described as '2-of-3,' what is required to authorize a transaction?

Accepted Answer

Any 2 of the 3 private keys

Answer

Only 1 of 3 keys

Answer

All 3 private keys

Answer

A hardware device plus one key

Question 6

What is the purpose of a passphrase (sometimes called the '25th word') in BIP39 HD wallets?

Accepted Answer

To add an additional layer of security by creating a completely different wallet from the same seed

Answer

To encrypt the transaction before broadcasting

Answer

To speed up key derivation

Answer

To convert a hot wallet into a cold wallet