CBP - Certified Bitcoin Professional Wallets and Key Management Questions and Answers 1 — Questions and Answers
Question 1: A user wants to store a significant amount of Bitcoin for long-term holding with the highest level of security against online threats. Which of the following wallet types is the MOST appropriate for this purpose?
- A web-based wallet
- A mobile software wallet
- A hardware wallet (Correct answer)
- A custodial exchange wallet
Correct answer: A hardware wallet
A hardware wallet is the most secure option for long-term storage because it keeps the private keys offline, making them immune to online hacking attempts, malware, and phishing attacks. Web, mobile, and exchange wallets are considered 'hot' wallets, meaning they are connected to the internet and carry a higher risk of being compromised.
Question 2: What is the primary advantage of using a Hierarchical Deterministic (HD) wallet, as defined by BIP 32?
- It requires a separate backup for every new address generated.
- It generates a single static address to enhance user privacy.
- It allows a user to restore all keys and addresses from a single master seed. (Correct answer)
- It encrypts the private key with a user-defined password on the blockchain.
Correct answer: It allows a user to restore all keys and addresses from a single master seed.
The main feature of HD wallets (BIP 32) is that they can generate a nearly infinite sequence of key pairs and addresses from a single master seed. This means the user only needs to back up the initial seed phrase (typically 12-24 words) to be able to recover the entire wallet, including all past and future transactions and addresses.
Question 3: A business wants to secure its corporate Bitcoin funds by requiring approvals from multiple executives before any transaction can be sent. Which key management technique should they implement?
- Passphrase encryption (BIP 38)
- Wallet Import Format (WIF)
- Multi-signature (multisig) scheme (Correct answer)
- Simplified Payment Verification (SPV)
Correct answer: Multi-signature (multisig) scheme
A multi-signature (multisig) wallet requires a specified number of private keys (e.g., 2 out of 3) to sign a transaction before it is broadcast. This is ideal for corporate governance as it distributes control and prevents a single point of failure or unauthorized access to funds.
Question 4: When a user restores a Bitcoin wallet using a 12-word mnemonic seed phrase, what is being recovered?
- The Bitcoin balance directly from a centralized server.
- The master private key, from which all other keys and addresses are derived. (Correct answer)
- A snapshot of the wallet's transaction history stored on the user's computer.
- The user's public key, which is then used to find the private key.
Correct answer: The master private key, from which all other keys and addresses are derived.
The mnemonic seed phrase (as specified in BIP 39) is a human-readable representation of the master seed. This seed is the root from which all private keys, public keys, and addresses within an HD wallet are mathematically derived. By restoring from the seed, the wallet can regenerate the master private key and subsequently all associated addresses to find and control the funds on the blockchain.
Question 5: Which of the following is a characteristic of a non-deterministic wallet?
- All keys are derived from a single master seed.
- It is often referred to as a 'Just a Bunch Of Keys' (JBOK) wallet. (Correct answer)
- Backing it up requires only saving a single seed phrase.
- It is the standard for most modern Bitcoin software wallets.
Correct answer: It is often referred to as a 'Just a Bunch Of Keys' (JBOK) wallet.
A non-deterministic wallet, sometimes called a JBOK wallet, generates each key pair randomly and independently. The keys are not related to each other. This means that every time a new key is generated, a new backup of that key must be made, making it cumbersome to manage.
Question 6: A user is setting up a new hardware wallet and is prompted to add an optional passphrase on top of their 24-word recovery seed. What is the primary function of this passphrase?
- It encrypts the wallet's user interface.
- It serves as a second password to log into the wallet's software application.
- It acts as a '13th word' or '25th word' to create a completely new, hidden wallet. (Correct answer)
- It is required by the Bitcoin protocol for all transactions.
Correct answer: It acts as a '13th word' or '25th word' to create a completely new, hidden wallet.
The optional passphrase (as per BIP 39) acts as an extension to the mnemonic seed. When a passphrase is used, it is combined with the seed to generate a completely new and separate set of keys and addresses. This creates a hidden or 'plausible deniability' wallet. Someone with only the 12/24-word seed would not be able to access the funds in the passphrase-protected wallet.
CBP - Certified Bitcoin Professional Wallets and Key Management Questions and Answers 1
A user wants to store a significant amount of Bitcoin for long-term holding with the highest level of security against online threats.
Which of the following wallet types is the MOST appropriate for this purpose?