CBP Wallets and Key Management 3 — Questions and Answers
Question 1: What does a Bitcoin watch-only wallet contain?
- Only the seed phrase without derivation paths
- Public keys or addresses but no private keys (Correct answer)
- An encrypted copy of all private keys
- The master private key only
Correct answer: Public keys or addresses but no private keys
A watch-only wallet holds public keys or addresses, allowing monitoring of balances and transactions without the ability to sign and spend.
Question 2: In a 2-of-3 multisig wallet, what is the minimum number of signatories needed to broadcast a transaction?
- 1
- 2 (Correct answer)
- 3
- All 3 must be online simultaneously
Correct answer: 2
A 2-of-3 multisig requires exactly 2 of the 3 private keys to sign a transaction before it can be valid and broadcast.
Question 3: What is the function of the chain code in BIP-32 HD key derivation?
- It identifies which blockchain network to use
- It serves as additional entropy to prevent key derivation from the parent key alone (Correct answer)
- It encodes the derivation path for the wallet
- It provides the checksum for the extended key
Correct answer: It serves as additional entropy to prevent key derivation from the parent key alone
The chain code is combined with the parent key in the HMAC-SHA512 function, ensuring child keys cannot be derived from the parent key alone.
Question 4: When backing up a BIP-39 mnemonic phrase, which practice is considered most secure?
- Storing it in an encrypted cloud password manager
- Writing it on a steel plate and storing offline in multiple secure locations (Correct answer)
- Photographing it and storing in an encrypted phone folder
- Emailing it to yourself with end-to-end encryption
Correct answer: Writing it on a steel plate and storing offline in multiple secure locations
Metal backups stored offline in separate secure locations resist fire, water, and physical theft while avoiding digital exposure.
Question 5: What is a 'brain wallet' and what is its primary security weakness?
- A wallet stored on a dedicated hardware device; weakness is supply chain attacks
- A wallet derived from a memorized passphrase; weakness is low entropy from human-chosen phrases (Correct answer)
- A wallet requiring biometric authentication; weakness is spoofing
- A wallet with keys split across neural implants; weakness is physical access
Correct answer: A wallet derived from a memorized passphrase; weakness is low entropy from human-chosen phrases
Brain wallets derive keys from passphrases that humans choose, which have far less entropy than cryptographically random seeds and are vulnerable to dictionary attacks.
Question 6: What does the derivation path m/44'/0'/0'/0/0 represent according to BIP-44?
- The first change address of the first Bitcoin account
- The first external receiving address of the first Bitcoin account (Correct answer)
- The master extended public key
- The second account's first internal address
Correct answer: The first external receiving address of the first Bitcoin account
In BIP-44, m/purpose'/coin'/account'/change/index — path m/44'/0'/0'/0/0 is the first external (receiving) address of the first Bitcoin account.
Question 7: Which encoding format is used for extended public keys (xpub) and extended private keys (xprv) in BIP-32?
- Hex encoding
- Base58Check encoding (Correct answer)
- Bech32m encoding
- Base64 encoding
Correct answer: Base58Check encoding
Extended keys use Base58Check encoding, which includes a checksum and avoids ambiguous characters, producing the familiar 'xpub' and 'xprv' prefixes.
CBP Wallets and Key Management 3
What does a Bitcoin watch-only wallet contain?