CCE Security & Risk Management 2 — Questions and Answers
Question 1: A hardware wallet stores private keys in which type of secure environment?
- Cloud-encrypted storage
- Secure Element (SE) chip (Correct answer)
- Browser local storage
- Exchange hot wallet
Correct answer: Secure Element (SE) chip
Hardware wallets use a Secure Element chip that keeps private keys isolated from internet-connected devices.
Question 2: Which attack involves an adversary intercepting and potentially altering communications between two parties without their knowledge?
- Replay attack
- Sybil attack
- Man-in-the-middle (MitM) attack (Correct answer)
- Eclipse attack
Correct answer: Man-in-the-middle (MitM) attack
A MitM attack intercepts communication between two parties, allowing the attacker to eavesdrop or alter data.
Question 3: What is the primary purpose of a multisignature (multisig) wallet setup?
- Increase transaction speed
- Require multiple private keys to authorize transactions (Correct answer)
- Reduce blockchain fees
- Enable anonymous transactions
Correct answer: Require multiple private keys to authorize transactions
Multisig wallets require M-of-N private key signatures before a transaction can be broadcast, distributing control and reducing single-point-of-failure risk.
Question 4: In a 51% attack on a proof-of-work blockchain, what can the attacker achieve?
- Steal private keys from other wallets
- Reverse confirmed transactions and double-spend (Correct answer)
- Delete smart contracts permanently
- Inflate the total coin supply
Correct answer: Reverse confirmed transactions and double-spend
Controlling over 50% of hash power lets an attacker reorganize recent blocks, enabling double-spending of their own funds.
Question 5: Which risk management concept involves spreading crypto holdings across multiple asset classes and storage methods?
- Hedging
- Diversification (Correct answer)
- Arbitrage
- Leverage
Correct answer: Diversification
Diversification reduces portfolio risk by distributing holdings so that a loss in one asset or storage method doesn't devastate the entire portfolio.
Question 6: What is a 'seed phrase' (mnemonic phrase) used for in cryptocurrency security?
- Two-factor authentication code
- Human-readable backup of a wallet's master private key (Correct answer)
- Password for an exchange account
- Encryption key for blockchain data
Correct answer: Human-readable backup of a wallet's master private key
A seed phrase (typically 12–24 BIP-39 words) encodes the wallet's master private key, allowing full wallet recovery on any compatible device.
Question 7: Which security practice best protects against SIM-swapping attacks on cryptocurrency accounts?
- Using SMS-based 2FA
- Enabling hardware security key (FIDO2) authentication (Correct answer)
- Storing passwords in a browser
- Linking accounts to a phone number
Correct answer: Enabling hardware security key (FIDO2) authentication
Hardware security keys (e.g., YubiKey) use FIDO2/WebAuthn and cannot be hijacked via SIM swapping, unlike SMS-based 2FA.
CCE Security & Risk Management 2
A hardware wallet stores private keys in which type of secure environment?