Crypto Trading Security and Risk 3 — Questions and Answers
Question 1: What is 'cold storage' in cryptocurrency?
- Storing crypto on an exchange's servers
- Keeping private keys completely offline (Correct answer)
- Freezing an account during disputes
- A method to lower transaction temperature
Correct answer: Keeping private keys completely offline
Cold storage keeps keys offline, isolating them from online threats.
Question 2: A smart contract has not been audited by a reputable firm. What is the main risk of trading its token?
- Slower confirmation times
- Undiscovered vulnerabilities could let attackers drain funds (Correct answer)
- Higher staking yields
- Mandatory KYC requirements
Correct answer: Undiscovered vulnerabilities could let attackers drain funds
Unaudited contracts may contain exploitable bugs that hackers can use to steal locked funds.
Question 3: What is a SIM-swap attack designed to do?
- Replace your hardware wallet firmware
- Hijack your phone number to intercept SMS-based 2FA codes (Correct answer)
- Swap one token for another
- Increase your mining hashrate
Correct answer: Hijack your phone number to intercept SMS-based 2FA codes
Attackers transfer your number to their SIM to receive your verification codes and reset accounts.
Question 4: Before approving a token allowance on a DeFi platform, why should you check the requested approval amount?
- Larger allowances earn rewards
- An unlimited approval lets the contract move all of that token from your wallet (Correct answer)
- It changes your gas price
- It sets your slippage tolerance
Correct answer: An unlimited approval lets the contract move all of that token from your wallet
Unlimited approvals can be abused by malicious contracts to withdraw your entire token balance.
Question 5: What does diversification help manage in a crypto portfolio?
- Network congestion
- Concentration risk from a single asset crashing (Correct answer)
- Private key generation
- Exchange KYC delays
Correct answer: Concentration risk from a single asset crashing
Spreading funds across assets reduces the impact of any one coin collapsing.
Question 6: What is the safest way to verify you are visiting your real exchange website?
- Click links from emails or ads
- Manually type or bookmark the official URL and check the address (Correct answer)
- Search the token name on social media
- Use the first Google result
Correct answer: Manually type or bookmark the official URL and check the address
Bookmarking the verified URL avoids phishing clones served through ads or fake search results.
Question 7: Why is keeping large balances on a centralized exchange considered risky?
- Exchanges charge daily storage fees
- You don't control the private keys, and exchanges can be hacked or freeze withdrawals (Correct answer)
- It triggers automatic tax reporting
- It slows down the blockchain
Correct answer: You don't control the private keys, and exchanges can be hacked or freeze withdrawals
'Not your keys, not your coins' — exchange custody exposes funds to hacks, insolvency, or frozen withdrawals.
Crypto Trading Security and Risk 3
What is 'cold storage' in cryptocurrency?