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Wallets and Key Management Flashcards

7 cards from real Cryptocurrency practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Wallets and Key Management flashcards as text

  1. What does the 'gap limit' setting in an HD wallet determine?

    Answer: How many consecutive unused addresses the wallet scans before stopping discovery

    The gap limit defines how many empty (unused) consecutive addresses the wallet checks during blockchain scanning before assuming no further addresses are active.

  2. What is the main security advantage of using a hardware wallet over a software wallet on an internet-connected device?

    Answer: Private keys are generated and stored in an isolated secure element, never exposed to the host computer

    Hardware wallets keep private keys inside a secure chip that never exposes them to the connected computer, protecting against malware and remote attacks.

  3. In the context of cryptocurrency wallets, what is 'coin control'?

    Answer: The ability to manually select which UTXOs are used as inputs in a transaction

    Coin control lets users choose specific unspent transaction outputs (UTXOs) to use in a transaction, improving privacy and fee management.

  4. What is a 'custodial' wallet?

    Answer: A wallet where a third party holds and controls the private keys on behalf of the user

    In a custodial wallet, a service provider like an exchange holds the private keys, meaning the user must trust that provider to access or transfer funds.

  5. Which cryptographic curve is used by Bitcoin and Ethereum for key generation?

    Answer: secp256k1

    Both Bitcoin and Ethereum use the secp256k1 elliptic curve for their ECDSA-based key pairs.

  6. What happens if a user loses both their hardware wallet device and their seed phrase?

    Answer: The funds are permanently inaccessible with no recovery option

    Without the seed phrase or private keys, there is no mechanism to recover a cryptocurrency wallet; funds are permanently lost.

  7. What is the purpose of the passphrase option (sometimes called the '25th word') in BIP39 wallets?

    Answer: It adds an additional secret that creates a completely different wallet from the same seed

    Adding a BIP39 passphrase derives an entirely different set of keys from the same mnemonic, providing plausible deniability and an extra layer of protection.