Cryptocurrency Security and Regulatory Compliance 3

Question 1

What is the purpose of a crypto exchange's Proof of Reserves audit?

Accepted Answer

To verify the exchange holds sufficient assets to cover customer balances

Answer

Proof of Reserves is a cryptographic audit allowing exchanges to demonstrate they hold 1:1 backing for customer funds without revealing individual balances.

Question 2

Which regulation requires U.S. taxpayers to report cryptocurrency transactions to the IRS?

Accepted Answer

Internal Revenue Code Section 6050I

Answer

IRS Section 6050I was updated in the Infrastructure Investment and Jobs Act to require reporting of digital asset transactions over $10,000 received in a trade or business.

Question 3

What is a 'replay attack' in the context of blockchain hard forks?

Accepted Answer

Rebroadcasting a valid transaction from one chain to have it executed on the other chain

Answer

After a hard fork, a replay attack broadcasts a valid transaction from the original chain on the new chain, potentially draining funds on both chains simultaneously.

Question 4

What does OFAC's SDN list mean for crypto compliance?

Accepted Answer

It lists sanctioned individuals and entities whose crypto addresses must be blocked

Answer

OFAC's Specially Designated Nationals list includes wallet addresses of sanctioned parties, and U.S. persons are prohibited from transacting with them.

Question 5

What is 'seed phrase' security best practice for self-custody wallets?

Accepted Answer

Never store it digitally; keep physical copies in secure offline locations

Answer

Seed phrases should never be stored digitally; physical copies kept offline in fireproof or geographically distributed locations are the recommended practice.

Cryptocurrency Practice Test

Cryptocurrency Practice Test

Cryptocurrency Security and Regulatory Compliance 3