Cryptocurrency Wallets and Key Management 4 — Questions and Answers
Question 1: What is 'key sharding' in the context of wallet security?
- Splitting a private key into multiple fragments so that a threshold of fragments is needed to reconstruct it (Correct answer)
- Breaking a wallet into multiple smaller wallets
- Distributing transaction fees across multiple accounts
- Fragmenting the blockchain for faster processing
Correct answer: Splitting a private key into multiple fragments so that a threshold of fragments is needed to reconstruct it
Key sharding (often implemented via Shamir's Secret Sharing) splits a private key into shares, requiring a minimum number of shares to reconstruct the key.
Question 2: Which wallet type is MOST resistant to phishing attacks?
- A browser extension wallet
- A mobile hot wallet
- A hardware wallet with a screen that displays transaction details (Correct answer)
- An exchange custodial wallet
Correct answer: A hardware wallet with a screen that displays transaction details
Hardware wallets with displays show the actual transaction details on a trusted screen, preventing malicious software from substituting a different recipient address.
Question 3: What is the function of a 'wallet descriptor' in Bitcoin?
- A marketing label assigned by a wallet manufacturer
- A standardized expression that fully describes the script and keys needed to spend from a wallet (Correct answer)
- A list of all transactions associated with an address
- A file that stores the wallet's transaction history
Correct answer: A standardized expression that fully describes the script and keys needed to spend from a wallet
A wallet descriptor encodes the complete spending policy—including key derivation paths and script type—enabling any compatible wallet software to restore the wallet accurately.
Question 4: What does 'address derivation' mean in a hierarchical deterministic wallet?
- Converting an address from one blockchain format to another
- Mathematically generating child public keys and addresses from a master key using a derivation path (Correct answer)
- Recovering an address from a known transaction hash
- Encrypting an address for secure transmission
Correct answer: Mathematically generating child public keys and addresses from a master key using a derivation path
Address derivation uses a deterministic algorithm (e.g., HMAC-SHA512) to produce a sequence of child keys from a master seed, each at a specific path index.
Question 5: Why is it important to verify a hardware wallet's firmware integrity before use?
- To ensure the device supports the latest cryptocurrencies
- To confirm the firmware has not been tampered with, which could allow key extraction (Correct answer)
- To activate the warranty
- To synchronize the device with the latest blockchain state
Correct answer: To confirm the firmware has not been tampered with, which could allow key extraction
Compromised firmware could silently exfiltrate private keys or modify transaction details, so verifying cryptographic signatures on firmware prevents supply-chain attacks.
Question 6: What is a 'sweep' operation in cryptocurrency wallet management?
- Deleting old transaction records from the wallet
- Transferring all funds from one wallet (e.g., a paper wallet) to a new wallet by spending the entire balance (Correct answer)
- Scanning the blockchain for new incoming transactions
- Consolidating UTXOs to reduce future transaction fees
Correct answer: Transferring all funds from one wallet (e.g., a paper wallet) to a new wallet by spending the entire balance
Sweeping moves the entire balance out of a source address into a new wallet, retiring the old private key after use.
Question 7: Which standard defines the script types (Legacy, SegWit, Native SegWit) encoded in BIP44/49/84 derivation paths?
- BIP32
- BIP173
- BIP84 for Native SegWit (bech32), BIP49 for P2SH-SegWit, BIP44 for Legacy (Correct answer)
- BIP141
Correct answer: BIP84 for Native SegWit (bech32), BIP49 for P2SH-SegWit, BIP44 for Legacy
BIP44 covers Legacy (P2PKH), BIP49 covers wrapped SegWit (P2SH-P2WPKH), and BIP84 covers Native SegWit (P2WPKH/bech32), each with distinct derivation paths.
Cryptocurrency Wallets and Key Management 4
What is 'key sharding' in the context of wallet security?