Cryptocurrency Wallets and Security 3 — Questions and Answers
Question 1: What is a multisignature (multisig) wallet?
- A wallet that stores multiple cryptocurrencies simultaneously
- A wallet requiring multiple private key signatures to authorize a transaction (Correct answer)
- A wallet backed up across multiple cloud services
- A wallet that generates a new address for every transaction
Correct answer: A wallet requiring multiple private key signatures to authorize a transaction
Multisig wallets require M-of-N key holders to sign before funds can be moved, reducing single points of failure.
Question 2: Which scenario best describes a '2-of-3' multisig setup?
- Two wallets share one private key and a third backup
- Any two of three designated keys must sign to spend funds (Correct answer)
- Three keys sign first, then two confirmations are needed on-chain
- Two hardware wallets plus one software wallet are required simultaneously
Correct answer: Any two of three designated keys must sign to spend funds
In a 2-of-3 multisig, at least two of the three authorized private keys must provide signatures to approve any transaction.
Question 3: What is a 'watch-only' wallet?
- A wallet that monitors network fees but cannot send
- A wallet containing only a public key or address to track balances without spending ability (Correct answer)
- A read-only copy of a hardware wallet's screen output
- A wallet used exclusively for staking rewards
Correct answer: A wallet containing only a public key or address to track balances without spending ability
Watch-only wallets hold public keys or addresses to monitor incoming transactions and balances without storing private keys, preventing unauthorized spending.
Question 4: What is clipboard hijacking in the context of cryptocurrency transactions?
- Copying a seed phrase to an insecure notes app
- Malware that replaces a copied wallet address with an attacker's address (Correct answer)
- An exchange hack that intercepts withdrawal requests
- A phishing site that mirrors a legitimate exchange interface
Correct answer: Malware that replaces a copied wallet address with an attacker's address
Clipboard hijacking malware monitors the clipboard and silently replaces any cryptocurrency address the user copies with the attacker's address.
Question 5: Why should a seed phrase never be stored as a screenshot or photo on a smartphone?
- Photos degrade QR code accuracy over time
- Cloud backups and malware can expose the image to attackers (Correct answer)
- The camera cannot capture all 24 words in a single shot
- Smartphone screens are too small to display all words clearly
Correct answer: Cloud backups and malware can expose the image to attackers
Photos auto-sync to cloud storage and can be accessed by malware or data breaches, exposing the seed phrase to remote attackers.
Question 6: What is the purpose of Shamir's Secret Sharing when applied to cryptocurrency wallet backups?
- Encrypting a private key with a password
- Splitting a secret into multiple shares where a threshold is needed to reconstruct it (Correct answer)
- Distributing small amounts of crypto across many wallets
- Generating deterministic addresses from a master key
Correct answer: Splitting a secret into multiple shares where a threshold is needed to reconstruct it
Shamir's Secret Sharing divides a secret into N shares so that any M of them can reconstruct the original, with no single share revealing the secret.
Question 7: Which feature distinguishes a deterministic (HD) wallet from a non-deterministic wallet?
- HD wallets require an internet connection to generate addresses
- All keys are derived from a single master seed, enabling easy backup and restoration (Correct answer)
- HD wallets store funds on the blockchain rather than locally
- Non-deterministic wallets use stronger encryption algorithms
Correct answer: All keys are derived from a single master seed, enabling easy backup and restoration
Hierarchical Deterministic wallets derive all key pairs from one seed, so backing up that seed restores every address and private key ever generated.
Cryptocurrency Wallets and Security 3
What is a multisignature (multisig) wallet?