Cryptocurrency Wallets and Security 4 — Questions and Answers
Question 1: What is a 'dusting attack' in cryptocurrency security?
- Sending large amounts of crypto to overwhelm a wallet
- Sending tiny amounts of crypto to wallets to track and de-anonymize owners (Correct answer)
- Corrupting wallet software with malicious transaction data
- Flooding the mempool with zero-fee transactions
Correct answer: Sending tiny amounts of crypto to wallets to track and de-anonymize owners
Attackers send dust (tiny amounts) to many addresses; when users spend that dust, it links their addresses together, enabling identity analysis.
Question 2: What does 'air-gapped' mean when describing a wallet's security model?
- The wallet encrypts data using AES-256
- The device has never been connected to the internet or any network (Correct answer)
- The wallet uses a satellite connection instead of Wi-Fi
- The private key is stored in the cloud with no local copy
Correct answer: The device has never been connected to the internet or any network
An air-gapped device is physically isolated from all networks, making remote attacks impossible since there is no communication pathway for attackers.
Question 3: What security risk does a malicious browser extension pose to a software wallet?
- It can slow down transaction broadcast times
- It can read browser memory and steal private keys or seed phrases (Correct answer)
- It increases network fees by adding unnecessary data
- It prevents the wallet from syncing with the blockchain
Correct answer: It can read browser memory and steal private keys or seed phrases
Browser extensions have access to page content and JavaScript memory, allowing malicious ones to extract private keys or intercept seed phrases as they are displayed.
Question 4: Which of the following is the safest way to verify a hardware wallet's firmware authenticity?
- Check the version number matches any online listing
- Verify the cryptographic signature of the firmware against the manufacturer's public key (Correct answer)
- Confirm the device looks identical to product photos
- Run a speed test to ensure the chip performs within spec
Correct answer: Verify the cryptographic signature of the firmware against the manufacturer's public key
Manufacturers sign firmware releases with their private key; verifying the signature against the known public key ensures the firmware is genuine and untampered.
Question 5: What is a 'SIM swap attack' and how does it threaten crypto wallets?
- Physically swapping SIM cards between phones to clone a wallet
- Socially engineering a carrier to transfer a phone number to the attacker's SIM, bypassing SMS 2FA (Correct answer)
- Installing malware via a Bluetooth connection using a nearby SIM-enabled device
- Exploiting NFC on a phone to extract wallet data remotely
Correct answer: Socially engineering a carrier to transfer a phone number to the attacker's SIM, bypassing SMS 2FA
Attackers convince a mobile carrier to reassign a victim's number to their SIM, then use SMS-based two-factor authentication to take over exchange accounts and wallets.
Question 6: What does BIP44 define in the context of HD wallets?
- The encryption standard for private key storage
- A hierarchical path structure for deriving keys across multiple coins and accounts (Correct answer)
- The format for encoding seed phrases as mnemonic words
- The minimum transaction fee policy for wallet software
Correct answer: A hierarchical path structure for deriving keys across multiple coins and accounts
BIP44 specifies a multi-level derivation path (purpose/coin/account/change/index) enabling a single HD wallet to manage keys for many blockchains and accounts.
Question 7: Why is it important to test wallet recovery with a seed phrase before storing large amounts of crypto?
- Testing locks the seed phrase to that specific wallet version
- It confirms the seed phrase is correctly recorded and the recovery process works before funds are at risk (Correct answer)
- Blockchain networks require a test transaction to activate a new seed
- Testing triggers a mandatory 24-hour security waiting period
Correct answer: It confirms the seed phrase is correctly recorded and the recovery process works before funds are at risk
Errors in recording a seed phrase (missed words, wrong order) are only discovered at recovery time; testing beforehand prevents permanent fund loss.
Cryptocurrency Wallets and Security 4
What is a 'dusting attack' in cryptocurrency security?