Blockchain and Crypto Cryptocurrency Trading & Wallets 1 — Questions and Answers
Question 1: What is a hot wallet?
- A wallet that overheats under heavy use
- A cryptocurrency wallet that is connected to the internet (Correct answer)
- A physical hardware storage device
- A paper-based key backup
Correct answer: A cryptocurrency wallet that is connected to the internet
A hot wallet is a cryptocurrency wallet that remains connected to the internet, offering convenience for frequent transactions but with greater exposure to security risks.
Question 2: What is a cold wallet (cold storage)?
- A wallet kept in a physically cold environment
- An offline cryptocurrency storage solution that keeps private keys disconnected from the internet (Correct answer)
- A mobile app wallet
- A custodial exchange wallet
Correct answer: An offline cryptocurrency storage solution that keeps private keys disconnected from the internet
A cold wallet is an offline cryptocurrency storage solution that keeps private keys disconnected from the internet, providing superior security against online threats.
Question 3: What is a seed phrase (mnemonic phrase) in cryptocurrency?
- A password used to log into an exchange
- A sequence of 12 or 24 words used to recover a crypto wallet and its private keys (Correct answer)
- A type of transaction identifier
- An encrypted public/private key pair
Correct answer: A sequence of 12 or 24 words used to recover a crypto wallet and its private keys
A seed phrase is a sequence of 12 or 24 words generated by a wallet that can recover all associated private keys and funds if a device is lost.
Question 4: What is a custodial cryptocurrency wallet?
- A wallet that stores multiple cryptocurrencies
- A wallet where a third party holds the private keys on behalf of the user (Correct answer)
- A hardware security device
- A multisignature wallet
Correct answer: A wallet where a third party holds the private keys on behalf of the user
A custodial wallet is one where a third party such as an exchange holds the private keys on the user's behalf, meaning the user lacks direct control over their funds.
Question 5: What is a multi-signature (multisig) wallet?
- A wallet supporting multiple cryptocurrencies
- A wallet requiring multiple private key signatures to authorize a transaction (Correct answer)
- A wallet with multiple public addresses
- A shared account on a centralized exchange
Correct answer: A wallet requiring multiple private key signatures to authorize a transaction
A multi-signature wallet requires a predefined number of private key signatures (e.g., 2-of-3) to authorize a transaction, enhancing security for high-value crypto holdings.
Question 6: What does the phrase 'not your keys, not your coins' mean?
- Sharing private keys with trusted parties is acceptable
- Without direct control of your private keys, you do not truly own your cryptocurrency (Correct answer)
- Hardware wallets are legally required for crypto ownership
- Exchange wallets provide stronger security than self-custody
Correct answer: Without direct control of your private keys, you do not truly own your cryptocurrency
'Not your keys, not your coins' means that without controlling your own private keys, you don't have true ownership of your cryptocurrency and rely on a third party.
Blockchain and Crypto Cryptocurrency Trading & Wallets 1
What is a hot wallet?