CCE Wallets and Asset Security 4 — Questions and Answers
Question 1: What cryptographic primitive does Bitcoin use to generate a public key from a private key?
- RSA multiplication on prime fields
- Elliptic Curve Multiplication on secp256k1 (Correct answer)
- SHA-256 hashing
- AES-256 symmetric encryption
Correct answer: Elliptic Curve Multiplication on secp256k1
Bitcoin uses elliptic curve point multiplication on the secp256k1 curve—a one-way operation that derives a public key from a private key.
Question 2: What is the recommended practice when receiving a hardware wallet as a gift or from an unknown seller?
- Use it immediately as the factory seal guarantees integrity
- Factory reset it and generate a new seed before use (Correct answer)
- Contact the manufacturer to verify the serial number online
- Only use it for small amounts to test its legitimacy
Correct answer: Factory reset it and generate a new seed before use
Any pre-owned or suspect hardware wallet should be fully reset and a new seed generated on the device to eliminate any pre-loaded backdoors.
Question 3: Which protocol allows a hardware wallet to sign a transaction without exposing the private key to the connected computer?
- SSL/TLS key exchange
- Blind signing via secure element isolation (Correct answer)
- Zero-knowledge proof verification
- Diffie-Hellman key agreement
Correct answer: Blind signing via secure element isolation
Hardware wallets use a secure element that performs all signing internally; only the signature (not the key) is returned to the host computer.
Question 4: What is 'transaction malleability' and which upgrade largely addressed it in Bitcoin?
- Double-spending via mempool manipulation; fixed by SegWit
- Altering a transaction's unique identifier before confirmation; fixed by SegWit (Correct answer)
- Inflating transaction fees retroactively; fixed by Taproot
- Reordering outputs in a signed transaction; fixed by BIP-32
Correct answer: Altering a transaction's unique identifier before confirmation; fixed by SegWit
Transaction malleability allowed third parties to alter a transaction's txid before confirmation; Segregated Witness (SegWit) separated signature data and resolved this.
Question 5: When setting up a multisig wallet, why is backing up each co-signer's extended public key (xpub) critical?
- xpubs are needed to regenerate the multisig redeem script for recovery (Correct answer)
- xpubs allow spending without the private keys in emergencies
- xpubs encrypt the seed phrase on each device
- xpubs are required for hardware wallet firmware verification
Correct answer: xpubs are needed to regenerate the multisig redeem script for recovery
To recover a multisig wallet, you need the redeem script which requires all co-signers' xpubs; losing one makes funds inaccessible even with enough private keys.
Question 6: What does 'coin control' allow a wallet user to do?
- Freeze assets on a DeFi protocol
- Manually select which UTXOs are used as inputs in a transaction (Correct answer)
- Set a maximum gas fee for Ethereum transactions
- Lock coins for a fixed staking period
Correct answer: Manually select which UTXOs are used as inputs in a transaction
Coin control lets users choose specific UTXOs as transaction inputs, improving privacy and fee management by avoiding consolidation of unrelated funds.
Question 7: Which of the following best describes a 'hot wallet' risk that a cold wallet eliminates?
- Hot wallets cannot support multi-signature schemes
- Hot wallets expose private keys to internet-connected environments (Correct answer)
- Hot wallets charge higher transaction fees
- Hot wallets are incompatible with hardware 2FA devices
Correct answer: Hot wallets expose private keys to internet-connected environments
Hot wallets keep keys in software on internet-connected devices, making them vulnerable to remote exploits; cold wallets keep keys offline.
CCE Wallets and Asset Security 4
What cryptographic primitive does Bitcoin use to generate a public key from a private key?