Security and Regulatory Issues Flashcards
7 cards from real CBP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Security and Regulatory Issues flashcards as text
What is a BIP-39 seed phrase and why is its security critical?
Answer: A mnemonic phrase that can regenerate all keys in an HD wallet, representing full wallet access
A BIP-39 mnemonic encodes a wallet's master seed, allowing complete recovery of all derived private keys — anyone who obtains it controls all associated funds.
What is 'transaction malleability' and which upgrade largely resolved it for Bitcoin?
Answer: The ability to alter a transaction's ID without changing its content; largely resolved by SegWit
Transaction malleability allowed third parties to alter a transaction's TXID before confirmation; SegWit moved signature data outside the TXID calculation, largely eliminating this.
Which global standard-setting body issues recommendations on virtual asset regulation that many countries adopt?
Answer: Financial Action Task Force (FATF)
FATF is the intergovernmental body that sets global AML/CFT standards, including the Virtual Assets guidance and Travel Rule that jurisdictions worldwide implement.
What security property does a m-of-n multisignature wallet provide?
Answer: It requires m signatures from n possible keyholders to authorize a transaction
Multisig requires a quorum of m keys from a predefined set of n to sign a transaction, eliminating single points of failure and enabling shared custody.
What does KYC stand for and why do regulated exchanges require it?
Answer: Know Your Customer — to verify user identity and comply with AML regulations
KYC (Know Your Customer) requires exchanges to verify user identities using government-issued IDs, fulfilling AML obligations by ensuring they know who they are serving.
What is a 'timelock' (nLockTime) in Bitcoin and how can it enhance security?
Answer: A constraint that prevents a transaction from being included in a block until a specified block height or time
nLockTime allows a transaction to be pre-signed but held back from broadcasting until a future block height or Unix timestamp, enabling vaults, escrows, and inheritance schemes.
Which type of exchange hack exploits compromised hot wallet private keys to drain funds?
Answer: Hot wallet breach
Hot wallet breaches — where attackers obtain private keys for internet-connected wallets — account for the majority of large exchange thefts, such as the Mt. Gox and Bitfinex incidents.