A user is considering using a 'brain wallet' — a wallet where the private key is derived from a passphrase the user memorizes. The user wants to avoid writing anything down. What is the primary security drawback of this approach?

Brain wallets are illegal in most jurisdictions

Brain wallets generate public keys that are not compatible with standard blockchain addresses

Human-memorable passphrases typically have low entropy and are vulnerable to dictionary and brute-force attacks

Brain wallets cannot be used with hardware wallets

A financial institution must comply with a regulation that requires it to demonstrate control over private keys used in a blockchain-based asset service. The institution currently uses a custodial wallet provided by a third-party exchange. What is the most direct compliance concern?

The custodial wallet will automatically report all transactions to the regulator

The institution may not be able to prove it has exclusive control over the private keys

The custodial wallet is illegal under all data protection laws

The custodial wallet cannot be used for any regulated financial activity

A company's treasury department uses a 3-of-5 multi-signature wallet. Two key holders are based in the same office, and the other three are remote. The company wants to reduce the risk of a single physical breach compromising multiple keys, while also ensuring that the wallet remains operable if one remote key holder is unreachable for an extended period. Which change is the most appropriate?

Move all keys to a single hardware wallet with a shared PIN

Change to a 2-of-3 wallet with keys held by the two co-located holders and one remote holder

Keep the 3-of-5 configuration but ensure the two co-located key holders store their keys in separate physical locations

Change to a 5-of-5 wallet so all keys are required

A company operates a blockchain node that signs blocks with a hot key. The security team wants to reduce the risk if the hot key is compromised. Which approach is the most effective?

Disable all logging of signing activity

Store the hot key in a plaintext file on the node's filesystem

Share the hot key among all node operators for convenience

Use a separate key for each signing session and rotate keys regularly

EC-CouncilBlockchain Business Leader Certification

Domain 2Objective 3

Blockchain Wallets and Key Management Techniques BBLC Practice Questions (Page 8)

Part of the Cryptography and Security in Blockchain domain, which makes up ~13% of our current practice bank.

49questions here

10free pages

8concepts

Questions 36–40

36application · medium
A user is considering using a 'brain wallet' — a wallet where the private key is derived from a passphrase the user memorizes. The user wants to avoid writing anything down. What is the primary security drawback of this approach?
Select an answer first
37application · medium
A financial institution must comply with a regulation that requires it to demonstrate control over private keys used in a blockchain-based asset service. The institution currently uses a custodial wallet provided by a third-party exchange. What is the most direct compliance concern?
Select an answer first
38expert · hard
A company's treasury department uses a 3-of-5 multi-signature wallet. Two key holders are based in the same office, and the other three are remote. The company wants to reduce the risk of a single physical breach compromising multiple keys, while also ensuring that the wallet remains operable if one remote key holder is unreachable for an extended period. Which change is the most appropriate?
Select an answer first
39application · medium
A company operates a blockchain node that signs blocks with a hot key. The security team wants to reduce the risk if the hot key is compromised. Which approach is the most effective?
Select an answer first
40foundation · easy
Which type of wallet stores private keys on the user's own device, such as a mobile phone or desktop computer, and gives the user direct control over the keys?
Select an answer first

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Blockchain Wallets and Key Management Techniques BBLC Practice Questions (Page 8)

Questions 36–40

A user is considering using a 'brain wallet' — a wallet where the private key is derived from a passphrase the user memorizes. The user wants to avoid writing anything down. What is the primary security drawback of this approach?

A financial institution must comply with a regulation that requires it to demonstrate control over private keys used in a blockchain-based asset service. The institution currently uses a custodial wallet provided by a third-party exchange. What is the most direct compliance concern?

A company operates a blockchain node that signs blocks with a hot key. The security team wants to reduce the risk if the hot key is compromised. Which approach is the most effective?

Which type of wallet stores private keys on the user's own device, such as a mobile phone or desktop computer, and gives the user direct control over the keys?

Keep studying — Cryptography and Security in Blockchain