Quiz: Digital Wallets and Identity

1. A private key in cryptocurrency is analogous to:

Your email addressThe password to a bank vault that proves ownership and authorizes transactionsA receipt for a purchaseYour account balance

Your private key is the cryptographic proof that you control an address. Anyone with the private key can move the funds. It must never be shared. The public key (derived from the private key) is like your account number, safe to share for receiving funds.

2. Self-custody means:

Storing crypto on an exchange like CoinbaseYou personally hold and control your private keys without relying on a third partyThe government holds your assets for safekeepingUsing a bank to store cryptocurrency

Self-custody means you alone control the private keys. No exchange, bank, or third party can freeze, seize, or lose your funds. The tradeoff: if you lose your keys, no one can recover them for you. 'Not your keys, not your coins.'

3. A seed phrase (recovery phrase) is:

A password you choose for your exchange accountA series of 12-24 words that can regenerate all private keys in a wallet if the device is lostThe name of your wallet applicationA two-factor authentication code

A seed phrase is a human-readable backup of your wallet's master key. From those 12-24 words, every private key in the wallet can be regenerated. It should be stored offline (written on paper or metal) and never entered on a website or shared with anyone.

4. Custodial wallets (like exchange accounts) differ from self-custody because:

They are always more secureA third party holds the private keys, meaning they ultimately control your assetsThey cannot be hackedThey offer better interest rates

When you hold crypto on an exchange, the exchange holds the private keys. They can freeze your account, get hacked (Mt. Gox, FTX), or go bankrupt. You have a claim against the company, not direct control of the underlying assets.

Back to lesson Next lesson →