Cryptoasset Anti-Financial Crime Specialist (CCAS) Certification Practice Test

What kind of wallets may pose a higher risk for cryptoasset laundering?

1. Hosted wallets

2. Cold storage wallets

3. Multisig wallets

4. Unhosted wallets

The correct answer is: Unhosted wallets

Unhosted wallets, also known as non-custodial wallets, are often seen as posing a higher risk for cryptoasset laundering due to the nature of how these wallets operate. In unhosted wallets, users maintain complete control over their private keys and funds, making it challenging for authorities to trace transactions effectively. This decentralization and lack of oversight can facilitate illicit activities, including money laundering, as users can conduct transactions without the scrutiny of a third party. These wallets do not require identity verification or know-your-customer (KYC) practices, which are commonly implemented by hosted wallets. The reduced traceability can make it easier for individuals to swap coins, obfuscate the origin of funds, and transfer them peer-to-peer without tracking, attracting those looking to launder proceeds from criminal activities. In contrast, hosted wallets typically involve a third party managing the user's funds, which generally includes compliance measures that mitigate the risk of money laundering. Cold storage wallets are primarily used to secure cryptoassets offline, making them less viable for regular transactions associated with laundering activities. Multisig wallets, which require multiple signatures to authorize a transaction, enhance security and provide transaction transparency that reduces, rather than increases, laundering risk. Overall, the inherent characteristics of un