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

What type of wallet allows reduced transparency and supports the emergence of activities like initial coin offerings?

1. Cold

2. Privacy

3. Multisig

4. Hardware

The correct answer is: Privacy

The type of wallet that allows for reduced transparency and supports activities such as initial coin offerings (ICOs) is a privacy wallet. Privacy wallets prioritize user anonymity and transaction confidentiality, making it difficult for external observers to track the flow of funds. They often use techniques like coin mixing or stealth addresses to obscure transaction details from public view. This attribute of reduced transparency can be advantageous in contexts such as ICOs, where participants may prefer to keep their investment actions private. By utilizing a privacy wallet, investors can engage in ICOs without revealing their financial activities to the public or other entities on the blockchain. This heightened level of discretion is a key reason why privacy wallets are considered valuable in the cryptocurrency ecosystem. Cold wallets, also known as cold storage, refer to wallets that are not connected to the internet and are typically used for secure storage rather than for transaction purposes. Multisig wallets require multiple private keys to authorize a transaction, enhancing security but not necessarily impacting transparency in the same way privacy wallets do. Hardware wallets are physical devices that secure private keys offline and provide a high level of security against online threats, but they do not primarily focus on transaction confidentiality or reduced transparency.