Certified Bitcoin Professional Practice Exam

What is a drawback of web-based wallets compared to cold wallets?

1. They require no private keys

2. They are accessible from any device

3. Private keys must be stored on an internet-connected machine

4. They allow unlimited transactions

The correct answer is: Private keys must be stored on an internet-connected machine

Web-based wallets, also known as hot wallets, operate by storing private keys on servers connected to the internet. This design inherently exposes private keys to a greater risk of theft because they can be accessed by malicious actors via various online threats, such as hacking or phishing attacks. In contrast, cold wallets keep private keys offline, offering enhanced security against unauthorized access. The accessibility of online wallets from any device is a significant advantage, allowing users to quickly exchange or manage their Bitcoin. However, this convenience comes at the cost of security, which is why the correct answer highlights that private keys are indeed stored on an internet-connected machine. This factor underscores the vital trade-off between convenience and security in the world of Bitcoin wallets. The other options do not capture the inherent risks associated with web-based wallets since they either represent advantages or are not accurately describing web wallets' relationship with private keys.