CCAS Certification Flashcards

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Questions and Answers

What are blockchain analytical tools?

De-anonymizing technology that analyzes and traces transactions on the blockchain.

Which is a known financial crime risk factor associated with cryptoassets?

Stability

Traceability

Convertibility (correct)

Credibility

Risks relevant to the originator of a transaction and the beneficiary of funds that are linked to a high-risk jurisdiction are known as:

Geographical risks (correct)

Anonymity risks

Transactional risks

Source of funds risks

Which cryptoasset exchange poses the greatest risk of money laundering?

An individual peer-to-peer exchanger who accepts cash for cryptoassets Signup and view all the answers

What illicit activity is likely indicated by larger-than-normal virtual asset deposits with an unknown source, followed by conversion to fiat currency?

Money laundering Signup and view all the answers

What is the most important consideration for ongoing AML and sanctions risk management of a DAO's governance token?

Whether the token is built on an anonymous or pseudonymous blockchain Signup and view all the answers

What would be the expected improvement from a supervisory authority analyzing a VASP's AML policies?

Screening customer and counterparty wallet addresses against blacklisted addresses. Signup and view all the answers

Which method is most commonly used to add new stablecoins into circulation?

Minting through fiat currency Signup and view all the answers

In blockchain technology, consensus mechanisms are best described as:

Algorithms that help blockchains synchronize data and remain secure. Signup and view all the answers

Which is a key characteristic of a decentralized application?

No owners Signup and view all the answers

An analyst is reviewing an Ethereum (ETH) address and observes an approval transaction. Which activity did the user of the ETH address most likely complete?

Gave permission for a contract to access the balance Signup and view all the answers

Which hypothetical situation would best support the investigator's suspicions of narcotics sales?

The suspect's business account history shows incoming wire transfers from overseas locations known for producing fentanyl. Signup and view all the answers

Which type of wallet is known for allowing reduced transparency as well as the emergence of other virtual asset business models or activities, such as initial coin offerings?

Privacy Signup and view all the answers

What heuristic should be used to cluster the input addresses in a Bitcoin transaction with many input addresses and one recipient address?

Common spend Signup and view all the answers

What is the goal of address clustering?

Aggregating addresses into groups that include addresses connected to one entity. Signup and view all the answers

The technique of using blockchain analytics to determine whether a Bitcoin address is part of a larger wallet is called:

Address clustering Signup and view all the answers

BTCs cannot be reversed, canceled, or charged back.

True Signup and view all the answers

Which functions fall under the current definition of a virtual asset service provider? (Select Two.)

Conducting exchanges between one or more forms of virtual asset Signup and view all the answers

All transactions by a decentralized Bitcoin cryptocurrency mixer are conducted jointly between the participants.

True Signup and view all the answers

Which is a disadvantage of using an unspent transaction output ledger model as the basis of a virtual asset?

Complexity of computation Signup and view all the answers

What does each UTXO represent?

A specific amount of cryptocurrency that can be spent by the owner of the private key associated with it. Signup and view all the answers

The UTXO model is simpler to compute than the account/balance model.

False Signup and view all the answers

What is one function provided by a blockchain oracle?

Posting real-time USD/ETH prices. Signup and view all the answers

Which type of virtual asset storage is considered most secure?

Hardware wallet Signup and view all the answers

How should a financial institution manage AML obligations related to a protocol?

It is permitted to delegate the implementation of AML obligations. Signup and view all the answers

What is true about network vulnerabilities in terms of technology attacks?

A smaller network is easier to attack successfully than a larger one if additional countermeasures are not built into the system. Signup and view all the answers

Data privacy, regulatory, jurisdiction, and dispute resolution risks associated with blockchain are known as?

Legal risks Signup and view all the answers

When does using a send as opposed to a transfer function in a smart contract create vulnerability?

If the external address is a smart contract Signup and view all the answers

Which two factors contribute to vulnerabilities existing in smart contract software?

Smart contracts are purposefully constructed with minor flaws. Signup and view all the answers

How does the Lightning Network operate?

It uses smart contracts to establish off-blockchain payment channels between pairs of users. Signup and view all the answers

What is the potential identity of the cryptocurrency address involved in artificial price pumping of NFTs?

The original NFT artist receiving a royalty payment. Signup and view all the answers

Which type of transaction is most secure?

Smart contract Signup and view all the answers

What is the primary goal of using smart contracts on a blockchain?

To simplify business and trade between both anonymous and identified parties, sometimes without the need for a middleman. Signup and view all the answers

What is a limitation of a smart contract?

Legal enforcement Signup and view all the answers

What are trusted third-party providers of off-chain data to smart contracts called?

Oracles. Signup and view all the answers

Which activity indicates potential smurfing?

A customer makes multiple fiat deposits at a cryptoasset ATM each day up to the standard deposit limit or at frequent intervals. Signup and view all the answers

What is the scheme described when a fraudster convinces a customer to accept a wire transfer and then forward it?

A money mule. Signup and view all the answers

What is the most crucial step mixers and tumblers perform to hide the origin of funds?

Change the amounts of the tumbled funds from the initial amount that was sent. Signup and view all the answers

What key benefit does cryptoasset tracing provide to investigators?

Investigators can use tracing to follow and identify patterns in the flow of funds. Signup and view all the answers

Which statement accurately describes a hosted wallet?

It is controlled by the user and a virtual asset service provider (VASP). Signup and view all the answers

Who stores the encrypted private keys with a cloud wallet?

The service provider. Signup and view all the answers

What does the first transaction in a new block show?

A payment to the miner for validating transactions. Signup and view all the answers

What should you do if you forget your login credentials on an online self-hosted wallet?

Use your recovery phrase to recover your wallet. Signup and view all the answers

What is the best description of block halving?

When new cryptocurrency coin issuance is reduced by half. Signup and view all the answers

A pseudonymous cryptocurrency has which characteristic?

Identities of users cannot be revealed. Signup and view all the answers

Which feature is true of cryptoasset trading?

It operates 24 hours a day, 7 days a week. Signup and view all the answers

What is the best description of clustering?

When more than one cryptocurrency address is used in a transaction input and can reliably and with high probability be grouped into a single owner's wallet. Signup and view all the answers

Which statement about coin tracing is correct?

It is possible to trace cryptocurrency transactions past exchanges using paid blockchain software analytic tools. Signup and view all the answers

Which financial institution or organization would bear the liability of offering sovereign cryptocurrencies to the public?

Central bank Signup and view all the answers

What triggered the creation of Bitcoin?

A loss of trust in the banking sector following the 2008 economic crisis. Signup and view all the answers

Which circumstances should a compliance officer consider as part of a review of a bank's smart contracts in the lending division?

The lending protocol was launched by a publicly known group. Signup and view all the answers

Which are the most critical risk factors relating to a decentralized finance project or smart contract?

Concentration of governance tokens Signup and view all the answers

Which red flags would lead the VASP to file a suspicious activity report? (Select Two)

The majority of the funds were converted and traded in cryptocurrency within 24 hours of the deposit. Signup and view all the answers

According to the Financial Action Task Force, which red flag is most indicative of an attempt to conceal the source of funds?

A single transfer of cryptoassets from a coin mixing service Signup and view all the answers

Virtual asset red flags stem from factual characteristics, behaviors, patterns, and contextual factors.

True Signup and view all the answers

What is the primary purpose of money laundering?

To make criminally derived property or funds appear to be legitimate Signup and view all the answers

Why do criminals divide their total profits into smaller parts?

To avoid the generation of an alert Signup and view all the answers

Which of the following is a feature of terrorist financing?

The money is not necessarily derived from illicit proceeds Signup and view all the answers

Which method of sanctions evasion uses the technique of transshipment?

Trade Signup and view all the answers

Which sanctions evasion technique involves removing key identifying information from payment messages?

Stripping Signup and view all the answers

Which of the following is an indicator of fraud?

You are asked to provide financial information on the phone Signup and view all the answers

Which factor about a cryptocurrency investment firm is considered a red flag?

No registration with regulator or financial intelligence unit Signup and view all the answers

Some industries are at higher risk for bribery than others, especially those in which commercial success is driven by getting approval from government entities.

True Signup and view all the answers

Which of the following is an example of tax avoidance?

Contributing to a retirement account with pre-tax salary Signup and view all the answers

Which type of cybercrime involves receiving a legitimate-appearing email asking for your login credentials?

Phishing Signup and view all the answers

In the case of a medium risk customer who quickly transfers virtual assets after a deposit, which red flags are most relevant? (Select Two)

The assets have been transferred to a VASP that represents increased risk Signup and view all the answers

What activity is unique to investigators at cryptoasset firms compared to non-cryptoasset firms?

Blockchain forensics Signup and view all the answers

What are the three lines of defense for managing AML risk for virtual asset service providers? (Select Three)

Internal audit Signup and view all the answers

Which factors are red flags for a known crypto-related typology? (Select Two)

Crypto used is cashed out at an exchange providing access to privacy coins Signup and view all the answers

How could non-fungible tokens (NFTs) be vulnerable to financial crime?

NFTs purchased using tainted funds can create false sales records Signup and view all the answers

Which situation indicates a high risk of tax evasion using cryptoassets?

A business receives payment in crypto but does not reference it Signup and view all the answers

Which internationally recognized guidelines have improved transparency of cryptoassets?

Organization for Economic Co-operation and Development Common Reporting Standards Signup and view all the answers

Cybercriminals exploit targets for cryptocurrency crimes by misrepresenting what?

Smart contracts Signup and view all the answers

Per the Financial Action Task Force's Recommendation 10, what is the threshold for occasional transactions for virtual asset service providers?

US$1,000 Signup and view all the answers

Which non-governmental body published guidance for risk management frameworks?

The Wolfsberg Group Signup and view all the answers

Regarding negative media coverage, what is the most significant reputational risk outcome for a bank fined for AML failures?

Customers and investors may leave or avoid the bank Signup and view all the answers

Which type of risk can result in the loss of a company's standing due to public failures in AML compliance?

Reputational risk Signup and view all the answers

What is a de-anonymizing technology that can help lower money laundering risk?

Blockchain forensics Signup and view all the answers

Which factor is most impactful to a virtual asset service provider's risk appetite?

Company policy Signup and view all the answers

Which illicit activity does this transaction monitoring alert most likely indicate?

Money laundering Signup and view all the answers

How could non-fungible tokens (NFTs) be vulnerable to financial crime?

NFTs purchased using tainted funds can be sold and repurchased by criminals to create seemingly legitimate sales records on the blockchain. Signup and view all the answers

What is an altcoin?

Any cryptocurrency that is not Bitcoin Signup and view all the answers

An initial coin offering (ICO) of utility tokens provides which incentive to investors?

Future redemption for products or services Signup and view all the answers

What is the main difference between asset-backed stablecoins and algorithmic stablecoins?

Pegging mechanism Signup and view all the answers

How are central bank digital currencies (CBDCs) different from stablecoins?

CBDCs hold legal tender status. Signup and view all the answers

Which business model would be considered a virtual asset service provider (VASP) under FATF's definition?

A corporation that offers the safekeeping of cryptoassets as its main product Signup and view all the answers

Which statement is true about crypto ATMs?

Potential user benefits include transaction ease, speed, and privacy. Signup and view all the answers

Which one of the following is an advantage of a decentralized exchange (DEX)?

Reduced risk of targeted theft and cybersecurity attacks Signup and view all the answers

Which description applies to a centralized lending platform?

Loss of lender control of assets Signup and view all the answers

Why might regulators focus on virtual asset service providers (VASPs) rather than decentralized finance (DeFi)?

There is no central legal entity in DeFi. Signup and view all the answers

What do decentralized applications (dApps) and decentralized autonomous organizations (DAOs) have in common?

Designed to run autonomously Signup and view all the answers

Which of the following statements is true of the types of blockchains?

Public blockchains are permissionless and non-restrictive. Signup and view all the answers

What does the immutability feature of blockchain mean?

No person can change the information or remove the data. Signup and view all the answers

Which of the following statements is true of the characteristics of cryptoassets?

Some use private and public keys, making them resistant to hacking. Signup and view all the answers

Which of the following statements best describes a miner's role in the blockchain operation?

Validating transactions between senders and receivers Signup and view all the answers

What is the primary benefit of joining a mining pool?

Increased likelihood of earning a reward Signup and view all the answers

Privacy-centered cryptoassets are best described as:

Cryptoassets that show no information about the sender, receiver, or amounts Signup and view all the answers

Why is the Bitcoin network and its native cryptocurrency, Bitcoin, significant in the history of cryptoassets?

Bitcoin is considered to be the first decentralized cryptocurrency. Signup and view all the answers

What is the primary difference between a native cryptocurrency and a token?

Tokens are built on an existing blockchain, whereas cryptocurrency is native to the blockchain. Signup and view all the answers

What does the term 'non-fungible' mean in regard to non-fungible tokens (NFTs)?

NFTs are unique and cannot be exchanged for one another. Signup and view all the answers

What is the most crucial step mixers and tumblers perform to hide the origin of funds?

Change the amounts of the tumbled funds from the initial amount that was sent. Signup and view all the answers

Study Notes

Virtual Asset Service Providers and Risk Appetite

A virtual asset service provider's (VASP) risk appetite is most influenced by company policy.
Employee count, age of business, and corporate branding are other factors but less impactful.

Illicit Activities in Transaction Monitoring

Larger-than-normal deposits from unknown sources followed by fiat conversion typically indicate money laundering.

Vulnerabilities of NFTs

Non-fungible tokens (NFTs) can be manipulated by criminals using tainted funds to create legitimate-looking sales records on the blockchain.

Understanding Altcoins and Tokens

Altcoins refer to any cryptocurrency other than Bitcoin.
Utility tokens provide future redemption for products or services related to the project.

Differences in Stablecoins

Asset-backed stablecoins derive value from collateral, while algorithmic stablecoins' value is determined algorithmically.

Central Bank Digital Currencies (CBDCs) vs. Stablecoins

CBDCs hold legal tender status, unlike stablecoins, which are pegged to external values but lack such status.

FATF Definition of VASPs

VASPs are entities offering safekeeping of cryptoassets as their primary service.

Crypto ATMs

Benefits of crypto ATMs include transaction ease, speed, and privacy, although they are required to collect customer identifying information.

Decentralized Exchanges (DEXs)

DEXs reduce the risk of theft and cybersecurity attacks due to their decentralized nature.

Centralized Lending Platforms

A key characteristic is that borrowers lose control of their assets when depositing into custodial wallets.

Regulatory Focus on VASPs

Regulators often target VASPs instead of DeFi due to DeFi's lack of a central legal entity.

dApps and DAOs

Both decentralized applications (dApps) and decentralized autonomous organizations (DAOs) are designed to operate autonomously.

Characteristics of Blockchains

Public blockchains are permissionless and non-restrictive, allowing open participation, while private blockchains are restricted.

Immutability of Blockchain

Immutability means data recorded on the blockchain cannot be changed or removed, providing security and transparency.

Cryptoassets and Hack Resistance

Many cryptoassets use private and public keys, making them resistant to hacking.

Miners in Blockchain

Miners validate transactions between senders and receivers, leveraging computational power to verify and record transactions on the blockchain.

Mining Pools

Joining mining pools enhances the likelihood of earning rewards by combining resources to tackle mining challenges collaboratively.

Privacy-Centered Cryptoassets

These assets do not disclose sender or receiver information, ensuring user anonymity.

Significance of Bitcoin

Bitcoin is recognized as the first decentralized cryptocurrency, established in 2009, paving the way for future crypto innovations.

Native Cryptocurrencies vs. Tokens

Native cryptocurrencies are inherent to their blockchain, while tokens are built on existing blockchains for various utilities.

Non-Fungible Tokens (NFTs)

NFTs are unique assets that cannot be exchanged on a one-to-one basis, distinguishing them from fungible assets.

Mixers and Tumblers

Mixers obscure the origin of funds by altering amounts during transactions, making it challenging to trace the initial source.

Cryptoasset Tracing

Tracing facilitates the identification of patterns in fund flows, aiding investigators in uncovering illicit activities.

Hosted Wallets

Hosted wallets are controlled jointly by the user and a virtual asset service provider (VASP), blending user control with third-party support.### Hosted Wallets
Hosted wallets, also known as custodial wallets, are managed by both users and a virtual asset service provider (VASP).
VASPs secure and manage users' private keys while validating transactions.
Beginners often prefer hosted wallets for ease of use compared to non-hosted wallets, where users maintain full control over their private keys.

Cloud Wallets

In cloud wallets, encrypted private keys are stored by the service provider on remote servers.
This arrangement poses risks such as vulnerability to hacking and theft.
Cloud wallets are favorable for users seeking third-party management of their digital assets.

Blockchain Transactions

The first transaction in a new blockchain block is called a coinbase transaction, rewarding miners for their validation efforts.
This unique transaction creates new bitcoins and does not contain any inputs.

Recovery of Online Wallets

If login credentials for an online self-hosted wallet are forgotten, users can recover it using a recovery phrase (seed phrase).
Keeping the recovery phrase secure is crucial, as loss of this phrase can prevent access to the wallet.

Block Halving

Block halving reduces the issuance rate of new cryptocurrency coins by half after a specific number of blocks are mined.
This mechanism is designed to control inflation and ensure scarcity, thus increasing value over time.

Pseudonymous Cryptocurrencies

Pseudonymous cryptocurrencies protect user identities but allow transactions to be traced on the blockchain.
While not fully anonymous, they utilize pseudonyms instead of real names.

Cryptoasset Trading

Cryptoasset trading operates continuously, 24/7, across global markets.
This decentralization requires traders to be well-informed of local regulations, as this banking environment varies significantly by region.

Clustering in Blockchain

Clustering involves grouping multiple cryptocurrency addresses used in a single transaction input, indicating they likely belong to a single wallet owner.
This technique helps in blockchain analysis, aiding the identification of fund flows.

Coin Tracing

Cryptocurrency transactions can be traced using analytical tools, providing transparency, although some privacy-focused coins may limit traceability.
Paid blockchain software analytic tools enhance tracing capabilities beyond mere exchanges.

Sovereign Cryptocurrencies

Central banks bear the responsibility and liability for issuing sovereign cryptocurrencies, ensuring stability and security for these government-backed digital currencies.

Creation of Bitcoin

Bitcoin's creation was largely motivated by a decline in trust towards banks following the 2008 financial crisis, emphasizing the need for a decentralized monetary system.

Risk Review of Smart Contracts

Key considerations in evaluating smart contracts include the absence of a code audit and the credibility of the organization behind the lending protocol.

Decentralized Finance Projects Risks

Critical risk factors for decentralized finance (DeFi) projects encompass concentration of governance tokens, existence of admin keys, and potential smart contract failures.

Stablecoin Circulation

New stablecoins commonly enter circulation via minting against fiat currency, maintaining a fixed value in relation to real-world assets.

Consensus Mechanisms

Consensus mechanisms are algorithms that ensure all nodes in a blockchain network synchronize data and maintain security, aiding in transaction validation and preventing double-spending.

Decentralized Applications (dApps)

dApps operate without ownership or central authority, utilizing peer-to-peer networks and smart contracts for transaction processing, emphasizing transparency and lack of censorship.### Decentralized Applications (dApps)
dApps run on a blockchain and utilize open-source code.
Operate autonomously through smart contracts.
Characterized by the absence of ownership, signifying decentralization.

Ethereum Approval Transactions

Approval transactions grant smart contracts permission to access user balances.
These transactions are crucial for decentralized finance (DeFi) applications.
Users must provide explicit permission for smart contracts to spend tokens.

Investigative Context in Cryptoasset Transactions

Suspicion of drug sales on the dark web can be substantiated by financial patterns.
Incoming wire transfers from known drug-producing locations strengthen suspicions.
Other testimonies or financial behaviors are less directly indicative of illicit activities.

Privacy Wallets in Cryptocurrency

Privacy wallets reduce transaction transparency and support various virtual asset activities.
Particularly facilitate operations like initial coin offerings (ICOs).

Bitcoin Address Clustering

Common spend clustering identifies input addresses linked to a single entity.
Useful for analyzing transaction graphs and detecting patterns indicative of controlled entities.

Goals of Address Clustering

Aggregates addresses related to a single entity, aiding in the identification of illicit behavior.
Enhances the accuracy of anti-money laundering (AML) risk assessments.

Techniques in Cryptocurrency Analysis

Address clustering helps determine if an address belongs to a larger wallet by analyzing transaction patterns.
Helps in identifying illicit financial activities through grouped addresses.

Bitcoin Transaction Characteristics

Bitcoin transactions are irreversible once confirmed and cannot be canceled.
Transactions require possession of a private key to be executed.
Bitcoin can be subdivided into smaller units, specifically satoshis.

Functions of Virtual Asset Service Providers (VASPs)

Facilitate transactions between virtual assets and fiat currencies.
Conduct exchanges between various forms of virtual assets, as defined by regulatory bodies.

Decentralized Bitcoin Mixers

Transactions in decentralized mixers are conducted collectively among participants.
Employs protocols like CoinJoin for increased transaction privacy.

UTXO Model Disadvantages

The complexity of computation is a key drawback of the unspent transaction output (UTXO) model, making scalability more challenging.

Blockchain Oracles

Blockchain oracles connect smart contracts with real-world data, providing functions like posting real-time cryptocurrency prices.
Serve as a bridge between blockchains and external data sources, enhancing the functionality of smart contracts.

Security in Virtual Asset Storage

Hardware wallets are considered the most secure method of storing virtual assets due to their resistance to hacking and offline storage capability.
While paper wallets are secure, they are prone to user errors.

AML Compliance in Crypto Platforms

Financial institutions can delegate the implementation of AML obligations to involved legal entities.
Risk mitigation is vital, and ignoring it is not a viable practice.

Network Vulnerabilities in Blockchains

Smaller networks are easier to attack if they lack sufficient countermeasures.
A higher percentage of honest nodes contributes to network safety against attacks.

Legal Risks in Blockchain

Legal risks encompass data privacy, regulatory challenges, and dispute resolution issues.
Blockchain technology presents unique legal uncertainties that businesses and regulators must navigate.

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Test your knowledge with these flashcards for the CCAS Certified Cryptoasset Anti-Financial Crime Specialist Certification. Each card covers key concepts related to risk management and transaction monitoring in the realm of virtual assets. Perfect for candidates preparing for the certification exam.