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Say I want to create a Bitcoin exchange or an e-wallet service and make it as secure as possible. Assuming the nature of the service results in more Bitcoin deposits coming in then Bitcoin leaving the system out, yet the need to allow instant withdrawals of Bitcoins out of the service, I thought of the following scheme or scenario.

Create on a separate computer a list of 1000 Bitcoin addresses using Multibit. Transfer those 1000 public keys to DB on web server using a USB, to a table holding a pool of free/non-used addresses. When a member creates an account I assign a free Bitcoin deposit address to make member account funding possible. Since the private key for these 1000 deposit addresses is not on the web server or DB (generated on another computer and only public keys were imported using USB) I am pretty much secure that all funds coming into the system as deposits are safe.

When a member wishes to trade with another member, I simply maintain my own balance accounting system, by creating tables and logging transfers from one member account to another.

When a member wishes to withdraw his Bitcoins, I will use a Hot wallet which would only accept requests from the web server IP address, check my internal accounting system to make sure member has enough balance left and make payments from the hot wallet to whatever external Bitcoin address withdrawal has been requested to. By making sure I keep no more than, say, 5% of overall balance on the hot wallet, any security breach will not result in 100% loss of site funds.

How secure is this scheme? Would you suggest I do things otherwise?

user3791176
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  • What percentage of revenue do we get after designing your solution? – KevinDTimm Jun 30 '14 at 17:06
  • designing my solution? Am just asking a question. You can answer if you want or you can skip. Simply am asking whether this solution is viable or not. – user3791176 Jun 30 '14 at 18:32
  • How do you verify member withdrawal requests as actually coming from the member? Why would anyone use your system rather than just maintaining their own bitcoin address? – Chris Dodd Jun 30 '14 at 19:00

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Yes, you can use such scheme, but make sure you're keeping those private keys for 1000 wallets in secure place. I would recommend encrypting all of those initial 1000 private keys with some master password which you'll never forget. Also think about storing those keys on offline storage/computer - you can use those offline storage to sign transactions in the emergent cases when you'll need to access those wallets.

Alfred Alxinow
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