Topic: Open letter to online exchanges and wallets: store coins offline! (Read 4974 times)

Probably by charging the CRAZY HIGH fees they do. The one time I used them, I spent $20.18 worth of Linden Dollars to buy ~$16 worth of Bitcoin

Wondering how VirWox can accept
1. Paypal, which isn't even a form of payment anymore.
2. PaySafeCard, Which takes roughly 40% of the total transaction cost.

Thanks. I think I've gleaned enough hits on this thread by trickery. New thread title is:

"Open letter to online exchanges and wallets: store coins offline!"

Here is the official statement from VirWox. I guess now we know why they never post here.


I fully understand and appreciate why sites don't want to discuss their security measures in detail, but I think it's a great way to build trust to be as transparent as possible.

Hello,

We also keep reserves on different places (online and offline) distributing the risk evenly.
I support the other exchanges in not sharing additional detailed information as this question is directly towards security and any public details may very well compromise any security measures.

I actually ignored this thread because of the title until I was asked to post here. TradeHill stores a lot of coins offline in a wallet that's not connected to the net. As funds rise to a certain level we move them over. We also take a lot of other measures that we will be posting about soon. We've been doing this since the beginning. Bitcoin provides new vulnerabilities but at the same times provides opportunities for security that traditional institutions don't have. We should take advantage of those and use it to minimize the damage if something catastrophic does occur.

Jered

Just curious, what would happen if you were to get hit by a bus? I'm not being cruel or insensitive here, but I'd be reassured if there are procedures and people in place to keep the site operational or at least allow everyone to withdraw if something where to happen to you personally.  would the secret hiding places and encryption keys of all the bitcoin offline wallets would be lost forever?  Would someone in your family inherit all our bitcoin deposits and we'd be left high and dry like mybitcoin.com customers?

Anyone ever watched the show "Dragon's Den" in CA/UK or "Shark Tank" in the US?  This 'what if you get hit by a bus' factor is an important thing to consider before investing in a company for the venture capitalists on that show, and I think it applies to bitcoin businesses especially so.   

Hi There,

In response to a request I received via email asking Vekja.net to respond on this thread, here is our response:

We maintain the bulk of the deposited funds in an offline account. We always have. I am personally the most security conscious person, by orders of magnitude, that I know of. The ratio of how much is offline is manually maintained by an administrator. In the event a 'run' occurs, the user gets an error message and the transaction immediately is marked as failed. We receive an email. An administrator then investigates to see if nothing is amiss, and if so, I can top up the online funds from one of the offline wallets we maintain.

The offline 'wallets' are stored off-site and encrypted. They are backed up (encrypted) in multiple geographical locations as well. They are never connected to the internet, and the wallets are never fed into a bitcoind that is connected to the internet -- just in case a vulnerability exists in the official bitcoin client.

Thufir

Lol, +1.

i didn't really want details of what the plans are . I just want to make sure they exist. It would be very bad if only a few people had access and they all die in a plane crash or something.

As long as you can confirm there is a in fact a plan , that is good enough.

Yes, I intentionally chose a thread title that sacrificed some accuracy in favor of being controversial and getting more people to read the thread. It's a bad habit of mine. One of many.

In order to make the title a teensy bit less misleading, I added quotes around "fractional reserve" in post #1.

I don't think fractional reserve is an accurate name for this. What we're discussing here is more like storing the funds in a high security vault in the back of the bank than the fractional reserve systems used for physical cash.

Today, the Bitcoin world is a lot like the initial web.  Anyone with a little skill can create an online service.  Since Bitcoin is so new, its very hard for the consumer to tell who has acumen to provide lasting, reliable service.

ExchB takes its responsibility to its customers seriously.  We look at the recent issue of securing wallet.dat files as just a facet of providing reliable service.  Our staff has over two decades of experience in providing Internet services which includes dealing with computer security, the design, implementation, execution, and support of systems with enterprise level reliability and scalability, and to cover the business side of things we have very experienced executive management.

We strive to show a pattern of excellent service:

Our terms of service are clearly stated.  Additionally, for customers looking for a US-based service, the jurisdiction for legal disputes is California.

ExchB provides a telephone contact number.

ExchB was the first Bitcoin exchange to not only cut off Dwolla deposits but also Dwolla withdrawals.  We are currently working on adding Paxum support, but we feel their current agreements are not yet to the level needed by Bitcoin exchanges.  Even after coming to an agreement with Paxum, we plan to exercise due caution with our customer funds held with them.

Yesterday ExchB added free two-factor authentication.  We deliberately chose a solution that has instant setup and does not involve a 3rd party service or a bunch of confusing options.  Looking forward, we are planning on further enhancing this service.

As for our wallet.dat, at ExchB, we do only keep a fraction of our Bitcoin deposits available for immediate withdrawal. From there we have offline wallets secured by encryption and physically. It's a balance to find the right amount to keep available for transfers but as our deposits have been growing we've only had to do a reverse transfer once so we think we're doing the split fairly optimally.

In terms of further wallet and site security, we run multiple geographically-redundant encrypted backups and test them regularly.

We do have plans for many wallet features including a visible wallet which will allow customers to be able to verify their balance using block explorer and an offline wallet service which will only allow delayed access to funds.

I hope this addresses your wallet.dat concerns and some of the larger concerns you may have about ExchB and Bitcoin exchanges in general.

We project withdrawals and it changes based on our projection. Usually around 90%

Damn, good point. Will have to think about how to mitigate that...

Do you mind disclosing what % of britcoin/intersango funds are offline?

OP pointed me to this thread, but if you would check our sourcecode (which is online BTW), then you can see that we already do this,

(if on line 40)
https://gitorious.org/intersango/intersango/blobs/master/cron/verify_withdrawals_bitcoin.php

Keeping all your funds online is insane. Keeping your backups on the same server is absurd.

This is a good jumping point,
but I was thinking what if they pull the coins early and blame us for whatever reason?

How possible is it to have each account holder's coins associated with a single, separate address/key? (I'm sure it'll be a PITA, but is it technically feasible?) This way, once someone opens an account, you can mail (encrypted file attachment, or mailed on paper) then the private key associated with their account, with instructions to make copies and back it up. Should anything happen to the system (crash, hack, government raid, zombie attack, whatever), users will still be able to manually import their private keys and get their coins off the block chain. Your businesses will still be able to continue operating and providing the same services they do now (easily-accessible secure banking, exchange, whatever).
Likewise, this will shift some of the liability onto the users, in case you are worried about insurance or legal issues.

Instawallet uses offline storage as well (about 75 % of all funds are currently offline). Most people follow the "not a bank, just spare change" rule so it's not much to begin with, which is how it should be. Just to reiterate: Instawallet is a spare time project of mine, does not offer high security and is more a show-case platform to make Bitcoin more convenient. If there ever is a "bank run" on Instawallet, then it might take a day or two until I move things out of offline storage.