<p>The safe way for an exchange to function is the hot-cold wallet system. A hot wallet, which the server has access to and where all deposits and withdraws get handled from.</p>

<p><strong>Function of the hot wallet</strong></p>

<p>The hot wallet is what your exchange will you to receive and send bitcoins with. If you are sending bitcoins to a user for a withdraw, it comes from the hot wallet on server. If you are receiving, make sure the address in in the hot wallet. A good hot wallet only keeps a small portion of bitcoins available. An amount that allows your service to run for a week or even a day without running out. Say your hot wallet was 5%-10% of your total funds, you'd daily or weekly add bitcoins or take bitcoins. If there are no bitcoins on the hot wallet, your service should come to a grinding halt. <strong>You cannot automate the filling of the hot wallet from the cold wallet, this is dangerous and is exploitable.</strong></p>

<p>The benefit of this smaller balance on the server is that you cannot get robbed of all your funds suddenly</p>

<p><strong>The cold wallet</strong></p>

<p>The cold wallet should not be in any way connected to your exchange. It'd be best if only you had access to it. 90% of your funds should be kept here. The idea is that the attacker cannot access 90% of your funds electronically or automatically. You should manually be moving coins from the cold wallet to the hot wallet by yourself.</p>

<p><strong>Note:</strong> Do not take my advice here as full advice, you should look up proper wallet management, it is a broad topic. See the Bitcoin wiki article on <a href="https://en.bitcoin.it/wiki/Securing_your_wallet" rel="nofollow">Securing your wallet</a>.</p>

CC BY-SA 3.0
2014-02-11T04:37:41.043Z
thanks for that. so i take it exchanges which have larger withdraw amounts than whats contained in their hot wallet will need to manually move the funds from the cold wallet. within that time-frame could notify the user that either their coins are being moved from protected storage or just notify a 'pending' status
tommo
CC BY-SA 3.0
2014-02-11T05:01:23.223Z
Well typically you want to have enough to cover a few users doing average withdraws. 10% of entire funds should cover quite a few users for a large exchange. The pending status is an inconvenience but neccessary for security. Should be rare as well.
John T
CC BY-SA 3.0
2014-02-11T04:01:32.433Z
2014-02-11T04:01:32.433Z
John T
<p>How would you store a bitcoin wallet with the security of the wallet being a priority for a small bitcoin exchange? Offline wallets are the safest though how would a client be able to withdraw their coins if the wallet is offline?</p>

<exchanges><security>
How would you store a bitcoin wallet for a small bitcoin exchange?
tommo
# How would you store a bitcoin wallet for a small bitcoin exchange?

(Asked by: username_0 on 2014-02-11)

How would you store a bitcoin wallet with the security of the wallet being a priority for a small bitcoin exchange? Offline wallets are the safest though how would a client be able to withdraw their coins if the wallet is offline?

**Tags:** exchanges, security


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## 1 answers

### Answer by username_1 on 2014-02-11. Score: 2 | Accepted answer

The safe way for an exchange to function is the hot-cold wallet system. A hot wallet, which the server has access to and where all deposits and withdraws get handled from.

**Function of the hot wallet**

The hot wallet is what your exchange will you to receive and send bitcoins with. If you are sending bitcoins to a user for a withdraw, it comes from the hot wallet on server. If you are receiving, make sure the address in in the hot wallet. A good hot wallet only keeps a small portion of bitcoins available. An amount that allows your service to run for a week or even a day without running out. Say your hot wallet was 5%-10% of your total funds, you'd daily or weekly add bitcoins or take bitcoins. If there are no bitcoins on the hot wallet, your service should come to a grinding halt. **You cannot automate the filling of the hot wallet from the cold wallet, this is dangerous and is exploitable.**

The benefit of this smaller balance on the server is that you cannot get robbed of all your funds suddenly

**The cold wallet**

The cold wallet should not be in any way connected to your exchange. It'd be best if only you had access to it. 90% of your funds should be kept here. The idea is that the attacker cannot access 90% of your funds electronically or automatically. You should manually be moving coins from the cold wallet to the hot wallet by yourself.

**Note:** Do not take my advice here as full advice, you should look up proper wallet management, it is a broad topic. See the Bitcoin wiki article on [Securing your wallet](https://en.bitcoin.it/wiki/Securing_your_wallet).

> **Comments:**
> **username_0**: thanks for that. so i take it exchanges which have larger withdraw amounts than whats contained in their hot wallet will need to manually move the funds from the cold wallet. within that time-frame could notify the user that either their coins are being moved from protected storage or just notify a 'pending' status  
> **username_1**: Well typically you want to have enough to cover a few users doing average withdraws. 10% of entire funds should cover quite a few users for a large exchange. The pending status is an inconvenience but neccessary for security. Should be rare as well.  

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