4 ms·

Basically the entire concept of a Bitcoin wallet is fundamentally flawed from a security perspective. You're one compromised secret away from losing it. Theore

Basically the entire concept of a Bitcoin wallet is fundamentally flawed from a security perspective. You're one compromised secret away from losing it. Theoretically a 'good' Bitcoin exchange would have insurance and multi-factor auth, and some complicated internal crypto scheme to minimize the scope of breaches. I can't imagine any of the current exchanges are that advanced yet.

tlrobinson 13y ago
"some complicated internal crypto scheme to minimize the scope of breaches" Any half-decent online wallet or exchange keeps the vast majority (typically ~95%) of their funds in "cold storage", usually with an n-of-m encryption scheme, which will minimize the scope of breaches, with an occasional inconvenience when withdrawals exceed projections before they can pull funds from cold storage. Even given the malleability bug (which actually isn't the real problem: http://blog.tlrobinson.net/bitcoin-transaction-malleability-explained http://blog.tlrobinson.net/bitcoin-transaction-malleability-...) if Mt Gox managed to lose more than say 10% of customer funds they were doing something seriously wrong.
- lukeschlather 13y ago
  My main problem is that I don't see a satisfactory way for me as an individual to safeguard a wallet. Cold storage is an interesting concept for an exchange, but it still seems fundamentally inferior to normal banking's procedures for undoing fraudulent transactions. N-of-m encryption schemes are nice, but they only really make sense if you have each of the keys in a different hardware crypto device. Even then, in practice I suspect all of the exchanges are set up such that 95% of their cold storage is accessible via machines that are connected to the public Internet. (I'd be interested in independent audits that show otherwise.)

4 ms·

Basically the entire concept of a Bitcoin wallet is fundamentally flawed from a security perspective. You're one compromised secret away from losing it. Theore

by lukeschlather 13y ago

tlrobinson 13y ago
"some complicated internal crypto scheme to minimize the scope of breaches" Any half-decent online wallet or exchange keeps the vast majority (typically ~95%) of their funds in "cold storage", usually with an n-of-m encryption scheme, which will minimize the scope of breaches, with an occasional inconvenience when withdrawals exceed projections before they can pull funds from cold storage. Even given the malleability bug (which actually isn't the real problem: http://blog.tlrobinson.net/bitcoin-transaction-malleability-explained http://blog.tlrobinson.net/bitcoin-transaction-malleability-...) if Mt Gox managed to lose more than say 10% of customer funds they were doing something seriously wrong.
- lukeschlather 13y ago
  My main problem is that I don't see a satisfactory way for me as an individual to safeguard a wallet. Cold storage is an interesting concept for an exchange, but it still seems fundamentally inferior to normal banking's procedures for undoing fraudulent transactions. N-of-m encryption schemes are nice, but they only really make sense if you have each of the keys in a different hardware crypto device. Even then, in practice I suspect all of the exchanges are set up such that 95% of their cold storage is accessible via machines that are connected to the public Internet. (I'd be interested in independent audits that show otherwise.)