crypto currency exchange and cold storage



Most of the crypto currency exchanges use cold storage for depositing bitcoins.
I was wondering if they maintain a cold storage for individual user or if they have one large cold storage for all users? does it provide benefit for storing offline wallets for individual users for a crypto currency exchange?



Posted 2014-04-29T05:59:00.230

Reputation: 111



I sincerely doubt that any exchange uses individual cold storage wallets, the overhead would be too big: Every time an offer is matched on the exchange or somebody wants to withdraw money, the individual wallets of the involved parties would have to be imported from cold storage and then recreated.

On the other hand, if an exchange only used a single address for cold storage, if they ever had to import it, all money would be online at the same time. That would be very insecure.
It might be feasible to sign transactions offline and then safely transfer those via mobile data storages. The offline computer would have to be made aware of the current state of the Blockchain regularly though, so, on the other hand the blockchain would have to be transfered to it manually as well. The problem I see with that would be that withdrawals would be extremely slow, or you'd have to have people running USB sticks 24/7.

I would assume that every exchange uses many different cold storage addresses. If I were to create a scheme, I would reroute all deposits directly to cold storage upon receival, and change the cold storage address in use whenever a pre-determined cap is reached. I would only store an amount on each cold storage wallet, that I'd be comfortable to have in my hot wallet at one time.

I would then keep a small amount of crypto currency in my hot wallet, in order to automatically process withdrawals. Whenever the amount in my hot wallet runs low, I would import the oldest cold storage address.


Posted 2014-04-29T05:59:00.230

Reputation: 51 063

I thought about guys running 24/7 with usb sticks, and instead of usb sticks, im going with the qr codes. the idea is to have an intermediary storage between cold and hot storage, a warm storage that is a little less secure and has more coins readily available as needed to replenish hot wallet. armory has offline wallet that does not require the blockchain, but then how is it aware of the blockchain state? – Syler – 2014-05-07T16:19:53.720

QR-Codes for the transactions or QR-Codes to import cold storage addresses' private keys? What's the difference supposed to be between warm-storage and cold/hot-storage? – Murch – 2014-05-08T09:55:43.210


Many Websites with personal accounts like localbitcoins or localmonero DON'T use individual wallets for every account, because of the huge data amount it would take.

Their solution:

  • Just a few private keys and many subaddresses
  • Withdrawals will be summed up with other withdrawals


Posted 2014-04-29T05:59:00.230

Reputation: 11