Bitcoin Forum

We literally are about to turn on cold storage, the technical side is done, the problem is pricing.  We really don't know what the market feels would be proper for this level of service.

This is how it works.

Let's say for example a user has 110 bitcoins stored at flexcoin and he uses about 10 of them day to day commerce.

So he decided that he can put 100 of them in cold storage.

He sends them over to coldstorage, which is literally sent do a backup that is offline.  The coins are taken off-line and sent to the off-line wallet.  
It's stored in true bank vault where we must physically take the USB wallet to the bank safe each day.  

At this point the coins are not available to anyone, including hackers.  They show up in his flexcoin account as a line item as "coins owned, in cold storage"

However he does collect his discount payments on those coins.  Which are based on transaction fees.  ( more here on that (http://http://www.flexcoin.com/?page_id=148) )

So basically he still earns money on those cold storage coins, and they are in a highly secure environment.

When a user requests his coins out of cold storage,  we must then go to the bank vault,  obtain the key,  and then bring them back, manually review the request (make sure nothing is fishy about it)  before releasing them back to the client.

The process takes about 2-3 days.

What's a fair price for this in terms of percentage?

Let's say it's a flat 100 coins,  1% of course would mean 1 bitcoin.

We need to work on a percentage basis otherwise it wouldn't scale properly, and our assumption is the guy that has a total of 2 bitcoins wouldn't be using this service.  

feedback?

You can use any fee you want, but it's hard to foresee an online wallet solution that does not include cold storage in some form in the near future. I have a feeling, ultimately, the cold storage will just have to be part of the service you provide, without additional cost.

this is the only user definable cold storage solution on the market... 

Of course, and I and others applaud you for it. All I'm saying is that cold storage, or some similar solution to make our BTC secure, will necessarily become part of any online wallet out there. I can guarantee the others are looking into this as we speak. Once they have a system in place, some will start offering it free of charge to lure us to them.

For now, you can start with any fee you feel is reasonable, and since cold storage is an option, the customers will either choose it or not if they feel the fee is too high.

Maybe start with whatever the fee is for a trade on the exchanges.  Possibly that's too low for the manual effort you're describing though.  

So what you're saying is you're starting a bank that uses credit based on bitcoins. For a piece of software specifically designed to avoid using centralised exchanges and fiat money this is essentially amounting to the same goddamn thing.

well that's the problem,  currently our fee is set for a fraction of what the exchanges charge.. but this requires manual effort.. it cannot be automated.. it's designed on purpose not to be automated.

I mean what are you saying? The coins held by you and not in cold storage are vulnerable enough that people ought be willing to pay to make them safe?

It's only manual to get them back right? Sending into cold storage should be as automatic as a withdraw, right?

There is a delay in getting the coins out right? So it's manual, but you can do it in batches, right? Not that much labor to do it 2 or 4 times a day.

correct....  now remember you still collect discount payments while in cold storage.

Why charge?  Is it to keep up the service?

My service (launching within the next week) also stores coins in a couple offline wallets.  Even though we are not a bank, we have bitcoins that are the sum of user accounts below the minimum needed for transfer.  

I agree with other posters that cold storage is a required feature of any service that stores coins - it is not an add on or a service.

Charge the exact amount of the payments?

Really though I don't get why and how you are paying people and doing the work of holding their coins. Maybe it makes sense, I just haven't investigated your model yet.

You should expect that most people want things free.

The question is: how costly/time consuming are those trips? I think that you should try to minimize the trips so that you can offer this extra service with very low fees or even free. It would be a cool way to attract new users.

The other option to is to offer a "good enough" service that can be automated. Such as a remote server that can unmount the usb drive/ whatever.

Then you make damn sure that nothing can remount the device unless they hack into root level access.

Even more sophisticated would be to look for a one way filesystem perhaps? That allows writing files once, then not being able to read or delete them. Until the time comes to do a bunch of manual stuff to get the file out again.

If you have extra bitcoin yourself let's say 200, you can put that in cold storage then only add when the customer storage exceeds that.  Add in groupings to minimize trips.

If your business grows and has volume, many customer requests could be accommodated before you need a physical move to occur. 

I recommend making cold storage free initially to drive early adoption. Your first goal should be to grow and become the dominant bank before competitors arrive.

It amazes me that most Bitcoin exchanges charge fees right now. They should instead focus on attracting customers today and monetize later. How else can they hope to diplace Mt. Gox?

Good luck.

I'm am not sure about the exchanges,  because our goal isn't exactly the same as theirs...  ours is to make bitcoins an actual usable currency...  their goal is to covert bitcoins to other currencies.

That's a way differing mission.   

We would rather see everyone use bitcoins to do normal commerce.

I'm not sure why cold storage should ever involve going anywhere to "put" coins in a vault.

Simply generate a bunch of key pairs, put two copies of all the private keys in the vault.  Keep the public keys/bitcoin addresses outside the vault and online.  When someone "sends" to cold storage, one need merely send the bitcoins to the bitcoin addresses you've kept, and voila, they're already in cold storage without having to pay a visit.

Although the question has been brought up, "does cold storage mean you're really not secure", to me that's not the point.  The real value is having a live human being scrutinize the transaction before allowing it to pass.  If I have 100 BTC and declare 90 of them to be "cold", what I'd hope that means is if someone keylogs my password and hacks my account, they're only going to get 10 BTC, because the other 90 BTC can only be released if they call me or do some other sort of verification to ensure that the transaction is legit.

Reworded : this is the only place where a user is not automatically protected by the cold storage measures that should be in place by default :)

I'll take the bitcoin-central example. The vast majority of our holding are in cold storage, we make it completely transparent to the user.

Users shouldn't have to worry about that, and they shouldn't have to pay either :)

A regular bank doesn't tell you that you have to choose how much of your cash should be in the safe as opposed to simply lying in the cashiers drawer.

Even mentioning cold storage communicates the idea that your regular storage is insecure.

Just my 2 satoshis

Because that's impossible,  if anyone says that they are lying.   People wouldn't have access to their funds if they were physically offline.   They must be online in order for people to spend them on an ewallet.


It's not the bank's security,  it's the keylogger sitting on your machine is what scares us.

When I say "your" I am not meaning you personally,  just in aggregate we have thousands of clients, each person individual has their own security policy (or none)  if someone hacked into their local box it's possible for them to steal funds directly from their wallet.dat file located on their machine or just as they do with bank accounts via a keylogger or whatever.

That's my fear...  throwing them in cold storage forces a manual review...  hence why the demand is there.



  

Or the operator can manage to have enough funds online to satisfy the withdraws while at the same time keeping most of the funds secured. If the online funds are stolen, the operator must eat the loss, the risk should be compensated by the fees.

There are better ways to prevent keyloggers from withdrawing from your account, mouse typed PINs, captchas, one-time passwords, etc.
These days everyone has a smartphone, generating OTPs on a smartphone is a really good and secure way of protecting accesses and ensuring that requests originate from humans.

That's possible (actually likely) in the future,  but we're still seeing wild swings in account balances..  I couldn't for sure state what is valid and what isn't in terms of an online reserve vs offline reserve.



Already in the plans :)   

What we do at BC is simply put transfers in pending state when there is not enough to cover instantly, we get notified, fund the server, from there a periodic task processes pending transfers.

no matter what you do with the wallet, the weak link would still be where the user communicates with you to get the funds back. if its just a web request that a username and password is needed, then thats not secure at all compared to bank vaults

Captcha, OTP, mouse typed pin

Why do people keep comparing bitcoins to the old traditional way of banks? They are COMPLETELY incompatible. There is no federal insurance that covers theft, so everything is different.

plus we have clients as banks,  trust me.. the hacking attempts on bitcoin related sites are multiples of what happens on normal bank websites.

My bank charges about $40/year for a small (5x1.5x24) safe-deposit box. It is my responsiblity to move the coins in and out securely. I think charging a percentage rather than a flat rate may be problematic.

The advantage of a local safe-deposit box is that I can finally get around to having verified off-site back-ups.

The disadvantage is that I may raise all kinds of red flags and get reported as a money launderer. Suspicious activity may include: frequent visits, visits with a backpack large enough to hide currency, visiting ATM after visiting safe-deposit box, renting safe-deposit box not at your nearest branch, etc.

It's not right to do anything else...

1 bitcoin to store 1 bitcoin is too expensive

1 bitcoin to store 10,000 bitcoins is too cheap

trying a sliding scale still penalizes the guy on one end of the scale as compared to another...  trust me I did the math...  percentage is the only fair gambit... 

My thinking is that the guy that has only 2 bitcoins isn't going to use the service...

It doesn't penalize anyone, they just do something cheaper and less secure because it's only one coin. If you charge a percent for something that has a roughly fixed cost then someone else will come and offer it at a fixed cost and take all of your high amount high fee customers.

It costs the same amount to move 10000BTC as 1BTC and everyone knows it.

Not even close .  If something happened to one bitcoin I owe the guy 1 bitcoin.  10,000 and I owe him 100,000 USD

Okay sure.

Insuring (promising to repay if the coins are lost) depends completely on the amount.

But doing "Procedure X" on 1 coin costs the same as doing it on 10000.

wow if you are actually offering insurance on people's deposits then that is a huge first. Hype up the publicity and charge a decent 5% annual fee or something.

If whoever wants this service is too lazy to backup a single file to a usb drive... then they should be paying at least 5% annually for such a service and security. (assuming you actually have some kind of insurance contract with the deposit and the client)

if this is a manual "white glove" service I think you definitely need to set a minimum balance, say 100 bitcoins minimum for cold storage.

You are getting back to the original point of Banking and that is a secure warehousing of money.  The banks today are so far away from their original purpose.

If these deposits are guaranteed, then you roll that into the white glove offline service as one bundled fee.  I agree it should be a percentage.  If anything, reduce the percentage for higher balances say > 1000 bitcoins, but still keep it a percentage.

Why not just keep your coins in an exchange that offers cold storage for free?

are the coins in cold storage insured? what if the drive fails, what if the bank raids your box.

id be willing to bet my coins are safer taped to my wall unencrypted than on a flash drive in a bank.

I think the main advantage here is that you can define how much do you want to keep in cold storage. Let's say you deposit 1000 coins at MtGox. If they get hacked, how much will you loose? You never know...

The other advantage is that flexcoin offers monthly "discounts" (which is basically interest). The more you save, the more you earn.

Also, unlike the exchanges, flexcoin pays a sort of "interest" on your holdings.