Hi,
last week I set up to write my bachelor thesis on bitcoin.
My topic is all about "programable money" so to say.
The question that I want to be answering in my thesis is how to design and build a secure and scalable exchange/payment processor/bitcoin thingy.
Now, I would like to discuss with you several approaches on how to design a such a software.
I'd love he hear your answers. If there is something new to the approaches you tell me, I'll add them to this post to collect them all.
So after reading alot, watching some talks about it I got the idea that there is mainly one big approach for this, people call it:
(Just to get this straight, I'll tell you know how I think it works, so that you guys can correct me)Hot Wallet, Cold Storage:The exchange/payment processor has a hot wallet that is connected to the main payment and transactions processing server.
All updates from the blockchain (meaning transactions, blocks) come in via this wallet.
Deposit: A user sends a request to the server. Server creates a new private key, public key and an address. Server sends user the address.
Server starts listening to this address, meaning: Server checks after every block generation if there are any new inputs on this address.
User sends his bitcoins to this address. Server sees it and confirms it after 6 confirmations on the blockchain.
Then an integer/float/whatever is set on the exchange database to this amount of bitcoin.
Withdrawal: User sends request to the server containing amount of withdrawal and address. Server checks multiple addresses on their balance and builds with them
the outgoing withdrawal.
Hot Wallet: Users only interact with the wallet indirect. The backend server interacts regularly direct with the hot wallet: creating new addresses, receiving and
sending bitcoins. Hot Wallet contains only a minimum amount of bitcoins because its not considered to be save while being on a server that is connected to the internet.
Cold Storage: Once the hot wallet reaches a critical amount of bitcoins they get automatically send to a cold storage address.
A cold storage address is created on a non internet connected server/computer. There is no real wallet software running.
A cold storage can only be called a cold storage as long as its private key wasn't exposed to the internet.
So okay... This is one part where I'm struggling to understand:
Lets assume that the hot wallet is running out of money. What needs to be done for getting bitcoins out of the cold storage?
I'm basing my guess on the most secure procedure I would follow:
You need to know where your bitcoins came from in order to resend them. This is due to the input output header in the bitcoin protocol.
So because of this you would need the latest blockchain. Okay, so we take a usb stick, copy the latest blockchain on it and go to our internetless computer/server and integrate the
blockchain. We then need a tool that constructs transactions. We sign the transactions with our private key and copy them to the usb stick.
We then got back to our internet computer and send the transactions out.
So I see some problems in this approach:
- This is a very costly approach. You'll need a person that is 24/7 available doing this and it's based on how much you trust that person
- Its manual. Programmers don't like that
- It did not work out in many cases: see mtgox...
- It feels like some kind of work around
- It doesn' save your from physical assault. I mean people robbed banks for less money. Why wouldn't they just rob a bitcoin wallet copying a hex string
- You need not only to implement one wallet system but two => complicated
So my questions on hot wallet cold storage are:- Is this in your opinion the most used approach in the industry?
- Is this a recommendable approach?
So again, this is just what I heared is the most commonly discussed approach, but I would like to hear about other approaches.
I heard alot about
multi-sig addresses, but that they are yet to be implemented in the protocol.
So if you know any other approaches, then please let me know or send me a link! That would help me out big times.
One approach that I thought about my self is this:
Inactivity hot wallet:There is just the hot wallet, which is directly connected to the internet and the backend server.
Users deposit and withdraw money from it. When signing up, users must state a bitcoin address that belongs to them.
As long as users make trades their bitcoins are stored inside of that wallet. Once the user doesn't trade for a period of time, let's say 1 day,
the system notices this and sends the users bitcoins back to the stated address from the signing process.
Pros:
- Exchange spreads risk in not holding that much bitcoins
- Inactive users, aswell as people that like to use their exchange as a save storage get kicked out
- On an actuall security breach the damage is probably significantly less than with cold storage hot wallet
- Easyer implementation
Cons:
- Users get annoyed
- Wallet connected to internet holding all coins in operation, meaning everything the company "has" ==> very bad, single point of failure
- In times of big volume: Hot wallet holding millions of dollars ==> very bad
Moving on to scalability:bitcoind wallet:I heard that the bitcoind wallet is mainly designed for people using bitcoin normaly and by hand. Meaning sending and receiving some coins.
It has a JSON-RPC api, I also used it from time to time, but from my understanding, reading the documentation on github, is that it saves
transactions inside of Berkeley DB. From my understanding BDB is a non relational database. I also read that it does support the ACID paradigma.
Is this the case? And if so, does the bitcoind client support the ACID paradigma?
Another question I would like to be answered is: Is the bitcoind client scalable? I mean is it fast? How many requests can it handle per second?
"industry bitcoin wallet:"Which wallet software is the industry using. Mainly big players like bitstamp, bitfinex, bitpay, coinbase? Are they all using their custom wallet software or is there
already a usable solution to this problem?
I think this would be it for the time being. I probably will be asking you guys many more questions and I would love to hear your answers.
Also, if some of the the questions have already been answered then feel free to send me a link
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