Another programmer and myself are in the planning process for setting up a cryptocoin-based betting service. We have a very good idea regarding pretty much... well everything except one major crucial detail: wallet management.

Obviously, because we want to allow people to place bets immediately (without waiting for confirmations) and receive money immediately, this means we'll need to have wallets on our servers.

I was hoping someone who has already tread this scary path has some input regarding the best way to approach this. For example, some of my questions are:

1) is there an optimal ratio of how much of the funds you keep in cold storage versus hot storage?
2) is there a specific wallet format we should use - do we just swing it with the standard QT wallet.dat files? If so, is there a common API that is used to decipher these wallets?
3) is it better to immediately move funds over to one "master" wallet, or is it better in terms of security to keep all the funds in each users' respective wallet?
4) what approach do you use for generating wallet passwords?
5) or... perhaps I am looking at this all wrong and you don't even use wallet files, rather just a collection of public addresses and private keys?

My apologies if I am asking a question I should know the answer to already if I'm considering this, but well... I simply do not know.

Thanks for any advice you may have.