Hello everyone,
As our project has matured after 7 months of existence, I think it's time to open an official support trade out of the "Project development" section.
What is Bitfinex?
Bitfinex offers 3 main functions, working together. There is 3 different types of wallet, each one having a dedicated function.
Meta-exchangeBitfinex works as a meta-exchange. It allows you to acess the orderbooks of others main bitcoins exchanges to have the best liquidity possible, while keeping low fees. You can see the global orderbook of bitfinex combining all orderbooks available (level 2 order book).
The three main functions of BitfinexBitcoins exchangeThe exchange part works like any regular bitcoins exchanges: you put your offer to buy or sell bitcoins, on the global orderbook. You can choose to execute your orders only on bitstamp, or only on bitfinex, for example; that's the routing feature. When an order is matched against another, it is executed.
The exchange wallet type is used for this feature.
Margin tradingOur margin trading feature is unique in the Bitcoin world. Basically, it allows you to borrow funds from lenders (see next feature) to trade bitcoins. If you make a profit, you get the profit and pay the depositor interests. If you make a loss, you reimburse the depositors the whole borrowed amount + interests.
For example, let's say you want to open a long position for 100 bitcoins. That means you want to buy 100 bitcoins hoping to the price will go up. The system will automatically borrow for you 100 * the bitcoin price US dollars (let's say 1300 USD) from lenders, at the best rates available. Your position will have a maximum period (defined by lenders), after which you will have to reimburse the 1300 USD (close the position). Each hour you will be charged an interests rate going to your(s) lender(s). If later you want to increase your position, you can borrow more funds, which will have ther own maximum period.
At any time before the expiration date, you can close your position. This will reimburse your lender, and you will keep the profit.
The same goes for short position (selling bitcoins), where you borrow bitcoins instead of dollars.
If there is no lender available, you will not be able to open your position. Your order status will be "NO RESERVE ACTIVE", which means that it will be executed as soon as there is funds available.
The trading wallet is used for margin trading. It does not serve the purpose of buying or selling bitcoins, it serves only as margin requirements; that is, even if you have 1000 US dollars in this wallet, if you open a 10 BTC long position, you will borrow the needed USD. Funds in this wallet are to cover for eventual losses that may occurs. When the maturated loss equals almost all your wallet balances, you may get a margin call and have your position force-closed to avoid further losses.
LendingOur lending feature goes hand to hand with the margin trading feature described above. If you don't feel like a trader and/or prefer safer investments, this feature is for you. Bitfinex allows you, using your deposit wallets, to lend bitcoins and/or dollars to traders. You can put offers with your chosen terms (which rates, for how long, and how much). When an offer is taken by a trader, the money in your wallet will be used to buy or sell bitcoins, and a loan will be opened. When the loan expires (the trader closes his position), bitcoins are bought or sold back and money is reimbursed to your wallet.
Insurance is available for lenders that want to enjoy a great interest rate without taking any risk of losing anything even in the unlikely event that Bitcoin price will collapse to zero within a matter of minutes (a.k.a. black-swan event). Lender that buy insurance are 100% guaranteed in their investment no matter what happens
SecurityWhen it comes to security, we're always paranoid. We have unique security features in the bitcoin world, which are:
- A watch-only wallet (cold wallet) on the production server, to monitor bitcoins transactions without giving keys to spend them
- API keys
- Automatic backup of the database once a day
- Duplication of backup data automatically across 3 servers
- Paper backup of wallet and exchanges keys and passwords
- Incorporated in a business-friendly place
Cold wallet:Your bitcoins are stored in a cold wallet, and the servers use a watch-only wallet, powered by Armory, to monitor incoming deposits. The wallet is handled by the Mav Armory Server script (open-source, you can find it here:
https://github.com/thedawnrider/BitcoinArmory-Daemon).
On a dedicated and isolated box a hot wallet is running with a low balance for instant withdrawals purpose.
API Keys:Neither the API keys (like currently the Bitstamp API credentials) are stored on the database nor the code anywhere on our servers.
Automatic backup of the databaseOnce a day, the database of the platform is backed up, encrypted and compressed as an archive. The passwords of users it contains are hashed.
Paper backup of wallet and exchanges keysThese crucial informations are printed on paper, which is kept with us in a physical wallet in bitfinex office. As well, the cold wallet is printed on paper, and Armory (the bitcoin client we use) allows to restore wallet from paper if needed.
Incorporated in a business-friendly placeTo protect your funds as much as possible, we chose to incorporate our company in a business-friendly place. Thus, Bitfinex Limited has its office in Hong-Kong, with one of our associate living there. We have establish a good relationship with our bank to ensure the necessary legal protection for your funds.
Questions?If you have others questions or suggestions to make, it will be a pleasure to receive them on contact@bitfinex.com!
