So when you ask for a bitcoin withdrawl some employee of the exchange takes a paper wallet and sends you BTC?
How do they prevent in-house theft?
Do they require multiple signatures to approve a cold wallet withdrawl?
What type of cold wallet do they use?
How much overhead does it create?
The idea is to have enough BTC in the hot wallet to be able to handle normal withdrawals (which should be mostly balanced with deposits). How much this is will depend on your operation and may not to be adjusted from time to time. That's why some exchanges post a notice that large withdrawals may take longer as they have to be done manually.
Furthermore, there can be several layers of cold wallets. Not everything has to be in a safe somewhere off-site. It's possible that the exchange keeps part of the cold wallet funds on an offline computer in the office. Topping up the hot wallet from that cold wallet should be doable in 5 minutes, but I imagine that such a wallet would be encrypted with only select people having access to the passphrase. The largest amount, I reckon, is stored in safes, possibly at several locations and requiring some form of m-of-n signature and should under normal circumstances not be needed.
