What kind of Wallets are used by an Exchange?

[Bureau]

It has become quite common for an Exchange to get hacked.

Apart from basic security measures that I know as a user, which are 2FA, not your key, not your coins & non custodial wallet. Did anyone here investigated of the kind of wallets used by an Exchange.

My understanding is based on what Google gives me on its SERP. I never found out, what kinds of wallets are used and how they are used.

I am aware that exchanges use a combination of hot and cold wallet. I am still on the process of learning. Is it possible for someone in this forum make me understand first what is hot & cold wallet and then how it function on an exchange.

Thanks.

PS: Please ignore my typo and sentence mistake
 
  

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[348Judah]

If you're using an exchange wallet, then know it that they have custody to your private keys, these keys are what gives you access to your bitcoin stored on the blockchain because they decrypt the encrypted codes to give you right to access you coins, this comes in when you learn about the category of wallet types we have, a custodial and non custodial wallet, if anything should happen to your exchange, indirectly or directly, you will be affected as well and loose your entire investment with them, so what should stop you from getting decentralized.

[Little Mouse]

Exchanges use both hot and cold wallet as you said. They use cold wallet for storing large amounts. They receive the coins in hot wallet as form of deposit from different users and they send most of them to their cold wallet.

Cold wallet = wallets which are not connected online, they are offline wallet. When you need to use fund from cold wallet, you can sign transaction offline and then broadcast with a software online.

Hot wallet = Wallet which is always connected to online.

If you're using an exchange wallet, then know it that they have custody to your private keys, these keys are what gives you access to your bitcoin stored on the blockchain because they decrypt the encrypted codes to give you right to access you coins

There's nothing like encrypted or decrypted. I don't know what did you mean. Exchanges only give you an unique address assigned to your account and some digits (your deposited amount). That's it.

[Zaguru12]

I am aware that exchanges use a combination of hot and cold wallet. I am still on the process of learning. Is it possible for someone in this forum make me understand first what is hot & cold wallet and then how it function on an exchange.

The difference between a hot wallet and a cold wallet is that the hot wallets are those are connected always to the internet with all his keys prone to hack example is the trust wallet. While the cold wallet are those are stored offline and only comes online only for signing of a transaction example is the hardware.

Just like the what little Mouse said the exchange uses both hot and cold wallets. The address generated for you on exchanges are hot and custodian wallet. While the exchange use cold storage to save those huge funds so as to keep it off from hack

[Stalker22]

I am aware that exchanges use a combination of hot and cold wallet. I am still on the process of learning. Is it possible for someone in this forum make me understand first what is hot & cold wallet and then how it function on an exchange.

In terms of exchanges, a hot wallet is a wallet that is online and is used for storing small amounts of coins that are needed for day-to-day transactions, such as withdrawals and deposits. They are more vulnerable to hacking and exploit attempts, and therefore they are not recommended for storing large amounts. On the other hand, a cold wallet is a cryptocurrency wallet that is not connected to the internet and is used for storing large amounts of coins that are not needed for immediate use. Cold wallets can also have additional protections, such as multisig, so that there are multiple keys needed to access the funds. A hardware wallet is a typical type of cold wallet that stores the user's private keys on a dedicated device, but there are other types as well.

[Jawhead999]

What is SERP? when I google it, I find Shibarium Perpetuals as the top result.

Anyway regardless the exchange reveal their hot wallet or cold wallet they use, you're still need to trust them and don't think if they will use the wallet like the way you're use. Many people think if the exchange is using cold wallet, then their coins will be safe. It's true cold wallet is safe and not connected with internet, but what if the exchange store the cold wallet private key in online and claimed if they got hacked, so the hacker have access to their cold wallet.

[Yamane_Keto]

The wallets that you use are not the same wallet that an Exchange use. they are the same as they are software used to manage and generate private keys but in exchange they thousands of addresses then synchronize with the full node (or several full nodes) managed by the platform.

When you make a deposit, the platform software generates a Bitcoin address and once the coins are sent, they are verified using the full node managed by the platform. After receiving sufficient confirmations, the database in the platform is updated to update your account balance with the deposited amount.

Here ends the role of bitcoin or cryptocurrencies and everything that happens after that is centralized as your balance is managed in the database.
When you withdraw, everything is verified, a transaction is created from the balance on the platform, and money is withdrawn, while reducing the amount withdrawn from the database.

The previous process is hot storage, and any extra funds funds are transferred to cold storage to avoid being stolen, as the platform only needs the necessary funds to withdraw at that moment.


An example of *wallet* that a small platform can use https://btcpayserver.org, larger platforms hire developers to write from scratch

[Coyster]

While the exchange use cold storage to save those huge funds so as to keep it off from hack

I don't think an exchange prioritizes the security of the funds they receive from their customers, cold wallets is for long term hodling and to make sure funds are safe, that is not the priority of centralized exchanges, what they prioritize is profit, so rather than send your funds into cold wallets, i think they are going to either loan it out, invest with it, use it to fund other businesses, et cetera, just for ROI, what's remaining would obviously be kept in hot wallets to handle daily trades of their customers quickly. If these exchanges are so keen to use cold wallets why do they lose so much money when they are hacked.

[ImThour]

> It has become quite common for an Exchange to get hacked.

Oh, I would love to see some actual facts here instead of just an opinion that hacking an exchange is a common procedure and it happens quite a few times in a month or a year.
Silly you mate, I have been using Binance since 2018 and I have never experienced such an incident I am quite sure they earn/make more money by running an exchange instead of running with your money.

Exchanges use the cold wallet to store the majority of their funds and use hot wallets with multi-sig for daily transfers.
In one day, Binance transfers almost a billion worth of funds between their own hot wallets. Data can be seen on-chain using Etherscan, BSC scan, etc.

I would suggest you learn how to be your own bank and stay away from exchanges with that sort of mentality that they get hacked often.
One thing you got correct i.e. Not your keys, not your coins.

[decodx]

What is SERP? when I google it, I find Shibarium Perpetuals as the top result.
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LOL! I think you have to consider the context in which the abbreviation was used.

If you looked it up on Google, you would have gotten a SERPs as a result, since I think "SERP" stands for "Search Engine Results Pages" in this context.

[tranthidung]

It has become quite common for an Exchange to get hacked.

Apart from basic security measures that I know as a user, which are 2FA, not your key, not your coins & non custodial wallet. Did anyone here investigated of the kind of wallets used by an Exchange

They use both hot wallets and cold wallets.

Hot wallet is used to receive user deposits and proceed withdrawals for users. When user send coin to a hot wallet, it will be automatically moved to a cold wallet.

In the past, exchanges used single signature wallet which is more vulnerable to hacks than multi signature wallet.

You can see some labels for exchange wallets: Hot, cold as well as multi-sign with number of co-signers.
https://bitinfocharts.com/top-100-richest-bitcoin-addresses.html
https://www.walletexplorer.com/

[rozak]

yes, the exchange uses the two wallets you mentioned. The cold wallet is used to store assets on the exchange, and it is not connected online to protect the wallet from being hacked. usually, it is to store assets that the exchange has in large quantities.
while hot wallets are commonly used by exchanges for trading and withdrawal activities which are daily transactions. This wallet transacts online. regarding the size of the asset, it also depends on the ability of the exchange when dealing with daily transactions from trading on the exchange.
even though the exchange has sufficient fund backups in case of a hack on their hot wallet. but still, it is not recommended to keep our assets in exchange.

[Potato Chips]

I never found out, what kinds of wallets are used and how they are used.

The typical claim is that only a very very small portion goes to their hot wallets, while the rest goes to their cold wallet which never touch the internet. Emphasis on claim because at the end of the day, we will never know how much is the truth. The same applies with your question "how", they can claim whatever but we will never truly know how are they being maintained.

> It has become quite common for an Exchange to get hacked.

Oh, I would love to see some actual facts here instead of just an opinion that hacking an exchange is a common procedure and it happens quite a few times in a month or a year.
Silly you mate, I have been using Binance since 2018 and I have never experienced such an incident I am quite sure they earn/make more money by running an exchange instead of running with your money.

Yes, hack reports are common, even binance has been hacked before, see: https://cointelegraph.com/news/hackers-withdraw-7-000-bitcoins-in-binance-crypto-exchange-security-breach

See list:

1. Documented Timeline of Exchange Hacks (note: up until present time but some incidents may be missing)
2. Hacked Exchanges since 2011 (note: up until 2020)

[tabas]

I've watched a documentary that it was an old popular exchange and I barely remember if that was Mt.Gox or it was something else. But they do use a hardware wallet and that's really kept on safevault wherein passwords/PIN of it has been distributed to the company's executives.
So, that's like no one can get that wallet unless all of them agrees. I guess that's a different setup from the other company's that also keeps their balances and assets into a hardware wallet or cold wallets.

[sheenshane]

I remember this thread upon reading your post, just take a look, "Custodial vs. Non Custodial Wallets - "Not your keys, not your coin" Explained".

For security concerns, always use a new safe wallet as your hot wallet and avoid linking it to your cold wallet.
If you're talking about the wallet on the exchange, that's extremely risky when you let to sleep it there.

[blue Snow]

Did anyone here investigated of the kind of wallets used by an Exchange.

When you sent a Bitcoin to the exchange, a coin you sent arrived in the hot wallet, after that, the exchange sent it to the cold wallet. But sometimes, the exchange didn't send it to the cold wallet because of used to be operational. And, in fact you should know is, the balance you seen on exchange is not real, it's just a number, for example, if you sent 0.1 btc, that balance appears in your account is not real 0.1, it's just a number to make it easier to trading. because of that, the motto not your key not your coin didn't work properly when you keep Bitcoin on exchange.

[Amphenomenon]

Hot wallet are online wallet, while cold wallet are offline wallet. The cold wallet are much more secured because it is not connected to the Internet and so reduces risk of hack.
Know that no matter the wallet centralise exchanges uses, it is still connected to the Internet and so increased the chance of it being Hack. This makes it still seems like hot wallet.

[Crypt0Gore]

Crypto exchanges use hot wallet and cold wallet to store their customers funds and make them available for their customers at any time, but I believe you are asking the wrong question, because the problem is not with the type of crypto wallets they are using, the problem the exchange teams are the one holding the customers private key for them, this is not how crypto should work.

Many people are into crypto space but they fail to understand the real reason why crypto exists, been in the custody of your assets is what makes crypto a different kind of asset, until what we have in the world before the existence of crypto.

The main issue with crypto exchanges is the lack of good security, that's why hacks takes place on such exchanges easily.

[Dunamisx]

If i can send money to a centralized exchange wallet and then they also make use of a cold storage to host their financial savings, i see no reason why i needed to go through them before creating my own cold storage and save my bitcoin there, if one is absolutely in need of privacy then one of the ways to get one us to embark on being decentralized, make use of a cold storage for your bitcoin and be in charge all by yourself, since there's no barrier to using it.

[Baofeng]

Cold wallet are being used by most exchanges.

You just have to look at this list and see, for example Binance:

[img width=400]https://talkimg.com/images/2023/05/16/blobc21c4a069a5fa201.png[/img]

https://bitinfocharts.com/top-100-richest-bitcoin-addresses.html

And you may want to check it here as well:

https://www.walletexplorer.com/wallet/Binance.com
https://www.walletexplorer.com/wallet/Bitfinex.com
https://www.walletexplorer.com/wallet/Kraken.com