How Bitcoin Exchanges Should Secure Their Wallets

NEW YORK (InsideBitcoins) – Due to the many hacks and thefts that have taken place in the bitcoin industry over the past few years, it makes sense for anyone holding a large amount of bitcoins to act a bit paranoid when it comes to the security of their private keys. At the North American Bitcoin Conference in Miami, Ciphrex CTO Eric Lombrozo and Bitcoinsultants president Michael Perklin gave a presentation on proper bitcoin wallet security.
These two companies developed the vault used by Ethereum to secure the bitcoins raised during their ether crowdsale, but the lessons laid out in their talk could also apply to exchanges, bitcoin banks, and anyone else who is responsible for the security of a valuable bitcoin address. In the case of the Ethereum crowdsale, Lombrozo, Perklin, and their coworkers were responsible for securing over 31,000 bitcoins.
What are the main risks when securing bitcoins?
When beginning their talk, Lombrozo and Perklin wanted to cover some of the key risk areas for securing a valuable bitcoin wallet. The three main categories of risk were laid out as follows:
Natural disasters – This covers any sort of problem caused by mother nature. If a flood or fire wipes out your private keys, you can say goodbye to your stack of bitcoins. Theft and inside jobs – This category covers any sort of threat of theft from outside or inside the organization securing the bitcoins. It should be noted that a case of insider theft could also be caused by coercion. The example pointed out by Perklin during the talk was a situation where one of the key holder’s daughters was kidnapped. It’s possible that the kidnapper could require that individual’s private key as ransom for their daughter’s safe return.

This post was published at Inside Bitcoins on Jan 26, 2015.