It SHOULD be obvious I suppose, but from what I understand that Polish exchange (bitomat) lost everything! Some of that loss could have been avoided with a strategy like this.

Obviously this doesn't help if the bitcoin service is fraudulent (MyBitcoin?), but any bitcoin wallet service who wants some degree of legitimacy needs to be doing this.

MagicalTux: Any plans to allow individual users to move their coins offline as described above?

This seem to me like a good idea. Its just that it is no fractional reserve, its just having two accounts.

Hello all,
That is awesome that MtGox does the offline storage, and 98%...sweet. We do the same thing and exercise the ability to send to wallets offline. At dacoinminster's request, I will throw my 2 Bit's,
1. It's not actually fractional reserve, It is a delayed withdraw as a result of security measures.
2. Our exchange uses MtGox regularly, and we have different security concerns because the nature of our businesses is truly different.
3. We all see the future of BitcoinBanking involving a set withdraw time window for someone to withdraw from a otherwise offline wallet. Meaning we keep it offline, You request a withdraw, We have to make it available online and we will do so for X amount of time before we take it back down.
4. If any exchanges are really keeping all there "eggs" in one basket still... I wouldn't use those exchanges just as a statement (and obviously because I want my coins protected).
5. Our system actually requires to keep most funds in USD spread among a lot of accounts and in hand. I keep a couple hundred BTC in my wallet and MtGox etc.  just to avoid waiting for more than 1 confirmation when dealing with my regulars. But I do have The offline wallets on a Nice, tough, external HD. '
Our Banking system that is in the works basically has been planned around the safety deposit box theory you posted above. Easy to deposit to your offline wallets but you must schedule a withdraw time window, and has a little LR$ mixed in in that you can have a accessible wallet with just the funds needed always online mitigating your risk for hack.

Again I want to clarify that My Exchange isn't Person2Person and we are required to hold cash rather than Bitcoins, so these issues arent as relevant to my particular exchange.


To the post above, I/m pretty sure it would only "lock the system" for about 6 confirmations. So people wont freak out I dont think. Again it's not actually Fractional Reserve because they are keeping all the coins, It is just a delayed withdraw system/

Hey CampBX,
Are your servers on shore? or off shore?
Sounds like a nice facility, if it's offshore I would love to use their services.

We have several strategies to ensure protection of our user's Bitcoin and other assets.  

- multiple encrypted offline wallets
- online wallets are backed up at least hourly
- backups are encrypted and on separate physical servers
- backups are stored in at least two other different physical locations
- backups are stored in different legal jurisdictions (countries)
- ACL and other internal security policies

I have to agree with Magical Tux...  we have a process in place as well to provide continuance... but there is no way that it would make sense to publish them ... 

How possible is it to have each account holder's coins associated with a single, separate address/key? (I'm sure it'll be a PITA, but is it technically feasible?) This way, once someone opens an account, you can mail (encrypted file attachment, or mailed on paper) then the private key associated with their account, with instructions to make copies and back it up. Should anything happen to the system (crash, hack, government raid, zombie attack, whatever), users will still be able to manually import their private keys and get their coins off the block chain. Your businesses will still be able to continue operating and providing the same services they do now (easily-accessible secure banking, exchange, whatever).
Likewise, this will shift some of the liability onto the users, in case you are worried about insurance or legal issues.

OP pointed me to this thread, but if you would check our sourcecode (which is online BTW), then you can see that we already do this,

(if on line 40)
https://gitorious.org/intersango/intersango/blobs/master/cron/verify_withdrawals_bitcoin.php

Keeping all your funds online is insane. Keeping your backups on the same server is absurd.

Damn, good point. Will have to think about how to mitigate that...