Author: Erik Aronesty 2016-08-07 22:59:34
Published on: 2016-08-07T22:59:34+00:00
The conversation revolves around the use of "hot wallets" and decentralized exchanges in Bitcoin. The author argues that using lightning-esque networks to route orders through decentralized exchanges eliminates the need for centralized, poorly-secured exchanges. They propose a client-side library with P2P order routing to match orders directly to users and execute channel-trades instantly, without any central entity or custody of funds. The discussion also touches on the topic of protecting coins in hot wallets from theft. One proposed solution involves using output scripts that only allow coins to be sent to a new transaction whose output script is then redeemable after several confirmations. Deposits to the hot wallet would also need to be encumbered by the same protection so that the time-lock to redeem coins can be applied to every new transaction trying to move coins. This approach could benefit crucial services such as wallets that group coins into different accounts with varying time-frames required for clearing/unlocking coins, gambling websites, e-commerce websites, and exchange hot/cold wallets.There is also talk of managing private keys to mitigate risks associated with key management. Managing risk by keeping some keys offline is an important part of that. The discussion also highlights BitGo's "instant" system, where they promise to only sign one transaction for a given output, making it safe from double spending since a double spender cannot sign two transactions. The conversation goes on to refute the claim that merchants will never accept payments from "vaults" and it will take 24 hours for coins to be irreversible moved outside the "vault." This relates to the reserves held by the exchange where a portion of the funds are in hot storage with live keys, and the remaining funds are held in cold storage which cannot be accessed unless you have offline keys. The author believes that setting up offline keys to act as firebreaks is part of good security practices.
Updated on: 2023-06-11T19:18:54.373696+00:00