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Determining an optimal threshold on the online reserves of a bitcoin exchange

Author(s): Jain, Samvit; Felten, Edward; Goldfeder, Steven

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dc.contributor.authorJain, Samvit-
dc.contributor.authorFelten, Edward-
dc.contributor.authorGoldfeder, Steven-
dc.date.accessioned2021-10-08T19:50:33Z-
dc.date.available2021-10-08T19:50:33Z-
dc.date.issued2018en_US
dc.identifier.citationJain, Samvit, Edward Felten, and Steven Goldfeder. "Determining an optimal threshold on the online reserves of a bitcoin exchange." Journal of Cybersecurity 4, no. 1 (2018). doi:10.1093/cybsec/tyy003en_US
dc.identifier.urihttp://arks.princeton.edu/ark:/88435/pr1dj9n-
dc.description.abstractOnline and offline storage of digital currency present conflicting risks for a Bitcoin exchange. While bitcoins stored on online devices are continually vulnerable to malware and other network-based attacks, offline reserves are endangered on access, as transferring bitcoins requires the exposure of otherwise encrypted and secured private keys. In particular, fluctuations in customer demand for deposited bitcoin require exchanges to periodically refill online storage systems with bitcoins held offline. This raises the natural question of what upper limit on online reserves minimizes losses due to theft over time. In this article, we investigate this optimization problem, developing a model that predicts the optimal ceiling on online reserves, given average rates of deposits, withdrawals, and theft. We evaluate our theory with an event-driven simulation of the setup, and find that our equation yields a numerical value for the threshold that differs by less than 2% from experimental results. We conclude by considering open questions regarding more complex storage architectures.en_US
dc.language.isoen_USen_US
dc.relation.ispartofJournal of Cybersecurityen_US
dc.rightsFinal published version. This is an open access article.en_US
dc.titleDetermining an optimal threshold on the online reserves of a bitcoin exchangeen_US
dc.typeJournal Articleen_US
dc.identifier.doi10.1093/cybsec/tyy003-
pu.type.symplectichttp://www.symplectic.co.uk/publications/atom-terms/1.0/journal-articleen_US

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