# Wallet security design

The wallet infrastructure within BTFCoin is architected with a dual-layered approach, comprising cold and hot wallets, to ensure the utmost security for user assets.

## **Cold Wallet Architecture**

The cold wallet is the vault where the majority of user funds are stored, designed to be offline and isolated from the internet's vulnerabilities. The private keys for the cold wallet are generated through a highly secure, cryptographically random process, often leveraging hardware security modules (HSMs). These HSMs are tamper-proof devices that generate and store private keys in an encrypted environment, ensuring that the keys are never exposed in plaintext. Once generated, the private keys are stored within the HSM in an encrypted format, using advanced encryption algorithms like AES (Advanced Encryption Standard) with long, randomly generated keys.

To access the funds in the cold wallet, a multi-signature (multi-sig) authorization process is implemented. Typically, a minimum of \[N] out of \[M] signatures are required, where \[N] and \[M] are predetermined numbers based on security and operational requirements. For example, in a 2-of-3 multi-sig setup, three private keys are involved, and at least two of them must be used to authorize a transaction. This significantly reduces the risk of a single compromised key leading to unauthorized access. When a transaction needs to be initiated from the cold wallet, the relevant parties with the required private keys must physically access the HSMs (usually in a highly secure, offline location) and provide their signatures in a coordinated manner, following strict authentication and authorization procedures within the HSM environment.

## **Hot Wallet Architecture**

The hot wallet, in contrast, is designed for day-to-day transactions, holding a relatively small portion of funds to facilitate quick and seamless trading operations. The private keys for the hot wallet are also generated securely, albeit with a different set of security considerations focused on quick access and usability while maintaining a reasonable level of security. They are stored in encrypted form on servers that are protected by multiple layers of security, including firewalls, intrusion detection systems, and regular security audits. The hot wallet's multi-sig process is similar in principle to the cold wallet's, but with a faster turnaround time to enable prompt transaction processing. For example, a 1-of-2 multi-sig might be used for less critical, small-value transactions, allowing for more agility in the trading environment.

## **Fund Transfer Safety Checks**

When transferring funds between the cold and hot wallets, a series of stringent safety checks are in place. Firstly, all transactions are cryptographically signed with the appropriate private keys, and the signatures are verified using the corresponding public keys to ensure authenticity. Secondly, the transaction details, including the sender's and recipient's wallet addresses, the amount being transferred, and the timestamp, are logged and audited in real-time. Any deviation from the expected patterns or unauthorized attempts to initiate a transfer trigger immediate alerts to the security team, who can then take appropriate actions, such as freezing the relevant wallets and initiating an investigation.

## **Lessons from Real-World Security Incidents**

Past security incidents in the cryptocurrency space have served as crucial learning points for BTFCoin's wallet design. For instance, in cases where single-key wallets were compromised due to phishing attacks or malware infections, leading to the loss of user funds, the multi-sig approach in BTFCoin's design acts as a safeguard. Additionally, incidents where wallet servers were hacked due to weak access controls or unpatched software vulnerabilities have informed the implementation of strict security policies, regular software updates, and continuous monitoring of the hot wallet servers. By incorporating these lessons and maintaining a vigilant approach to wallet security, BTFCoin aims to provide users with a safe and reliable environment for managing their digital assets, effectively shielding them from the myriad of threats that exist in the digital currency landscape.

