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Originally Posted by Wormius

They should probably have some kind of clock system that physically disconnects their machines from the internet and only allows customers to log in at their prescribed time or by appointment if they want a transaction. Kind of like those fancy vaults.

Flexcoin did something similar that lots of people who hold lots of Bitcoins do in they held them in offline wallets. Be it a disconnected computer or physically printing them out, some (most?) of the bitcoins were offline and not accessible to hackers.

The part that hackers stole was the float, the stuff they needed to have online so that they could process transactions in a reasonable amount of time.

So it was like stealing the money from the teller but leaving the vault because it was locked. Or stealing the vault but most of the money is taken offsite.

I guess you could still have some kind of appointment system to try and reduce or even eliminate your float, but the harder it is to use the fewer people will use it.

Originally Posted by Wormius

Also, why would you want to store your bitcoins on an exchange? I assume you wanted to exchange them for real money, so... wouldn't the original owners of the bitcoins have gotten their money when they traded their coins in? Why wouldn't they just keep their coins stored locally if that wasn't the intention?

Flexcoin actually put itself forward as a bank, rather than an exchange. The idea behind Flexcoin is storing Bitcoins securely is hard and most people get security wrong.. even experts can make easy mistakes. So they were saying they had the solution so you could use them to store your Bitcoins and not worry. The Bitcoins are like cash analogy is apt here as well; storing money in your house is hard to do so that it's impossible to have it stolen, so people put their money in banks, because banks have had lots of experience protecting money and have solved the problems.

As for exchanges, some people leave their coins in exchanges because they're day-trading the coins, some do it just because they're lazy, and because storing them properly is hard and most people don't know how to do it properly.

The people that use the exchange to do just that; exchange them (i.e. transfer in some coins, exchange to other coins or cash, transfer out) are only at risk if they happened to have their stuff in there at the exact time of the theft.

EDIT: So on one hand you could say people are being foolish by using an exchange as a bank, or using a bank they don't know anything about, and buyer beware, but that's why we have banking regulations and stuff, because people are foolish and lazy, or just simply can't be expected to have enough knowledge to either take care of their own security or evaluate the security of available options. And having a secure place to keep money is something that's pretty important to society.