Well, thanks for trying. Unfortunately, I find your paper largely confusing and unclear. First of all, what problem do you intend to solve that has not been solved by standard techniques already? Second, I get the impression that you have a poor understanding of the state of the art in applied cryptography. For example, it should not be necessary to transmit the "master key" to the server. If you are trying to build this for your own exchange I suggest hiring someone who has read a book or two about theoretical computer science/cryptography.
Transmission of the master key on trade requests is exactly what keeps it secure; an attacker can not break into the exchange and steal coins without also knowing the master key, which is never stored at the exchange.
What makes you believe that the master key is never stored at the exchange? When I own/pwn the exchange, what keeps me from storing it?
There are crypto techniques (such as zero-knowledge proofs) that make it unnecessary to give the exchange (which you do explicitly not trust) any part of your secrets.
Nothing stops you from recording the master keys and differencing codes if you had that level of control over the server, the intention is that you wouldn't be able to automatically access the BitCoins used by the accounts in the past (meaning you can't steal all of the BitCoins from the exchange). It's about minimizing damage.
Unfortunately, since the exchange must have easy access to BitCoins for trading (i.e. they must have a wallet of some kind with the user's BitCoins in it; currently I expect this is done with one giant wallet, here it is one wallet per user) there is no way to have both the exchange accessing the coins without you providing the details required to open the wallet. Please note that you can't simply send BitCoins to the exchange when you want to do a trade, as it takes up to an hour for a transaction to be processed and confirmed (which is no good for trading).