The latter. The spacing on either side of ы should be the same as the normative space on other letters with straight sides: и м н п ш

The distance between the two parts of ы needs to be balanced carefully against the stem weight and the basic spacing between upright characters. I usually start by making the distance the same as the weight of the stem of the right part, and then increasing it gradually until it looks right in context.

Ы represents a single vowel (and sounds like y in "myth"). Have it in mind during adjusting the inner distance. Check samples like выгравированы, where you have two ы.

Hey thanks John and Marcin, that's very helpful :-)