Bitcoin Forum

What happened with mtgox is like Enron, it's not an isolated incident, it's actually widespread.

Btc-e.com is another exchange that is running fractional reserve, and ready to disappear with everyone's money at a moments notice.

Without an independent group of auditors, how do you know that bitstamp and blockchain.info aren't running thousand bitcoin deficits due to theft, loss, incompetence, etc?

You don't.

Until a bitcoin exchange/business passes an audit by an outside/independent body (and continues to do so at regular intervals), why should we assume anything but that this business is insolvent, running fractional reserve, or misappropriating funds in some other way?

Oh wait, we should just believe the business and take it at it's word.

Wallstreet has this type of problem even with tons of regulation and government bodies watching.

With bitcoin having none of this, it will certainly be even more widespread.

I'm not saying that government is the answer, but some sort of independent 3rd party bitcoin auditing service that will certify an exchange/bank as 100% solvent and not running fractional reserve is definitely needed.

So you opened this thread with a FUD title with absolutely no proof?

Good job...

 ::)

No so terribly unreasonable given that thousands of people have accounts on these exchanges and have no proof that they arent goxing.

But, yes, it is speculation both ways.

Shame since the whole point to btc is to not have to trust and to rely on publicly visible consensus.

Don't you get it.

I shouldn't have to prove that they're fractional reserve.

They should have to prove that they aren't!

This is Eastern Europe and Bulgaria is one corrupt, poor country.

You really think these Bulgarian's are going to be sitting on millions and millions of bitcoins and aren't going to want to "borrow" or touch some of those coins. The temptation will be too great.

They could easily remove some of those bitcoin and then try to gamble with them, make more money, and then return the bitcoins safe and sound afterwards, and no one would ever no.

It it were my exchange and I had no over-site, I'd be tempted to do this myself.

If you don't leave your coins directly on the exchange, you are only exposed to risk for the one hour that you purchased or exchanged coins and are waiting for your withdraw to confirm

Yes I think you have a point

We need exchanges that are audited by Bitcoin figured or trusted persons; mtgox shows us that Bitcoin is still very new and a lot is still to be made to have a very trustful and efficient system that is massively adopted; I think that the economic storm that is coming will help getting Bitcoin adopted

Wanting to do that is completely idiotic, because going fractional on Bitcoin does not amount to the same thing as it would with fiat deposits.

The advantage to going fractional on fiat deposits is to maximize profits through leverage, predicated on the assumption that the risk/return on lending out fiat deposits works in the depository's favor on average.

With Bitcoin, that's the most insane and dangerous proposition ever, because it isn't exactly rocket science to see from past performance that becoming illiquid in Bitcoin can result in a situation where after a large rally, the operator would never ever be able to buy back adequate reserves, because the returns in Bitcoin itself were higher than anything they could've ever done through leverage. This could only ever happen in a situation where you had a robust Bitcoin credit economy where returns themselves were denominated in Bitcoin directly.

Basically there is no way to do this without actually being a straight Ponzi. Trying to operate a plan like this amounts to massively shorting Bitcoin at all times (without customer consent) risking shorting into an enormous rally that ends you.

I'm just going to borrow a few coins from the exchange to pay for my mansion filled with prostitutes.

I will repay those coins with the income the exchange makes next year.

Don't worry. 

You can trust me. 

 

Nobody can actually make money doing this unless they've already decided that what they're doing is going to be outright fly-by-night theft. And the risk/reward for doing something like this is irrational in comparison to the reward for actually running the exchange business.

Saying that this could possibly be going on is tantamount to saying that btc-e does not intend to actually operate, and that kind of claim needs a lot more evidence than just cynical bush-league allegations on the basis of 100% conjecture.

My exchange still has enough bitcoins to cover 95% of deposits.

What's the big deal?

It's not like 95% of customers are all going to try and withdraw at the same time.

My employees worked really hard and deserved a Christmas bonus. Not to mention, we needed new office furniture.

Bullshit! Mtgox was never designed to be a fly by night and Mark didn't actually profit from the exchange, it's ruined him.

Think about it.

If an exchange is not profitable and they have to choose between closing the business, or "borrowing" some of the bitcoins temporarily until they make up the difference next year, which do you think they'll choose?

The exchange will always choose the ladder.

It would actually make sense for the most successful exchange to be skimming the top, as that would give it the financial strength to out compete the other exchanges. Lance Armstrong anyone.

So somebody is guilty until he can prove that he is not? You just made a statement, that is not true. You could ask "Does btc-e have a fractional reserve" or "It is likely, they have a FR", but so?

There are ways a 100% reserve can be proven without a third party.
There are always two steps:
1. How many btc they have? This is simple, they can just sign addresses with coins.
2. How many btc they owe to customers? This is tricker, because they don't what to kill any privacy. So they can just publish a list with all accounts and btc on it, where the accounts are in an random id, which only the account owner has.

But doing the same with dollars or euros? I don't have a way...

blockchain.info running fractional reserve? you lost me there.

i understand your concern though. and btc-e will need to prove themselves or go the way of gox

Silly thread, why do you worry about Fractional banking? i know for a fact that the sun is going supernova any time now... Prove me wrong? lulz... We will all be atomic dust and even i won't be able to stand up to anybody to say: "I told ya so."

Now i have to go back to my Vogon dictionary see if i can hitch a ride.  :D

Um. Blockchain.info is not an exchange, and has no reserves (or BTC) for that matter.

/ignore rest of post.

What you're describing isn't what "going fractional" actually means, what you're describing is just petty theft. Fractional means that you are leveraging deposits to make a return.

lesson to learn

dont use ANY exchange for long term store.

do your trade and withdraw. deposit later if you want to trade again.

if you are a day trader that wants to do multiple trades per hour/day and dont want the hassle of withdrawing/depositing. then DO NOT put all of your funds into an exchange. risk 10% or an amount you think your safe enough to lose.

i have a cold store. i only play with a small percentage on an exchange and when that amount reaches a certain level i withdraw the profits and repeat again with just that minimum amount. i make a heck of a lot more profit then having FIAT in a bank account for a year. and have my funds safe away from all of these third parties.

imagine it this way, if you have 1000BTC only risk 10btc-100btc. when lets say 10btc becomes 11btc. withdraw the 1btc profit. rinse and repeat and all of them 1btc's add up and after a year you will have a heck of alot more then 1000BTC but without risking it all with third parties.

i am now independantly wealthy, not relying on an employer to give me an income, or a third party to look after my funds. and thats what BTC should be all about

Word.

Yes you are right, don't trust banks, government or exchanges

I think Bitcoin need exchanges that show that they have the money either by being audited by a trusted third party or giving the public addresses where the funds are

American regulators need to shut their stupid uneducated sensationalist pandering mouths about drugs, murder for hire, human trafficking, terrorism, etc. and actually talk about consumer protection. Do your stupid job instead of grandstand about bullshit you know nothing about on camera.

The above is correct.   In regards to BTC-E.com, they don't really need to do anything until people start having major problems with withdrawals.  The have a large enough user base, and have operated very efficiently for a long period of time.   If you don't leave all your coins on the exchange (which you shouldn't be doing anyway), you are only exposed with the coins that you are day trading.

I don't have any problems with BTC-e, they do fine by me, thanks.

However, one important thing is that an exchange by its nature, can change hands quickly, and can begin to fractionalize their coins at any time.  I am saying that when you allow someone to mint coins and then trade coins, it is like giving a coke addict the keys to the coke room, how would anyone remain good, when they could get stringarmed/endebted and then just start fractionalizing their coins in the background?

Of course the blockchain would tell on them, so they'd have to blame some TX flaw on bitcoin to get the time to really hold the widow open long enough to screw all the final people as well, in terms of recent history.

did the OP add "FUD" to the thread title, or did a mod?  haha

You don't need an audit.   This is Bitcoin, you can publish a signed ledger and tree of debits showing your holdings in BTC, LTC, etc.   

The fact that they are not doing so, despite being repeatedly asked, is very telling.

I pulled all my money out of btc-e, shortly after they refused to respond to the new protocols allowing the signed publishing of reserves and debts.

http://www.reddit.com/r/Bitcoin/comments/1yk4nv/please_ask_your_favorite_exchange_to_prove_that/