Bitcoin Forum

For many users, included me, there are good chanches that the exchangers are acutually doing what banks usually do: operating on fractional reserve.

This is extremely dangerous for bitcoin, besides the price tanking because non-existent bitcoins are currently traded. More than that, letting them to do it invalidate the whole bitcoin concept, a perfect money for an untrusted network.

Bitstamp is constantly refusing to do an audit, also after all the shit that happened. Me and many others do not trust they on their word about not operating on fractional reserve, but they refuse to submit proof because they think they are " too big to fail". They are acting just like a bank, and by all the chanches operating under fractional reserve (maybe, also legally). Let's prove them wrong!

I want to organize a bank run, somebody can help me?

If you put your coins on an exchange they aren't your coins anymore because you dont own the private keys, you should have known that.
Putting bitcoin in a centralized exchange was always a bad idea, ideal for scammers. Im not putting a single btc in an exchange until decentralized ones appear.

This is a problem, but what really matters is that they can " moltiplicate" my bitcoin. That's operating on fractional reserve, all banks do it, and there are clues that exchangers are doing it too.
Look how they multiplicate the total circulating btc (substitute the word " loan" with " withdraw" ):

http://cynic.me/wp-content/uploads/2012/05/Fractional-reserve-banking-infographic-HORIZONTAL.png

and certainly investors play an important role as well :)

we are all waiting for decentralized exchange like open bazar, they should finish this year their job

Only a fool would have more than 10% of they're crypto on an exchange.  You should assume at any moment you'll lose all of it.

I don't understand why people actually use exchanges, I don't personally use any. Not a single one has my details on. I only trade P2P for my bitcoins the way it was intended. LocalBitcoins, Bitcoin-OTC, real life... 2015 will (I hope) be the year of the launch of P2P Bitcoin exchange platforms. What I mean by this is an web-app style orderbook system like the exchanges we have now, but the trades will be peer-to-peer and no coins will be stored on any crappy little centralised website.

If you don't like it, don't use it. Money talks.
I don't use it, and I don't have to give a fuck about it (until it crashes the price of my coins of course).

EDIT:
Look at some of these upcoming alternatives to your regular bendoverforthegovernment exchanges.
https://bitsquare.io/
http://www.coinffeine.com/

So in your words, whales are fools for having millions worth of value on exchanges...

But you don't mind if they pump Bitcoin 20% higher, right?

Figure out how they achieve that without having much funds on exchanges.

Just because they have milions on the exchange does not mean it is their entire btc holdings. 


Perhaps I should rephrase though, if you have over 10% of your wealth on an exchange you are a moron. 

Read my post above yours. Supply and demand still applies. Price still moves.

Not sure what you mean over there because when we trade, even if we get the levarage ratio of 1:20 (for example) the deposit on what we have with them will be used to cover our position. In other words, they will not allow us to lose more than what we pay for. And if the trade went against us, they will force sell or buy on the prevailing price, something similar to margin call.

Wrong! this is not leverage, I think that many people here are not getting what I means by fractional reserve (http://en.m.wikipedia.org/wiki/Fractional-reserve_banking)

An audit won't be a problem unless they are operating under fractional reserve. If so, THEY ARE CREATING "FAKE" BITCOINS offchain, therefore a part of the bitcoin currently traded on exchangers does not exist.

THIS WOULD GREATLY AFFECT THE PRICE TOO, I specify it because seems that a lot of people only bother about price, because there would be more traded bitcoin than the real amount people want to sell.

The people who have done this have immediately been caught out by the Bitcoin community, the thing is, bitcoins have a hard limit of 21 million, if exchanges ever attempted to rig their trade volume to something unrealistic they would immediately get caught, especially if they're dumb enough to post up their numbers.

Be assured that people have already thought of this and are keeping an eye on things, there will be exchanges and companies that certainly try don't get me wrong, but they are very often found out, this is partly why I'm so skeptical of the Bitcoin ETF people keep ranting about for example.

How can people know if bitstamp is operating on let's say 2% fractional reserve, if they refuse to audit?

If bitstamp operate with 102% of the BTC they currently have (" only"  2% fractional reserve) they can use a monetary multiplier (http://en.m.wikipedia.org/wiki/Money_multiplier)  of 2x, so they CAN double the money. They don't need to cash out all this money, i suppose they CAN'T cashout bitcoin, but they can in fiat, if they suppose a small fraction of deposited btc will remain offchain.

Exchanges are like banks, they always have the possibility to use FRB. since the fake coins comes from their database, not from the cold storage, an audit of the cold storage will not help

Traditionally, banks using FRB is because they can offer loan to help others using those saving money that seldom moves for decades, and earn interest in the process. But nowadays in developed country, there are seldom some company desperately need loan to eagerly expand business (maybe only bitcoin mining chips company ;D). A bitcoin loan is totally not practical at all, then exchange's only motivation to use FRB is to manipulate the price, but that might create a panic and withdraw, I guess they don't want to start a fire on themselves

That's why we need an audit of ALL the money. All they need is to stop their service for an hour and deposit onchain all the money.

You are right when you say they are not loaning, but.... can't they only sell bitcoins (a very little percentage of their volume) created out of thin air and withdraw fiat?

There won't be exact figures obviously, but it's easy to estimate, for instance, with mt.gox the price was going stupidly high thanks to the now nicknamed 'willy bot' ( Think I got that right ) and a bunch of people had worked out that Bitcoin's price went high because of that trading bot bumping up the price rather than it being because of any legitimate trade volume.

Also, don't forget about the blockchain, even if a company tries hard to hide it's tracks, currency can still flow from one address to another, so in the end it's just a matter of time before it's tracked down.

That's if a company is using the blockchain and not an internal database SUPPOSEDLY backed by btc somewhere on the blockchain.

i think will born new trusty bank later
i beieve it willl happened

In order for it to be a legitimate transaction it has to be on the actual blockchain, anything happening in the internal database would be fake and completely meaningless to the cryptocurrency itself. You're completely missing that this was the whole point the blockchain was created, it's a public ledger that people have to use in order to make legitimate transactions.

I think you need to go and do some reading on how the blockchain actually works before running around making doomsday comments like everybody else who doesn't understand cryptocurrencies does.

I think you need to go and do some reading on what I actually wrote. I am not talking about on-chain transactions, but about transactions on the exchangers: when bitcoins are exchanged between bitstamp users these transaction are not handled by the blockchain, where bitcoins remain unmoved unless some user withdraw it. I am claiming exchangers are using fractional reserve to artificially pump the number of the coins on the exchangers, not on the blockchain.

Yeah, don't even bother, I did read what you wrote and I've answered your questions, you don't realise that if they did what you're claiming they're going to do they would end up being easily spotted as they have done before because the transactions wouldn't match up with anything on the blockchain and in order for the transactions to be a legitimate transfer of value in Bitcoin it has to be on the public ledger.

If you can't withdraw the money that's being transferred to and from an account on the exchange and use it out on the blockchain it's all fake, it's that simple, Bitcoin and cryptocurrencies cannot so easily be used in fractional reserve systems and you're just stuck on the idea that they can.

Yes, i'm still stuck with it. I'm sorry for not being able to get this, and I will understand you if u keep up in trying to educate me. But...

bitstamp know that a fraction of the coin will never be withdrawn. That's why they can act on fractional reserve, and I don't understand why you say they couldn't. I explained why " only"  2% fractional reserve means they can make a lot of money.... I really don't understand, are you saying that if a bitstamp user have 3 btc and then let'a say he buy 1 this reflects on the blockchain and you can spot it? Or do you think that there are some spots in the time when users withdraw more than 98% of the total btc funds medially deposited on bitstamp?

Let's say that now I buy 1 btc at bitstamp. How you can spot that this btc has transferred from another user and me and not simply created out of nothing?

If I withdraw they for sure will give me a real bitcoin, i'm claiming that not all the coin on bitstamp are provably real bitcoins. If u can prove it, please explain me how.

If the user can withdraw it then it's real, if however the exchange starts coming up with excuses as mt.gox did like "We are having maintenance problems" or other such comments and try to delay that means somethings going on, it does require communication between the users but this is how the Bitcoin community is able to quickly oust any dodgy dealers.

It's more difficult to track the internal workings of an exchange if it's not public and there will be losses don't get me wrong, but that's what it takes to win against them. There will need to be a chunk of currency lost in order to check whether there is something wrong with the system, someone has to put money down.

You do, once you put it in an exchange. Look at this Q&A with Andreas:

https://www.youtube.com/watch?v=1DG98FH1qlo

sadly cant find the part where he talks about exchanges but its there.

Keep your bitcoins on exchanges for short durations only. The probability that the exchange would go belly up in that short duration is much lower.
Choose safety over convenience.  :)

All people owning bitcoins and who wanted to cash out found someone willing to give them fiat for their bitcoins, at least 150$.

Very relevant to the topic:

https://en.bitcoin.it/wiki/Controlled_supply

https://i.imgur.com/CdodXiL.jpg

erre, now you're just spamming, it's obvious you're not interested in listening to the other side of the debate.

I keep hearing this, but how in the f*k are you supossed to do daytrading if you can't keep your bitcoin in exchanges for long periods of time?

Wut? I just posted a link from bitcoin wiki, stating exactly what i'm claiming:

" While the number of bitcoins in existence will never exceed 21 million, the money supply of bitcoins can exceed 21 million due to Fractional-reserve Banking"

What is the other side? You said " that can not happen, community will spot it in no-time", but seems that you can't explain me how. MtGox was a real different thing, they where not operating at a very sustainable 2% fractional reserve or so, they were just scamming and faking trades.

I understand that OP was really bad written and I apologise for my english, but my biggest error seemed to assume that everybody already knows about fractional reserve and the related risk, and this seems not.

Please look at this post, it explain the whole thing better than me:
https://bitcointalk.org/index.php?topic=927371.msg10245596#msg10245596

You ignored my explanations of how the blockchain and transactions worked, so yes, you're just spamming your own point of view now and choosing to ignore what quite a few people have told you.

I didn't ignored it, I just told that i'm not talking about the coins on the blockchain  (existing bitcoins) but about coins on the blockchain + coins on exchangers (money supply). If exchangers don't operate on fractional reserve, existing btc would equal to money supply.

But I am claiming that the money supply is artificially augmented by faking the amount of coins on exchangers (not on the blockchain), so actually money supply>existing btc. You can do it without faking any tx on the blockchain and you can let users withdraw all they want to, unless users do an organized bank run or force you to do an audit. You seemed to ignore this.

" While the number of bitcoins in existence will never exceed 21 million, the money supply of bitcoins can exceed 21 million due to Fractional-reserve Banking"

The problem is we don't know what bitcoin websites use a fractional-reserve banking system so we don't know the real money supply.

Exactly that! We can know if a site is operating on fractional reserve or not only by forcing it to do an audit, or if we withdraw all the money (pretty much the same as doing an audit)... otherwise, it would be impossible to spot it only by blockchain analysis.

The mainstream at large is allowing demanding Bitcoin to go this way. Exchanges are the interface between the customer and the miners (BTC minter) just as banks are the interface between the customer and the Fed (money creator). It has been shown time and time again trust is difficult in practice. Not saying I agree with it, but it appears this is a necessary evil if the technology is to be implemented in the real world.

Another problem is that the technology may be public, however; all infrastructure is private. As nice as it sounds, demanding solvency audits and inner circle information doesn't have to happen with private industry.

100% agreement here, just the normative evil of the world. I urge you to check out the FDIC website regarding historical reserves since the 70s. They publish yearly values. If you look at their ratios, you will soon realize that even the FDIC hasn't remained solvent (they are public). They are below a ratio of 1:1 many years now. It's quite sad, but the system is backed by the Fed which is backed by the USG. Centralization allows this to occur unchecked.


They don't want you to know because it relinquishes their control on you as a customer. If you don't know, you are forced to believe in them and form a bond of trust. This makes the equation one-sided and it doesn't benefit the customer (us). This is what they want.

We can ask all we want, take our business elsewhere, etc., but if mainstream gets it, you can bet it will go this way. The sheeple do not care about transparency. It is not important to them; I'd dare to say most like not having to make any decisions of their own. It boggles my mind sometimes.

Some people are getting this, I think that spread  thisinformation would be good for the btc ecosystem, I was really shocked when I understood how much it can damage bitcoins.

This is another very good explanation about how fractional reserve would work for bitcoins:

It is important to recognize the difference between Currency Supply and Money Supply. The currency supply of bitcoins is limited to 21 million. Money supply is higher because it includes demand deposits. Let us take an example: Suppose that there are only 100 Bitcoins on Earth all owned by Satoshi. He puts all 100 in Bank Alpha. Bank Alpha puts 20 of the bitcoins (20%) in a special account and leaves them there. They then lend out 80 bitcoins to Gavin. Bank Alpha tells Satoshi on his account page that his account has 100 bitcoins in it. The total money supply of Bitcoins at this point is 180. You can see that there is no magic required. Now, Gavin buys some LolCat comics from Cameron for 80 bitcoins. Cameron puts his 80 bitcoins in his bank, Bank Beta. Bank Beta puts 20% in reserve (16 bitcoins) and has 64 to lend out. They lend those 64 bitcoins to someone else. Cameron's account page on Bank Beta's website says he has 80 bitcoins in his account. The money supply of bitcoin is now 100+80+64 = 244 bitcoins. Supposing all banks put 20% in reserves for safe keeping, and suppose everyone uses banks (as opposed to keeping them in a wallet on their computer) then the money supply of bitcoin will max out at 500 bitcoins. Obviously because some people will hold their own bitcoins and because they will be used out in the world for transactions, the money supply wouldn't reach 500 bitcoins, but it can easily exceed 100.
An obvious response is 'Well what happens when Gavin takes his bitcoins out of the bank!?' The answer is that that is what the reserves are for. Although not reflected in this example, the actual reserves held by a bank would be vastly greater than the amount held in any individual customer's account.
And that is how Fractional Reserve Banking works.

https://en.bitcoin.it/wiki/Talk:Myths#Fractional_reserve_banking_with_Bitcoin_is_fundamentally_different

(Note that there are plenty of solutionso other than "simply"  borrowing, like shorting or mining

here my topic about BTC exchanges and their way of using a fractional-reserve: https://bitcointalk.org/index.php?topic=945881.0

We are all waiting for bitcoin to be global reserve currency so that we can abandon all exchanges.
By the time allts will also be proven worthless.

If Bitcoin becomes a global reserve currency, it is likely that at least a couple altcoins have some long term success too!

Not if they want to replace bitcoin, only if they add something new.

If you like investing and speculating like me you'll still want exchanges to have fun with :D

3 January 2019

Finally, the date for the bank run is coming! Many people are coordinating for this date.

Don't let any coin on the exchangers ever, but expecially on 3th January 2019!

It's always not a good idea to put our Bitcoin in a centralized exchange where third party take part on the exchange. I also am not putting my stocks in such an untrustworthy kind of trade.

I usually report necros, but this is a relevant event that is happening soon.

https://www.proofofkeys.com/

Proof of keys is a very nice way to send a message to all the exchanges (I wish people would do this for online wallets as well..) that the bitcoin they own, is not their own.

But it should also be a reminder to everyone, that if you don't own the private key, you don't own the money on that address. So please don't keep your funds on exchanges, or at least keep only funds you are actively trading or using.