To Regulate or Not to Regulate?

[bitcon]

it seems that with latest goxxing a question most of us now have on our minds about exchanges is - Regulate or Keep Unregulated?  If one exchange can bring this much chaos to the market, then the obvious looming doubt most of us will fear is that it will happen again. I believe there definitely needs to be exchanges that can guarantee us (as their paying clients) that our funds cannot be frozen or locked in their exchanges.  I'm sure there has to be some way to do this through the correct programming, whether or not it would be compatible with the current BTC protocol i cannot say for certain, but i would assume so.   With that said it seems like the biggest hurdle is finding an exchange or company that will remain honest and cannot be bought out by special interests.  any thoughts ideas?

[jasonjm]

it seems that with latest goxxing a question most of us now have on our minds about exchanges is - Regulate or Keep Unregulated?  If one exchange can bring this much chaos to the market, then the obvious looming doubt most of us will fear is that it will happen again. I believe there definitely needs to be exchanges that can guarantee us (as their paying clients) that our funds cannot be frozen or locked in their exchanges.  I'm sure there has to be some way to do this through the correct programming, whether or not it would be compatible with the current BTC protocol i cannot say for certain, but i would assume so.   With that said it seems like the biggest hurdle is finding an exchange or company that will remain honest and cannot be bought out by special interests.  any thoughts ideas?

only Warren G could possibly achieve something like this.

[MOB]

Keep your coins in your own wallet?

[ledmaniak]

Regulation(by means of a government) is not preferred of course. I think you can never prevent that this will happens again but you can try to avoid it by only trading on exchanges with good integrity; Have the bitcoin foundation(or another one) audit the systems, strict rules they should follow(and if not, removed from a trusted list) and from the exchange side: be an open book to your customers.

How would you implement a failsafe in the protocol? 2 private keys? So when one becomes invalid, the coins go back to the owner?

[seleme]

To regulate of course.

[knightcoin]

If you open a business/company/firm/enterprise you will be under a legal jurisdictions already ... otherwise you can try a silk rd version 3.1.2

[ledmaniak]

If you open a business/company/firm/enterprise you will be under a legal jurisdictions already ... otherwise you can try a silk rd version 3.1.2

Sure, but it won't prevent that the owners close the business and run away with the money to some other country.

Isn't exchange BTC-e something like silk rd? Russian owners, servers in cyrus, but operated from somewhere else and even the full name and the background of the owners is unknown..

[knightcoin]

If you open a business/company/firm/enterprise you will be under a legal jurisdictions already ... otherwise you can try a silk rd version 3.1.2

Sure, but it won't prevent that the owners close the business and run away with the money to some other country.

Isn't exchange BTC-e something like silk rd? Russian owners, servers in cyrus, but operated from somewhere else and even the full name and the background of the owners is unknown..

true, as my father used to say ...  Trust is a foundation built one brick at a time... and the roof is always to be done ...

[traderCJ]

Like anything that depends on the physical world for sustenance, Bitcoin must kiss the ring.

[knightcoin]

Like anything that depends on the physical world for sustenance, Bitcoin must kiss the ring.

I think its ok to quote the book ISBN-10: 1-59059-564-5 , Nice Book ; ) going to highlight some keywords in my point of view

A market’s liquidity is measured by how easily a trader can acquire (or dispose of ) a financial
asset and by the cost associated with each transaction. For example, if you wanted to sell a house,
you could place an advertisement or go through a real estate agent. Both of these options have costs
associated with them. It may also take a month to locate a buyer who is willing to match the price you
desire. In this case, the house is considered to be relatively illiquid. But imagine a marketplace where
all sellers and buyers of houses in the city came together in one area and tried to find a match—the
search would be easier, the chances for finding a buyer would be greater, and the convergence of all
buyers and sellers would result in price discovery and hence better prices. In this case, the house is
considered highly liquid. If you extend this example to a marketplace where company instruments
(shares and debt instruments) are traded, you get a stock exchange, as introduced in Chapter 1. To
avoid search costs (and of course to enforce other legal statutes), buyers and sellers come together
in a stock exchange on a common platform to transact. Since many buyers and sellers are present at
any point in time, searching for a counterpart for an order is relatively easy.
An order is an intention to enter into a transaction. Each order has certain characteristics such
as type of security, quantity, price, and so on. Initiators of orders notionally announce their willingness to transact with the specified parameters.
Each player in the market wants to get the best possible price. There is a huge scramble to get
one’s order executed at the right time and at the best available market price. Efficient order matching is thus a highly desirable tenet of an advanced market.
Also, anonymity is considered good for a financial market. This means traders do not know any
information about the people with whom they are trading. This is desirable when the participants
in the market do not have the same financial strength and when it becomes important for the market to protect the interests of the small players. Anonymity also prevents large players from exerting
undue influence on the trade conditions. In such a situation, to protect the integrity of the market,
precautions must be taken to ensure that no credit defaults take place. As mentioned in Chapter 1,
this is the job of a clearing corporation, which takes away the credit risk concerns of large players
through novation. This process also takes care of matching large orders with several potential small
players.

There is a huge scramble to get one’s order executed at the right time and at the best available market price

NO TIME TRAVALERS 

[Nagle]

from "Practical .NET for Financial Markets":
To protect the integrity of the market, precautions must be taken to ensure that no credit defaults take place. As mentioned in Chapter 1, this is the job of a clearing corporation, which takes away the credit risk concerns of large players through novation.

Right. We're in trouble with Mt. Gox because Mt. Gox is not just an exchange. It's also a depository institution, a broker, a clearing house, and a transfer agent. In the real world, those functions are separated to prevent Mt. Gox type situations.

NYSE Euronext, for example, is an exchange. They take in orders, match them, and issue transfer orders to  a clearing house. At no time does the exchange have ownership or possession of the items being traded.  The transfer orders go, usually, to the Depository Trust & Clearing Corporation, which does the actual transfer of stocks, etc. from one owner to another. They're like the Department of Motor Vehicles for stocks.

Customers deal with brokers. Brokers have possession, but not ownership, of securities on deposit with them. Brokers may hold customer cash, but large customers usually move their cash out daily to a separate bank. (It used to be common to sweep cash into Treasury bills overnight, but interest rates are so low now it's not worth the trouble.) Brokers in the US pay into an insurance fund, the Securities Investors Protection Corporation, which insures each customer for  up to $500,000. (SIPC paid off the first $500K of customer losses when Madoff was busted.)

These parts of the system are the plumbing of the financial world, and work fairly well. (Most losses, fraud, and other trouble comes from investment funds of one kind of another, because funds actually own assets and have customers as creditors. Funds also get to make investment decisions about their own funds.)

In the Bitcoin world, too many functions are concentrated into "exchanges". In particular, exchanges today are depository institutions - they hold customer funds for extended periods, not just during a trade. We need exchanges that work more like Coinbase - every day, if you set it up that way, all your cash at Coinbase is swept into your bank account.