How can a centralised exchange prove they won't run away with your money?

[wangxinxi]

How can they prove that? I know they can somehow prove that they have money at some point. But that's still not very convincing.

[tripppn]

They can't.  There has to be a level of trust.  I don't care how good of a rep an exchange has they can always up and run and be very hard to find.  NEVER LEAVE TOO MUCH COIN ON AN EXCHANGE!!!

[PolarPoint]

They can setup a trust with a reputable lawyer or accounting firm and have no access to the keys of their cold wallet. That would warrant some trust. The exchange can still run away, just with less money.

[findftp]

How can they prove that? I know they can somehow prove that they have money at some point. But that's still not very convincing.

I think multisig could solve that problem.
Both you and the exchange need the keys to move the coins.
You could also use three or more keys.

[wangxinxi]

How can they prove that? I know they can somehow prove that they have money at some point. But that's still not very convincing.

I think multisig could solve that problem.
Both you and the exchange need the keys to move the coins.
You could also use three or more keys.

Multisig needs real bitcoin transactions when you try to move funds. So whenever you open an order, you need to wait for several minutes until the transaction is confirmed, during which, the market may have changed significantly. How to address this problem?

[opossum]

How can they prove that? I know they can somehow prove that they have money at some point. But that's still not very convincing.

I think multisig could solve that problem.
Both you and the exchange need the keys to move the coins.
You could also use three or more keys.

This would not work as all of the coins are comingled together with the coins of other customers' money. Plus many people use exchanges in order to purchase bitcoin from their marketplace so the customer would not have any kind of associated private key. If you had "three ore more keys" of a multisig address then you would essentially control the bitcoin which would defeat the point of having the bitcoin at an exchange in the first place.

[wangxinxi]

How can they prove that? I know they can somehow prove that they have money at some point. But that's still not very convincing.

I think multisig could solve that problem.
Both you and the exchange need the keys to move the coins.
You could also use three or more keys.

This would not work as all of the coins are comingled together with the coins of other customers' money. Plus many people use exchanges in order to purchase bitcoin from their marketplace so the customer would not have any kind of associated private key. If you had "three ore more keys" of a multisig address then you would essentially control the bitcoin which would defeat the point of having the bitcoin at an exchange in the first place.

Good points.

[sandykho47]

It's very hard to trust centralised exchanger, but i think this can give a bit trust :
1. They must tell where are their office (not just fake picture)
2. They must show they are registered company
3. They must reveal their identity in real life
4. They must swear they won't run away with your money
5. They might need give you insurance
6. They must trusted by other people

It's not prove they won't run away with your money, but the chance is reduced

[xmasdobo]

No doubt once exchange owners start seeing loses monthly they are going to pull a Gox/Mint and get the money and run.

[wangxinxi]

No doubt once exchange owners start seeing loses monthly they are going to pull a Gox/Mint and get the money and run.

Why do they run instead of applying for bankruptcy?

[bitsmichel]

How can they prove that? I know they can somehow prove that they have money at some point. But that's still not very convincing.

They cannot prove that they will not do that, which is why something like the Mt Gox theft was possible. At best an exchange could give you control over your bitcoins by handing you your private keys. Private keys are used to initiate bitcoin transactions and could be imported into your wallet.  Exchanges are no exception to this: any centralized system can run away with your money (including banking systems). If you do not have the private keys you do not control the money.

[wangxinxi]

How can they prove that? I know they can somehow prove that they have money at some point. But that's still not very convincing.

They cannot prove that they will not do that, which is why something like the Mt Gox theft was possible. At best an exchange could give you control over your bitcoins by handing you your private keys. Private keys are used to initiate bitcoin transactions and could be imported into your wallet.  Exchanges are no exception to this: any centralized system can run away with your money (including banking systems). If you do not have the private keys you do not control the money.

yeah, but if you are the only person who has the private key, it's going to be much more cumbersome to trade, and every trade could take much longer as bitcoin transactions need time to confirm. If you have the time to wait for the confirmations, you can also choose another more intuitive way, i.e. store as little in the exchange as possible and transfer into the exchange only when funds are needed.

[Lethn]

In the absolute end they can't and even if it could be proven, they'd still be vulnerable to hacks, people need to learn to stop storing their money online and use a cold wallet.

[wangxinxi]

In the absolute end they can't and even if it could be proven, they'd still be vulnerable to hacks, people need to learn to stop storing their money online and use a cold wallet.

In the traditional finance world, withdrawals are all processed manually. Although it takes a lot of effort and time, it's secure. Traditional exchanges are also being hacked everyday, but they seldom go bankrupted because of the hacks.

I don't know how many bitcoin exchanges failed because their creators ran away, but I guess most exchanges' failure was due to automatic withdrawals. People say MtGox's failure was due to some technical issues of Bitcoin. But surely there are still other issues within either Bitcoin or the exchanges' trading systems. If MtGox manually checked their withdrawals, they wouldn't fail. And to me, if existing exchanges do not check withdrawals, many of them will also fail sooner or later due to some other technical issues.

So, maybe bitcoin exchanges should follow the same approach adopted by the traditional finance world and check user withdrawals manually?

[btcmulisha]

In the absolute end they can't and even if it could be proven, they'd still be vulnerable to hacks, people need to learn to stop storing their money online and use a cold wallet.

Correct.. It is better when we back everything that we have.

[CryptoCarmen]

4. They must swear they won't run away with your money

Swear to whom? Maybe all mighty ghost of Rockefeller.

[Q7]

One way to overcome this is never to trust anyone. I only keep small amount in exchangers and that applies even to big reputable exchangers. No exception. If i need to trade, well just have to go through the waiting process. Opportunity might passed but at least money is safe.