Fractional reserve bitcoin

[stan.distortion]

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[newIndia]

This can only happen if exchanges sell their own IOU as Bitcoin.

[BitUsher]

Audits aren't good enough, and exchanges can and do manipulate the market. We need more decentralized exchanges with cashouts at atms like the darkwallet team has done.

[Meuh6879]

good for owner of bitcoin ... the exact author of fractional reserve of bitcoin (or other named : leverage at 10-25x) ... will be faill like mt gox or other stealed exchange.

or other named : the 0% fee trading exchange.

well, it's the game, too.
don't blame the bitcoin when 83% of the actor on the FOREX system loose all money ... 

[colinistheman]

I could see this becoming an issue with exchanges who don't publicly prove their solvency.

I keep myself safe by not holding any btc in an exchange. If you're not a trader then get your btc off the exchange as soon as possible always! Then you're safe.

[Tdowns]

Stupid idea huh? Well its happening, right now there could be hundreds of thousands of fake bitcoin changing hands. How can this happen, doesn't the blockchain make this impossible? Yes but they're not changing hands on the blockchain, they're being traded on the exchanges with no form of verification whatsoever, even the existence of those coins on the exchanges isn't verifiable. Would you sell me something if I all I did was say I had the coins to pay for it and you could claim them any time you liked? Thousands did just that with Gox and got burned.

Audits are a step in the right direction but the last audits where months ago, there's some exceptions but there shouldn't even be a need for them, trades should be settled every block into user controlled multisig wallets with timelocks in case of failure. The need for trust is eliminated with Bitcoin but the exchanges aren't operating that way, they expect users to trust them and everywhere that's happened throughout history its been abused.

This will probably be the future of bitcoin soon enough

[countryfree]

Who cares about off-blockchain transactions?
If you don't live any BTC on any exchange, that's a non issue.

[jonald_fyookball]

I don't see why 100% provable reserves won't become the de facto standard, and consumers will not accept anything less.

[digit]

This can only happen if exchanges sell their own IOU as Bitcoin.

This is what they are doing and fractional reserve is likely to be happening with EVERY exchange that does not provide a live updates or even a daily updates of their coin held/owed to their users.  Large exchanges like Cryptsy can get away with it for now as they have enough users and bitcoin coming to maintain it,  but they have increased their fees, while decreased and delayed dividend payouts to their shareholders on Cryptostocks (from weekly, to monthly, to whenever Vern feels like it, and payouts get smaller each time) could be seen as an attempt to stall or reverse a growing debt in bitcoin before it becomes a problem for them.

I have very little trust for exchanges that have popped up since the 2013 bubble and don't provide some proof or their reserves/liquidity.  Bittrex, Polo, C-Cex, Bter, Bleu. 
Unfortunately the more honest exchanges dont get the volume that brings the users, thats brings the volume, that brings the users and so on. 

[colinistheman]

I could see this becoming an issue with exchanges who don't publicly prove their solvency.

I keep myself safe by not holding any btc in an exchange. If you're not a trader then get your btc off the exchange as soon as possible always! Then you're safe.

Even then its the speculators providing a reference to fiat and if they're doing it with fake coins that can damage security.

True I hadn't thought about that. It does still provides an artificial inflation to those trading.

Hopefully this then:

I don't see why 100% provable reserves won't become the de facto standard, and consumers will not accept anything less.

There is not any good reason why this shouldn't be the case. Hopefully it will be.

[Jamie_Boulder]

Examples? I thought we would see proof of transactions in exchanges after the mt gox debacle (I haven't used an exchange in over a year).

[digit]

Examples? I thought we would see proof of transactions in exchanges after the mt gox debacle (I haven't used an exchange in over a year).

There are several exchanges that do provide proof of some sort but they can not compete with the likes of mintpal/crypsty/bittrex/bter that are able to provide the volume and depth that brings the traders.
heres a few that do:

https://www.atomic-trade.com/liquidity - simplified totals for each coin that shows whats in users accounts, exchange wallets and the difference between the two if any.
https://exco.in/reserves - provides addresses with signed message to prove ownership
https://www.usecryptos.com/transparency
https://exchange.coinport.com/open#/reserve - Very detailed info and can be further verified using their Audit feature.

But people still flock to the secretive exchanges like cryptsy and bittrex,  that make no attempt to prove the coins being traded exist.  High volume and twitter pump groups that are allowed to operate on those exchanges all keep this going.
 

[nikona]

I could see this becoming an issue with exchanges who don't publicly prove their solvency.

I keep myself safe by not holding any btc in an exchange. If you're not a trader then get your btc off the exchange as soon as possible always! Then you're safe.

I do just that..n I expect everyone who is not a trader to do that..better safe than sorry.

[picolo]

Stupid idea huh? Well its happening, right now there could be hundreds of thousands of fake bitcoin changing hands. How can this happen, doesn't the blockchain make this impossible? Yes but they're not changing hands on the blockchain, they're being traded on the exchanges with no form of verification whatsoever, even the existence of those coins on the exchanges isn't verifiable. Would you sell me something if I all I did was say I had the coins to pay for it and you could claim them any time you liked? Thousands did just that with Gox and got burned.

Audits are a step in the right direction but the last audits where months ago, there's some exceptions but there shouldn't even be a need for them, trades should be settled every block into user controlled multisig wallets with timelocks in case of failure. The need for trust is eliminated with Bitcoin but the exchanges aren't operating that way, they expect users to trust them and everywhere that's happened throughout history its been abused.

I would estimate that right now most exchanges have at least the same amount of bitcoins that the total of their clients balances.

[Vessko]

Factional reserve banking based on Bitcoin is perfectly possible and will not increase the amount of existing bitcoins (although it will increase the money supply in a broader sense, with money equivalents).

But I don't think that this is what you are talking about. You are looking for proof of solvency of the exchanges. I don't think that this is possible. Sure, they can provide proof of reserves - but there is no way to prove that these reserves are exactly equal to the funds deposited by their clients.

[picolo]

Factional reserve banking based on Bitcoin is perfectly possible and will not increase the amount of existing bitcoins (although it will increase the money supply in a broader sense, with money equivalents).

But I don't think that this is what you are talking about. You are looking for proof of solvency of the exchanges. I don't think that this is possible. Sure, they can provide proof of reserves - but there is no way to prove that these reserves are exactly equal to the funds deposited by their clients.

If you audit them or they give a serial number for each account and a public list of the btc held by each account everyday so you can check if they control addresses corresponding to the total of bitcoins or more and each client can check if his number is right.

[Q7]

I think this can be only be verified through auditors but just asking myself, which exchanger actually practice that in order to prove their solvency. Personally the safest way is to withdraw all bitcoins and keep it with me. If I need to trade, I would rather pay the fees to transfer to the account and back, so long that I don't maintain my coins in there.

[ijphlrnxewho]

People can sue those companies for illegally using Bitcoin.

[picolo]

People can use those companies for illegally using Bitcoin.

illegaly acquired bitcoins?

[ijphlrnxewho]

People can use those companies for illegally using Bitcoin.

illegaly acquired bitcoins?

*typo

People can *sue those companies for illegally using Bitcoin.