Topic: ATTENTION: Any exchange right now can act like a bank - page 2. (Read 2662 times)

And how exactly would a "decentralized exchange" work? I don't see how this computes with the need for a bank account to accept fiat currency.

Exactly. I encourage people to only store the amount they're likely to trade on the exchange. That goes for TradeHill, Mt Gox or anywhere else.
In the future if we offer features that make use of the BTC stored on the exchange that might change but at this point I don't encourage it.
If you're not sure how to secure your wallet and feel safer with someone else holding your coins that's another story.
-Jered

Actually, the title of your post is incorrect. "Any virtual bitcoin storage can act like a bank" would be more accurate.

• Example of an online storage that's not an exchange and still presents the same risk as you describe: mybitcoin.com.
• Example of exchange that's only partially an online storage and thus partially presents the risks: bitmarket.eu. They don't store fiat currency (the buyer pays directly to the seller), and it's easy and free to cash bitcoins in and out.

The advantage of bitcoin is that anyone can (and should) store their bitcoins locally and thus be their own bank. Keeping the same old behaviour of having someone store big amounts of money will always induce the same problem, whatever the currency. If you don't own a computer or trust yourself to keep them secure, ask a friend to store them for you. I'm actually storing bitcoins for a friend of mine, who didn't want to rely on a service like mybitcoin.com.

AFAIK there is no way, with the current bitcoin client, to request BTC's be withdrawn from a particular address.

In the meanwhile, it would be wise NOT to leave your coins in the exchange longer than necessary.

When Mt gox was on The bitcoin show they briefly described the ultimate solution to this very problem. Simply put "Decentralized Exchange" working on the same principle as bitcoin. this solution would eliminate the need to trust an organization. i hope mt gox will be able to achieve such a trading system.

This is a good idea.  I think the exchanges should implement this right away.

I think you bring up very valid points worth investigating. What you are essentially describing is what is called "counter-party risk" - which means you are at risk of the other party not honoring their obligation to you. This is one more reason to hold and store your bitcoin in your own "bank" (wallet) where no one owes you and no one can default on you.

Many of you might think I'm just trolling based on previous posts, but no sadly I'm not. I'm just bringing up some very serious issues that should be dealt with NOW rather than later.

An exchange uses a database to store everyones information, such as the amount of BTC you have. Say the exchange has 1000 BTC total from a spread of 100 users. Someone hacks the database (or the site/owner changes the database) and adds a user and sets his BTC amount to 1000 BTC -- even though those BTC don't actually exist.

This user can now proceed to sell, buy, cashout ect. -- All without being noticed as long as more and more users use the site. Now, if one day the user base becomes too low or everyone decides they need to cash out -- IT WILL NOT BE POSSIBLE.

A system in place needs to be acted upon on all the exchanges ASAP. I call upon them to do this for the safely of BTC and its users.

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When a user registers an account, they need to be assigned a permanent bitcoin address that the user can send BTCs to, and request to withdraw BTCs from.

This prevents a database to become compromised with BTC amount because the bitcoin address can be looked up at any time on blockexplorer to see the amount of BTC that address carries.

When users buy and sell BTC, information on every transaction needs to include the bitcoin address of the user those bitcoins were bought from -- again so anyone can verify they are legit.

The above basically creates a system anyone can verify is legit.

The next problem is verifying if they actually have all the cash. I can't really think up a good solution for this than to have trusted 3rd party check the financial information -- which is much needed.