Topic: Fractional reserve bitcoin (Read 1914 times)

The problem with exchanges/services running on a fractional reserve system is that there is a risk that the person running the exchange/service is going to take on too much risk that results in them having negative equity along with the fact that there is a risk that there will be a "run on the bank" that results in more withdrawal requests then the amount of bitcoin the exchange/service has/controls

I don't really see a problem of fractional reserve happened to bitcoin.  For it to work, you need to trust that the IOU's issued by the fractional reserve, and we see more and more people have stopped putting faith into other people/companies/exchanges.

It would be good to see something like this become the standard for all exchanges:

https://www.litecoinlocal.net/audit

You can read about it here as well

www.coinssource.com/decentralized-local-trading-localbitcoins-resurrection-litecoinlocal/


At the end of the day, it is up to people to ensure they are getting what they pay for if they are using non-traditional methods of purchasing BTC

There will always be p2p exchanges

We may have a different definition of a user controlled wallet, but Usecryptos is simply showing the addresses in the exchanges wallets with current balance and underneath that user account balances, so it can seen if what is held is equal to users see they have there.

Atomic Trade is effectively the same but keeps its simple with just the updated totals for each coin and the difference.  It doesn't provide a method of user verification yet but it was one of the first exchanges to provide proof (est Dec 2013).  Anyone that has traded there will have been able to see the decrease/increase and difference can seen when coins are deposited/withdrawn or blockchain issues eg fork/rollback.  Interesting side effect of PoS coins seen, is when staking can make difference negative as staked amount, is temporarily unavailable until it matures.
There is also a richlist which shows the top 10 balances/users for each coin and provides some further insight into distribution and validates to small degree what is shown on liquidity. (its all linked together and can be seen to update as trades and transfers occur).  

Coinport and Exco.in are the latest and still new but their proof is detailed and takes all this to the next level with the verification.
  
I believe Cryptsy knows it will have to provide something like in the future or its days are numbered, but of course they quite likely cant do it right now as the results would scare half their users away.  Increasing fees, changing to base currency fees, rebates, cloud mining hashes are methods by which they take in more btc and then present a better picture when they make their audits public.  

But i think no matter how much proof more transparent and honest alternatives provide, the main exchanges have and maintain advantage over them by withholding proof as they can keep faking volume/use their p&d groups and other tricks to keep flow of money into them.  Unfortunately majority of traders are going to follow the herd and trade where they can see volume, so low volume and low/empty orderbooks means the more honest exchanges continue to be ignored by them.

People should hire a low cost actor or actress to start suing those companies for illegally using fractional reserve Bitcoin. This way, it can be documented in history. It doesn't matter if people win or lose the lawsuit, the point is to have a court record to show the fraud.

*typo

People can *sue those companies for illegally using Bitcoin.

illegaly acquired bitcoins?

People can sue those companies for illegally using Bitcoin.

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.

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.

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.

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

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

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.
 

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).

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

Hopefully this then:


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

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. 

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

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