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Why should an exchange have any less than 100% of the funds available? The exchange should be holding all customer funds in segregation, not mingling and floati

Why should an exchange have any less than 100% of the funds available? The exchange should be holding all customer funds in segregation, not mingling and floating them.

gboudrias 11y ago
It's strange to think about, but realistically the exchange does not need 100% of the funds available, since they will never all be withdrawn at once, even in the event of a massive crash. The actual proportion an exchange needs to keep to be able to pay everyone (who asks for it) at all times is about as predictable as the bitcoin market itself. Would we trust "100% funds available" exchanges more? Possibly, but the "cost" would be very high so I would actually be a little wary of an exchange which does this, as to me it would be "trying too hard" to look nice (in reality there's always some trust involved, and so some risk that the owners run off with your coins/money).
- venomsnake 11y ago
  Congratulations. You just invented fractional reserve banking.
  - gboudrias 11y ago
    Not sure I follow? This is standard in the banking world, yes, so why wouldn't it be standard in the much less regulated bitcoin world?
    - venomsnake 11y ago
      Because then you get all the "features" of the current banking system that bitcoin wanted to avoid. Bitcoin is by design deflationary currency. Fractional reserve banking is by design inflationary. No matter where you sit on how much inflation and what monetary policy is best - it is obvious that it is against the intentions of the original adopters and creators of the BTC network.
      - fucking_tragedy 11y ago
        Sounds like you're mixing ideology with technology.
  - feebale 11y ago
    No, he didn't. He invented insolvency. With fractional reserve banking, the institution has assets greater than liabilities. With insolvency, the institution has a plan to someday have assets greater than liabilities.
- olalonde 11y ago
  > Possibly, but the "cost" would be very high so I would actually be a little wary of an exchange which does this You lost me there. Why would that cost be high? All you need is a wallet (or two, hot/cold) which holds your customer deposits and which you are not allowed to spend from.
  - gboudrias 11y ago
    I meant the cost to the exchange. All that money they are not making by investing is a huge disadvantage relative to the exchanges that do invest. This is not a comment on what should be done in an ideal and/or moral world but the bitcoin (and financial) world is neither.
  - jsprogrammer 11y ago
    Seriously, it is much more work to make additional transfers and accountings of where all the money is going.
- atmosx 11y ago
  > It's strange to think about, but realistically the exchange does not need 100% of the funds available, since they will never all be withdrawn at once. This was never true, but in the aftermath of 2008, makes a really poor argument. Two points worth mentioning without going into details: 1. Bitcoin doesn't have a central bank to easy the bank-run. 2. When financial businesses go burst, it's extremely difficult to quantify the loss a priori for the accountants Any sane financial business with half-brain at this time and age would keep at least some percentage of the funds intact.
dorfsmay 11y ago
Why should the be hold to a different standard than regular banks?

Why should an exchange have any less than 100% of the funds available? The exchange should be holding all customer funds in segregation, not mingling and floating them.

gboudrias 11y ago

It's strange to think about, but realistically the exchange does not need 100% of the funds available, since they will never all be withdrawn at once, even in the event of a massive crash. The actual proportion an exchange needs to keep to be able to pay everyone (who asks for it) at all times is about as predictable as the bitcoin market itself. Would we trust "100% funds available" exchanges more? Possibly, but the "cost" would be very high so I would actually be a little wary of an exchange which does this, as to me it would be "trying too hard" to look nice (in reality there's always some trust involved, and so some risk that the owners run off with your coins/money).

venomsnake 11y ago
Congratulations. You just invented fractional reserve banking.
- gboudrias 11y ago
  Not sure I follow? This is standard in the banking world, yes, so why wouldn't it be standard in the much less regulated bitcoin world?
  - venomsnake 11y ago
    Because then you get all the "features" of the current banking system that bitcoin wanted to avoid. Bitcoin is by design deflationary currency. Fractional reserve banking is by design inflationary. No matter where you sit on how much inflation and what monetary policy is best - it is obvious that it is against the intentions of the original adopters and creators of the BTC network.
    - fucking_tragedy 11y ago
      Sounds like you're mixing ideology with technology.
- feebale 11y ago
  No, he didn't. He invented insolvency. With fractional reserve banking, the institution has assets greater than liabilities. With insolvency, the institution has a plan to someday have assets greater than liabilities.
olalonde 11y ago
> Possibly, but the "cost" would be very high so I would actually be a little wary of an exchange which does this You lost me there. Why would that cost be high? All you need is a wallet (or two, hot/cold) which holds your customer deposits and which you are not allowed to spend from.
- gboudrias 11y ago
  I meant the cost to the exchange. All that money they are not making by investing is a huge disadvantage relative to the exchanges that do invest. This is not a comment on what should be done in an ideal and/or moral world but the bitcoin (and financial) world is neither.
- jsprogrammer 11y ago
  Seriously, it is much more work to make additional transfers and accountings of where all the money is going.
atmosx 11y ago
> It's strange to think about, but realistically the exchange does not need 100% of the funds available, since they will never all be withdrawn at once. This was never true, but in the aftermath of 2008, makes a really poor argument. Two points worth mentioning without going into details: 1. Bitcoin doesn't have a central bank to easy the bank-run. 2. When financial businesses go burst, it's extremely difficult to quantify the loss a priori for the accountants Any sane financial business with half-brain at this time and age would keep at least some percentage of the funds intact.

dorfsmay 11y ago

Why should the be hold to a different standard than regular banks?