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This is like saying you can't lend out a dollar bill you don't have. It's strictly true, but doesn't accurately represent how the banking system work. The $1,
by treis 9y ago
This is like saying you can't lend out a dollar bill you don't have. It's strictly true, but doesn't accurately represent how the banking system work. The $1,000 dollars in my Charles Schwab account don't correspond to 1,000 physical dollar bills somewhere. They are simply a number in a database somewhere. When I go and withdraw that money, I get back a random selection of $1 bills that other people have deposited.
A bitcoin bank would work the same way. You deposit bitcoins by sending them to the banks wallet. They put a number in a database saying that you have 20 bitcoins in your account. If you then withdraw it, you will get a random selection of bitcoins they have in their wallet.
- adameast9000 9y agoUnfortunately fractional reserve isn't safe for a currency that is this volatile. Depending on what the "fraction" is, some major withdrawal demand against one of these exchanges would topple it
- jonknee 9y agoYes, that is precisely what the problem is. There will one day be a run on the exchanges and it will get nasty very quickly.
- saalweachter 9y agoSo you are a Big Fish. You have a boatload of money in exchange X. You go to take it out and they don't immediately give it to you. They say, "Listen, we can't get to it, it's in our cold wallets, it will take a week." A week goes by, they say, "Listen, here's 10% of what you asked for, we'll get you the rest shortly.". This goes on, they periodically give you some of the money but there's a lot of evasion. What's the Big Fish to do? a) Quietly keep pressure on the exchange, taking the money as it comes, while not putting any back into the exchange. b) Make a big stink, bring in lawyers, write press releases and bring down the exchange, possibly destroying any opportunity of getting the money back.
- wolco 9y agoMove coins to another exchange
- empath75 9y agoHow? They have your coins.
- adameast9000 9y agoA is obviously the choice here... but that's a problem if you have a lot of big fish trying to get their money but can't. The price should be tanking, but everyone is too afraid to trigger a run on the exchanges that would kill their investment. There's really no way to know if this is happening. It could have already started.