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What this means is that very easily, or even accidentally, MTGox could be running a fractional reserve bank in bitcoin. Balances are just numbers in the databas
by wiredfool 15y ago
What this means is that very easily, or even accidentally, MTGox could be running a fractional reserve bank in bitcoin. Balances are just numbers in the database, so there's no cryptographic requirement that they sum up to the actual amount in the dollar and bitcoin escrow accounts/wallets.
They can inflate the bitcoin in circulation, and all it takes is enough real bitcoin and cash to cover the withdrawals for no one to know the difference.
- daeken 15y agoBy using floating point values for a user's balances (per-currency) in the DB, they effectively did make themselves a fractional reserve bank, even if the spread was likely small. Most every transaction would've added a tiny bit of an error value -- given enough time, this would've added up pretty considerably.
- wiredfool 15y agoWell, that and the 500k. And whatever anyone else was able to sql inject.
- w1nk 15y agoWhere did you see they used floats? I missed it.
- batterseapower 15y agoDue to how round-off is specified, cumulative errors in floating point calculations should average to 0 for typical workloads.
- maaku 15y agoNo. If you were to repeat an experiment a million times, the standard deviation should (quickly) limit to zero. That does not mean that the value compued is correct, however. Due to how round-off is specified, the estimated error will increase with every floating point operation.
- bnr 15y agoIIRC that was Bitcoin7, another exchange, called out for using floats to store balances.
- daeken 15y agoBitcoin7 was called out for floats, but they actually weren't. MtGox was, but isn't anymore. It was reported in full disclosure, then confirmed on IRC later, although I don't have logs handy.
- kristianp 15y agoYou're saying MTGox is a bank, they're not, they are an exchange.
- tedunangst 15y agoWhen people are unable to get their money out of an exchange, they don't much care about the difference.
- eli 15y agoAn exchange. That accepts deposits. And holds your money for you. Like a bank.
- nowarninglabel 15y agoA bank is a legally defined concept, this exchange is not one.
- Uchikoma 15y agoI think you've meant: A bank is a legally defined concept where I live, this exchange is not one.
- nowarninglabel 15y agoNot really no, a bank is a legally defined concept in pretty much every country in the world. Suggested reading: http://www1.law.nyu.edu/centralbankscenter/texts/order.html http://www1.law.nyu.edu/centralbankscenter/texts/order.html
- RickHull 15y agoThat page links to the national laws defining central banks. No one is claiming Mt Gox is a central bank.
- 15y ago
- RockyMcNuts 15y agoThat's the whole point of an unregulated currency, right? Banks can do whatever they want, they're not subject to reserve requirements, or for that matter any kind of oversight. I'm not sure how regulated fractional reserve banking is a terrible thing, but a completely unregulated bank is a better thing.
- wnight 15y agoIf not for loaded terms like 'Bank' and 'Exchange' people would think about this rationally and demand that all services buy comprehensive insurance to cover situations like this. Unfortunately they've been lulled to sleep by things like blanket FDIC coverage that, while it pays out after a crash, pays out in weakened money. Bitcoins provide a chance for trust to be based on economics (escrow, insurance, audits, etc) not by government fiat. But you can't fall asleep at the wheel and just expect everything to work.