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Questions I have now: 1) How likely is a cascade of bank runs on other exchanges? 2) Do other exchanges have security issues or insolvency that make them part

by edj 13y ago

Questions I have now: 1) How likely is a cascade of bank runs on other exchanges? 2) Do other exchanges have security issues or insolvency that make them particularly vulnerable? 3) Will one of the other cryptocurrencies wax as confidence in BTC wanes?

dnautics 13y ago
1) unlikely, since cascading bank runs are usually a result of fractional reserve banking. Depositors in a collapsed bank are unable to pay off loans in another bank, causing collateral damage to this other bank. 2) do other exchanges have security issues? Yes. Are they vulnerable? Only time will tell. I would take Mandelbrot's modeling of insurers (banks are "insurers" of sorts) in "the (Mis)behaviour of markets[0]" to heed: Collapses are levy-distributed with fat tails (infinite variance) so they will happen more frequently than you think, especially if you are operating with a model that uses the normal distribution. Best practice is to diversify. 3) I doubt it. ADDENDUM: But in a rational world this incident (might take a bit of time for the market to realize this) should actually INCREASE confidence in BTC, since a large, irresponsible player was knocked out, and the rest of the players on the field have a net higher level of responsibility (for now). [0]http://www.overstock.com/Books-Movies-Music-Games/The-Mis-Behavior-of-Markets-A-Fractal-View-of-Financial-Turbulence-Paperback/1742370/product.html?refccid=GSUOBJC4S2E3ZDKGRT73NX6FC4&searchidx=0 http://www.overstock.com/Books-Movies-Music-Games/The-Mis-Be... (I'm linking it via overstock so you can buy it with BTC - which is, hilariously, what I did)
- ryanobjc 13y ago
  Bitcoin exchanges will have a run - they resemble fractional reserve banking, because all exchanges dont have enough USD (or other currency) to cover every bitcoin that people might want to trade thru the exchanges (that could be every single bitcoin in existence). This obviously results in the crash of the exchange rates, and probably a reduction in the usage of the currency as well. Getting paid in something that has little use of it's own doesn't help you. Now, on #3, you said "in a rational world"... But this isn't a rational world, so the rest of this sentence doesn't apply. The reality is like loss of confidence is very powerful, and it could, as the document noted, destroy BTC for the near and possibly medium term.
  - plaguuuuuu 13y ago
    I thought that the bids/asks were all from individual people Unless the exchange is taking btc/money from users and investing it somewhere then every btc/$ should be totally within the system, yes? so you can either withdraw your btc or your $ as the case may be.
    - ryanobjc 13y ago
      That's the problem with mtgox - there was a divorce of BTC and mtgoxBTC account values, and that divergence, due to poor accounting/theft/whatever ultimately lead to a situation where mtgox is now acting like a fractional reserve bank. In theory everything at mtgox is fine, UNLESS everyone want their real BTC back now, aka bank run. As long as people just trade between mtgoxBTC or only withdraw in reasonable amounts, it might be ok. But that won't happen, because of the expectation of full BTC convertibility, people are freaking out and wont cease to freak out. There are so many parallels between the gold-backed currency and bank runs in that era. Just rumors, or facts of insolvency and inability to produce either specie or gold for deposit values could drive a run and that would be that. All that annoying bank regulation is there for a reason. It's a good thing we don't have bank runs anymore. Right? RIGHT?
  - dnautics 13y ago
    1) agreed, but that run doesn't necessarily cascade to another exchange. If the value of btc collapses and people make a run on it, those other exchanges will likely be able to cover the bid/ask spread in any case because by and large they are merely mediating exchanges of $/btc that other people are holding. 3) the 'rational world' was meant to apply to the rate at which bitcoin recovers. In a rational world it would be instantaneous, we're not. It's certainly possible that bitcoin will go to zero as a result of this, but I treat that as a separate case. If you think that bitcoin will survive in the medium-term, my point is the resulting value should be higher than before Mt Gox. In a 'rational world' everyone would figure this out tomorrow, for certain values of irrationality it takes longer for this to suss out, and for extreme values, it goes to zero too fast.
  - jamesaguilar 13y ago
AJ007 13y ago
1) A "bank run" on an exchange should be a non event because all exchanges should have the money they claim to have. 2) I'm skeptical of any exchange I don't know a lot about 3) Is there another cryptocurrency that offers significant additional features over BTC? Right now I don't see it. In the future there is certain to be. Tomorrow Mt Gox's failure should hit the mainstream press. There should be very harsh coverage and panic selling. The more speculators who are cleared out of the system, the better.
- lmm 13y ago
  > 3) Is there another cryptocurrency that offers significant additional features over BTC? Right now I don't see it. In the future there is certain to be. I think doge offers more future liquidity (because they're allowing inflation) and a more user-friendly community. Is that enough to matter? I don't know.
  - jafaku 13y ago
    Please stop spamming your copycoin. Doge offers nothing new other than the picture of a dog. If you think more coins is better (whatever that means, for an infinitely divisible currency), you might as well just used Infinitecoin or whatever.
    - lmm 13y ago
      Nice, anyone who disagrees with you is a spammer? (And it's not "mine"; I'm not involved with or holding any cryptocoin) It's not about the number of coins, it's about how the number changes over time. I think bitcoin's regressive, pyramidal exponential decay is a very bad thing. I'm much more willing to support a currency that has e.g. a constant mining reward/year. Doge is the only one I'm aware of that departs from the bitcoin model.
      - jafaku 13y ago
        > Doge is the only one I'm aware of that departs from the bitcoin model. It's not. Maybe you should try to get informed a bit before sharing your opinions based on whatever meme you saw on reddit.

by edj 13y ago

dnautics 13y ago

1) unlikely, since cascading bank runs are usually a result of fractional reserve banking. Depositors in a collapsed bank are unable to pay off loans in another bank, causing collateral damage to this other bank. 2) do other exchanges have security issues? Yes. Are they vulnerable? Only time will tell. I would take Mandelbrot's modeling of insurers (banks are "insurers" of sorts) in "the (Mis)behaviour of markets[0]" to heed: Collapses are levy-distributed with fat tails (infinite variance) so they will happen more frequently than you think, especially if you are operating with a model that uses the normal distribution. Best practice is to diversify. 3) I doubt it. ADDENDUM: But in a rational world this incident (might take a bit of time for the market to realize this) should actually INCREASE confidence in BTC, since a large, irresponsible player was knocked out, and the rest of the players on the field have a net higher level of responsibility (for now). [0]http://www.overstock.com/Books-Movies-Music-Games/The-Mis-Behavior-of-Markets-A-Fractal-View-of-Financial-Turbulence-Paperback/1742370/product.html?refccid=GSUOBJC4S2E3ZDKGRT73NX6FC4&searchidx=0 http://www.overstock.com/Books-Movies-Music-Games/The-Mis-Be... (I'm linking it via overstock so you can buy it with BTC - which is, hilariously, what I did)

ryanobjc 13y ago
Bitcoin exchanges will have a run - they resemble fractional reserve banking, because all exchanges dont have enough USD (or other currency) to cover every bitcoin that people might want to trade thru the exchanges (that could be every single bitcoin in existence). This obviously results in the crash of the exchange rates, and probably a reduction in the usage of the currency as well. Getting paid in something that has little use of it's own doesn't help you. Now, on #3, you said "in a rational world"... But this isn't a rational world, so the rest of this sentence doesn't apply. The reality is like loss of confidence is very powerful, and it could, as the document noted, destroy BTC for the near and possibly medium term.
- plaguuuuuu 13y ago
  I thought that the bids/asks were all from individual people Unless the exchange is taking btc/money from users and investing it somewhere then every btc/$ should be totally within the system, yes? so you can either withdraw your btc or your $ as the case may be.
  - ryanobjc 13y ago
    That's the problem with mtgox - there was a divorce of BTC and mtgoxBTC account values, and that divergence, due to poor accounting/theft/whatever ultimately lead to a situation where mtgox is now acting like a fractional reserve bank. In theory everything at mtgox is fine, UNLESS everyone want their real BTC back now, aka bank run. As long as people just trade between mtgoxBTC or only withdraw in reasonable amounts, it might be ok. But that won't happen, because of the expectation of full BTC convertibility, people are freaking out and wont cease to freak out. There are so many parallels between the gold-backed currency and bank runs in that era. Just rumors, or facts of insolvency and inability to produce either specie or gold for deposit values could drive a run and that would be that. All that annoying bank regulation is there for a reason. It's a good thing we don't have bank runs anymore. Right? RIGHT?
- dnautics 13y ago
  1) agreed, but that run doesn't necessarily cascade to another exchange. If the value of btc collapses and people make a run on it, those other exchanges will likely be able to cover the bid/ask spread in any case because by and large they are merely mediating exchanges of $/btc that other people are holding. 3) the 'rational world' was meant to apply to the rate at which bitcoin recovers. In a rational world it would be instantaneous, we're not. It's certainly possible that bitcoin will go to zero as a result of this, but I treat that as a separate case. If you think that bitcoin will survive in the medium-term, my point is the resulting value should be higher than before Mt Gox. In a 'rational world' everyone would figure this out tomorrow, for certain values of irrationality it takes longer for this to suss out, and for extreme values, it goes to zero too fast.
- jamesaguilar 13y ago

AJ007 13y ago

1) A "bank run" on an exchange should be a non event because all exchanges should have the money they claim to have. 2) I'm skeptical of any exchange I don't know a lot about 3) Is there another cryptocurrency that offers significant additional features over BTC? Right now I don't see it. In the future there is certain to be. Tomorrow Mt Gox's failure should hit the mainstream press. There should be very harsh coverage and panic selling. The more speculators who are cleared out of the system, the better.

lmm 13y ago
> 3) Is there another cryptocurrency that offers significant additional features over BTC? Right now I don't see it. In the future there is certain to be. I think doge offers more future liquidity (because they're allowing inflation) and a more user-friendly community. Is that enough to matter? I don't know.
- jafaku 13y ago
  Please stop spamming your copycoin. Doge offers nothing new other than the picture of a dog. If you think more coins is better (whatever that means, for an infinitely divisible currency), you might as well just used Infinitecoin or whatever.
  - lmm 13y ago
    Nice, anyone who disagrees with you is a spammer? (And it's not "mine"; I'm not involved with or holding any cryptocoin) It's not about the number of coins, it's about how the number changes over time. I think bitcoin's regressive, pyramidal exponential decay is a very bad thing. I'm much more willing to support a currency that has e.g. a constant mining reward/year. Doge is the only one I'm aware of that departs from the bitcoin model.
    - jafaku 13y ago
      > Doge is the only one I'm aware of that departs from the bitcoin model. It's not. Maybe you should try to get informed a bit before sharing your opinions based on whatever meme you saw on reddit.