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The ironic thing about this is that the nature of Bitcoin (specifically, the fact that all transactions are recorded in the blockchain) means that auditing a Bi

The ironic thing about this is that the nature of Bitcoin (specifically, the fact that all transactions are recorded in the blockchain) means that auditing a Bitcoin exchange is an eminently solvable problem. To my mind, given the ease with which Bitcoin wallets can be created, any exchange that commingles its clients' Bitcoins should be viewed with suspicion. Yes, it's easier to dump everything into a few wallets, instead of maintaining individual wallets for every client. However, if the team behind an exchange isn't capable of dealing with the complexity of individual, segregated wallets, you have to wonder whether they're competent enough to run an exchange in the first place.

nwh 12y ago
Segregated wallets doesn't work, that would mean every single trade would be a transaction on the block chain. It would absolutely flood the network and result in massive fees. It literally can't be done that way.
- jackgavigan 12y ago
  And that inherent inefficiency is just one of the reasons Bitcoin is not the future of finance.
  - nwh 12y ago
    No, it's just why exchanges don't needlessly segregate wallets.
  - zymhan 12y ago
    So you went from " if the team behind an exchange isn't capable of dealing with the complexity of individual, segregated wallets, you have to wonder whether they're competent enough to run an exchange in the first place" to "that inherent inefficiency"? Which is it, an inherent flaw in BTC, or ineptitude on the part of the exchangers?
    - jackgavigan 12y ago
      Both.
throwaway7767 12y ago
As others have noted, there are scaling issues with moving every single transaction out into the blockchain. Luckily, this is not needed. An exchange can prove that it holds all the bitcoin it claims to, and each induvidual account holder can verify the proof as it pertains to their own coins. See this for example: https://iwilcox.me.uk/2014/proving-bitcoin-reserves https://iwilcox.me.uk/2014/proving-bitcoin-reserves Hopefully users will start to insist on these kinds of things in the future.

nwh 12y ago

Segregated wallets doesn't work, that would mean every single trade would be a transaction on the block chain. It would absolutely flood the network and result in massive fees. It literally can't be done that way.

jackgavigan 12y ago
And that inherent inefficiency is just one of the reasons Bitcoin is not the future of finance.
- nwh 12y ago
  No, it's just why exchanges don't needlessly segregate wallets.
- zymhan 12y ago
  So you went from " if the team behind an exchange isn't capable of dealing with the complexity of individual, segregated wallets, you have to wonder whether they're competent enough to run an exchange in the first place" to "that inherent inefficiency"? Which is it, an inherent flaw in BTC, or ineptitude on the part of the exchangers?
  - jackgavigan 12y ago
    Both.

throwaway7767 12y ago

As others have noted, there are scaling issues with moving every single transaction out into the blockchain. Luckily, this is not needed. An exchange can prove that it holds all the bitcoin it claims to, and each induvidual account holder can verify the proof as it pertains to their own coins. See this for example: https://iwilcox.me.uk/2014/proving-bitcoin-reserves https://iwilcox.me.uk/2014/proving-bitcoin-reserves Hopefully users will start to insist on these kinds of things in the future.