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Gmaxwell's “prove how (non)-fractional your Bitcoin reserves are” scheme

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Re: Gmaxwell's “prove how (non)-fractional your Bitcoin reserves are” scheme

#41

Post by slg »

pmorici wrote: post #15
kumarski wrote: post #13

What bitcoin exchanges do HN readers trust? I've been using http://coinmkt.com I regrettably used MtGox.com. I'm kicking myself now.

If you want to buy coins to use I'd go with Coinbase at least to get started. If you want to day trade Kraken looks really promising if they are supported in your jurisdiction. Bitstamp has a decent track record though their local give me pause. Coinsetter is also pretty well put together if all you want to do is pair trade but you can't do true exchange on there. I've tried coinmkt but I don't like it. Their fees ar…

I would be a little cautious with Coinbase. There was a recent post on HN[1] in which someone had a 5 figure transaction be approved on the site, but never received his funds. The slow response from Coinbase wasn't too encouraging, but the more troubling issue is that a large sum of money like that can just appear in the system without anyone noticing. It indicates that their level of accounting and auditing isn't up to the standards of even most brick and mortar businesses let alone a financial institution.

[1] - https://news.ycombinator.com/item?id=6929705

Re: Gmaxwell's “prove how (non)-fractional your Bitcoin reserves are” scheme

#42

Post by nullc »

minimax wrote: post #8

This doesn't give you a way to validate your dollar deposits. In other words a dishonest exchange operator could misappropriate your dollar deposits and this scheme wouldn't tell you anything about it.

Yup. This is an example of how Bitcoin is superior to USD— USD is not so readily subject to cryptographic proof. :)

You could use it to show that USD obligations jive with third party audits, insurance, or accounts in a bank if you could get the bank to produce signed attestations... though the trust isn't eliminated there, just shuffled around.

Re: Gmaxwell's “prove how (non)-fractional your Bitcoin reserves are” scheme

#43

Post by smacktoward »

jnbiche wrote: post #39
smacktoward wrote: post #28

Earlier quoted context omitted.

We're using the word "modern" extremely broadly in this context. Fractional reserve banking goes back to what, the early Renaissance? Did the economies of the Middle Ages really serve people better than our economies do today?

Correlation does not equal causation. And arguably, the invention of dual-entry accounting in the early Renaissance -- a self-auditing system similar in many ways to nullc's proposal -- played a much bigger part in the beginning of modern economic development than did fractional reserve banking.

This is the exact same answer you used to get in the old days, back when real communists actually existed, and you'd ask one of them why there were no communist countries with anything like a functional economy. "Correlation does not equal causation, comrade! Just because those troubled countries are all communist does not mean that it is communism that is the cause of their troubles."

I'm just sayin', theory is nice and all, but examples from real practice are more interesting. Fractional reserve banking has been widely in use for hundreds of years in countries which have prospered far more than the general run of humanity has. Show me a capitalist economy that (1) outlawed fractional reserve banking and (2) functions better in some tangible way than the rest of the developed world, and you've got an argument more compelling than a chapter from a textbook of Austrian economics.

Re: Gmaxwell's “prove how (non)-fractional your Bitcoin reserves are” scheme

#44

Post by pakitan »

splintercell wrote: post #18
minimax wrote: post #7

Earlier quoted context omitted.

Right? Banks making loans? It's preposterous .

Full Reserve banks don't make loans? Fractional Reserve banks enable you to have your money and be loaned out at the same time(thereby stretching the money supply like an elastic rubber band). Full Reserve banks ONLY loan out money which was specifically deposited to them for the purposes of being able to be loaned out.

You're mistaken if you think full reserve banking somehow doesn't "stretch" the money supply. Let's say I deposit $10K in a "full reserve" bank. The bank then loans it to someone who buys a car. The car dealer goes back to the bank and deposits the proceeds of the sale. Another fella comes in for a loan and the bank gives him dealer's $10K. He then goes to buy a car. Now there are 2 cars bought with "my" $10K. And this can go on ad infinitum. So there is nothing superior about full reserve banking. The only thing you're doing is preventing me from getting my money unless the guy who took the loan pays it back. That will surely incentivize people to keep their money in a bank.

Re: Gmaxwell's “prove how (non)-fractional your Bitcoin reserves are” scheme

#45

Post by aston »

Say you were a shady Bitcoin banker with 5000 BTC in deposits, and you wanted to steal 1000 while still looking like you're on the up-and-up by implementing this idea.

First, you announce that you only have 4000 BTC in deposits. Then you build this tree, and at the very bottom layer you add a node with a -1000 balance. You pair that node with your (or a conspirator's) real node holding more than 1000 so that any node above yours (read: everyone else) sees a positive balance at every point in the tree. Everyone can verify they're in the tree, the numbers add up to what you claimed publicly, but you're now successfully running a fractional reserve! And the only way to uncover such a scheme would be to publish all of the balances for every account.

Am I missing something?

Edit for clarity: the node you pair with is your own, so that no real user sees the negative sum.

Re: Gmaxwell's “prove how (non)-fractional your Bitcoin reserves are” scheme

#46

Post by tlrobinson »

kumarski wrote: post #13

What bitcoin exchanges do HN readers trust? I've been using http://coinmkt.com I regrettably used MtGox.com. I'm kicking myself now.

Part of the problem is leaving funds laying around in exchanges, when it's trivial to transfer to your own wallet (though admittedly non-trivial to secure it, it's a tradeoff).

If you quickly transfer in, exchange, and transfer out you don't need quite as much trust.

Re: Gmaxwell's “prove how (non)-fractional your Bitcoin reserves are” scheme

#47

Post by tlrobinson »

aston wrote: post #45

Say you were a shady Bitcoin banker with 5000 BTC in deposits, and you wanted to steal 1000 while still looking like you're on the up-and-up by implementing this idea. First, you announce that you only have 4000 BTC in deposits. Then you build this tree, and at the very bottom layer you add a node with a -1000 balance. You pair that node with your (or a conspirator's) real node holding more than 1000 so that any node…

Discussed here: https://news.ycombinator.com/item?id=7278325

Re: Gmaxwell's “prove how (non)-fractional your Bitcoin reserves are” scheme

#48

Post by pmorici »

jnbiche wrote: post #25
pmorici wrote: post #15

Earlier quoted context omitted.

If you want to buy coins to use I'd go with Coinbase at least to get started. If you want to day trade Kraken looks really promising if they are supported in your jurisdiction. Bitstamp has a decent track record though their local give me pause. Coinsetter is also pretty well put together if all you want to do is pair trade but you can't do true exchange on there. I've tried coinmkt but I don't like it. Their fees ar…

>Bitstamp has a decent track record though their local[e] give me pause. I'd say Bitstamp has a very good track record, and what's wrong with Slovenia? It's probably about on the level of the Czech Republic in terms of economic freedom, development, level of corruption (relatively low), output, business practices, etc. Would doing business with a Czech company make you nervous? In business culture, Slovenia looks tow…

I don't disagree my reservation is more about having to do an international wire transfer to get money in and out of Bitstmap. Also since they are outside of the US you are going to have to submit FBAR paperwork to the US government if your account with them ever gets over 10k at any time during the year. In the unlikely chance something did go wrong legal remedies would be more difficult since they are outside the US.

Re: Gmaxwell's “prove how (non)-fractional your Bitcoin reserves are” scheme

#49

Post by [deleted] »

aston wrote: post #45

Say you were a shady Bitcoin banker with 5000 BTC in deposits, and you wanted to steal 1000 while still looking like you're on the up-and-up by implementing this idea. First, you announce that you only have 4000 BTC in deposits. Then you build this tree, and at the very bottom layer you add a node with a -1000 balance. You pair that node with your (or a conspirator's) real node holding more than 1000 so that any node…

[deleted]

Re: Gmaxwell's “prove how (non)-fractional your Bitcoin reserves are” scheme

#50

Post by tlrobinson »

The big problem with this is convincing businesses to publicize their total customer deposits, which is extremely interesting information to competitors.

Though it could be a good way for new/small exchanges to differentiate themselves and gain trust of the community, which could force larger and larger exchanges to do the same until it's common practice (as mentioned has happened with provably-fair gambling sites)

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