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Comment by wiredfool | Hacker News Reader

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.

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By 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.

Well, that and the 500k. And whatever anyone else was able to sql inject.

Due to how round-off is specified, cumulative errors in floating point calculations should average to 0 for typical workloads.

No. 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.

Where did you see they used floats? I missed it.

IIRC that was Bitcoin7, another exchange, called out for using floats to store balances.

Bitcoin7 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.

That'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.

If 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.

You're saying MTGox is a bank, they're not, they are an exchange.

An exchange. That accepts deposits. And holds your money for you. Like a bank.

A bank is a legally defined concept, this exchange is not one.

There is a difference between reading the statement as "mtgox offers some services which make it look bank-like" and "mtgox is definitively a bank as defined by applicable laws".

The difference, in case you're curious, is willful pedantry, and really just clutters up the thread.

By that argument, an exchange is a legally defined concept and MTGox isn't one of those either.

MTGox is not a legally regulated bank. They are not a legally regulated exchange. They DO hold accounts on behalf of their customers, performing the function known as "banking". They DO execute trades between their customers, performing the function known as "an exchange".

I think you've meant: A bank is a legally defined concept where I live, this exchange is not one.

Not 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

Not sure about the logic: 1. All banks are defined 2. Me: You cannot claim banks are the same everywhere 3. "Pretty much every country" == not everywhere

So you agree, or you disagree? Sorry to stick with Aristotelian logic.

That page links to the national laws defining central banks. No one is claiming Mt Gox is a central bank.

It's a further resource out to the central bank information in various country which further goes towards information on legal definitions of a bank in each country (at least many of the links provide such information). If you have a better site for international banking law definitions separated by country, it'd be awesome to suggest it.

When people are unable to get their money out of an exchange, they don't much care about the difference.

It seems they like to use this term, so bitcoin can claim it's still decentralized.

Since it's obvious we do need banks for bitcoin (or a safe way to store our currency) and it's not very anonymous, what's the point of using it again?

I would rather just use credit cards or cash.

Mt.Gox really is an exchange; the whole point of the site is to convert between BTC and USD. If you wanted a bank, you'd use something else. It's also not clear to me that it's safer to store BTC on a server.

It is an exchange, but hackers are having a field day. People are realizing what the world realized many years ago: we need banks. I feel like bitcoin is going through all of the growing pains and making the same exact mistakes we already learned about currency.

You can keep your wallet file secure. Encrypt it, store it in a pen drive and secure it as you want.

The decentralization has more to do with the fact that no government can control the currency.

As soon as an exchange holds your money for more than ten seconds, it's a bank.

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