Comment by wsxcde | Hacker News Reader

Comment by wsxcde | Hacker News Reader

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This part is interesting.

> I attempted to withdraw the bitcoin balance into my own wallet, and hit the limit that Mt Gox has, preventing you from withdrawing more than $1000 USD worth of bitcoins (at the current market value) in a day.

What is the reason for all the limits and delays that exchanges impose on converting Bitcoin into USD? These appear to prevalent even today.

For example, MtGox says:

> - Withdraws lower than 100.00 EUR are on average take less than a week.

> - It takes at least a month on average for withdrawals larger than 10,000 EUR

> - Withdrawals greater than 50,000 EUR need to be split it into multiple transfers or you can use the International Wire payment method.*

Coinbase says:

> I assume you're talking about selling coins here though. It's 100 BTC a day, and that can be done on successive days - in this example it would take 5 days to withdraw 500 BTC. Hope that helps!

I guess the goal is to somehow prevent fraud. But (a) how do the delays and restrictions help? and (b) what is the long term prognosis here? Will these limits ever go away, and if so, what would have to change for this to happen?

I'm guessing part of it might also be in order for Mt. Gox to keep its float steady. They have a certain amount of BTC available at any one point, with the rest in cold storage. If someone were to withdraw a huge amount at one point, it'd drain the float and everyone else would not be able to do anything.

What's the purpose of separating the 'float' and the 'cold storage'? Is it to increase security by limiting the amount of BTC exposed to an attacker who breaks in Mt. Gox?

Correct. A cold storage scheme might be private keys printed on paper and stored in a safety deposit box, for example. Then, if their network is compromised, they won't lose everything.

Not sure how much exchanges normally keep in their "hot wallets", but I've heard numbers from 10%-30%. If an exchange is hacked and decides to close and go under, they can also use cold storage to send some percentage of user's balances back to them.

As far as I can tell it also helps avoid bank runs. If you can only withdraw a small amount of your balance every day, it may prevent the price from tumbling precipitously when people get spooked - they would have to consciously cash out over many days. It might also allow the exchange to operate with money it doesn't actually have, but that's just speculation on my part.

> As far as I can tell it also helps avoid bank runs.

Sounds plausible but it puts the exchanges in a major position of power in the bitcoin economy. If they're actively managing liquidity of the BTC economy in this manner I have a hard time understanding why they're any better than the central banks that bitcoiners are attempting to disrupt.

> It might also allow the exchange to operate with money it doesn't actually have, but that's just speculation on my part.

Let's hope not, because that is literally a ponzi scheme.

An exchange shouldn't be vulnerable to bank runs. All of the money (USD, BTC) should be there all the time. They're not loaning it out. For that matter, the exchange shouldn't care what the price is. It's all just shiny beads to them.

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