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Comment by oscilloscope | Hacker News Reader

Yep. At the exchanges, you're basically buying Bitcoin credits when you send them Bitcoin. You can trade these credits for dollar credits. On a functioning exchange, you can withdraw these credits one-to-one for Bitcoin or dollars to a wallet or bank account you control.

In the future there will potentially be decentralized exchanges where a Bitcoin transaction can be a component of an exchange transaction and there is no third-party involved. But not today.

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I was under the impression that the whole point of Bitcoin was that it was a decentralised currency, and your coins lived in your wallet. What is the value of actually entrusting your coins to 3rd party where they're outside of your control? Just the ability to exchange them for USD? Why would you keep coins with them on a long-term basis?

Presumably under the assumption that an exchange such as Mt Gox would be able to keep the coins safer than they themselves could, which now doesn't seem like a particularly sound assumption to make.

I can confirm, this was my line of thought. After the first hack, and the seemingly professionalisation of MtGox, especially compared to the other exchanges.

In a proper BTC exchange, most of the Bitcoin are in cold storage, which means they can't be stolen even if the exchange was hacked. The hot wallet would represent the variability in the exchanges BTC holdings and would be very small, so that in case of theft it could be either insured or covered.

That to me sounds like it's safer than any scheme I can come up with, without losing the mobility of the BTC.

Of course, if this document is true, it means MtGox did absolutely no accountancy on their cold wallets for the past 3 years.. that's just plain crazy :(

I wonder if it would be possible to write an AI to manage a Bitcoin exchange; cut out the human element and the potential for mistakes/scamming completely? Before the exchange is launched, publish the AI's source and have it undergo an extensive public audit.

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