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Comment by M4v3R | Hacker News Reader

Mt. Gox and many other exchanges have put into people's minds that you HAVE to forfeit your rights to your Bitcoin when using online services. It doesn't have to be that way, though. You could just use a system like we use at Bitalo [1], where fractional reserves or funds misuse are impossible because of use of multi-signature Bitcoin addresses, which means funds are specifically tied to user wallets and exchange operators cannot use them, because the user has to sign all transactions by himself.

[1] https://www.bitalo.com/why_bitalo

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This isn't realistic for an exchange. They have an enormous transaction volume, which is represented as internal/off-chain transaction in an internal accounting system.

Using multi-signature transactions requires every fund transfer to be represented as a Bitcoin transaction, which the Bitcoin neAtwork simply can't handle.

Since we are a P2P exchange, we don't foresee to have more than few dozens transactions per minute when we grow big. I'm sure the Bitcoin network can handle such volume.

The protocol can only handle 7 transactions per second.

The system is currently configured with a limit of 7 TPS. But the limit can be lifted, according to https://en.bitcoin.it/wiki/Scalability

Why would bitalo ever require users ID themselves or provide bank details? multisignature scheme already adds a latency on transaction. just not clear how this exchange works. Is it P2P where users transact between each others bank accounts. If so the AMA/KYC seems unnecessary.

Legal reasons, almost certainly. I don't know about Finland or Germany or EU specifically, but it seems likely they have "money transmitter" requirements to combat money laundering. I doubt the regulators and/or law know or care much about multi-sig transactions. If they touch money changing hands, they almost certainly have to comply.

You can't move money without the government's permission, you know. Very naughty.

The reason is two-fold. One is legal/regulation stuff, as jccooper said (for seller account especially). Second is seller protection - if a buyer wants to scam sellers, we can blacklist him based on his ID, so he cannot scam anyone again.

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