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Comment by maaku | Hacker News Reader

What you link to is the answer, and no, no one implements it. The exchanges don't want to, and feel no incentive to :(

More and more services are starting to use an even better solution that includes proof of storage. Please see my comment above.

Are you talking about multisig? That doesn't have adequate properties for use in an exchange. I assume that you are requiring that the user sign off on any transfer of their coins, because otherwise the chance of theft would still exist. If so, then (1) you are requiring that all transfers hit the block chain (immediate non-starter simply due to scaling issues), (2) the exchange is not effective as people can DoS by dropping out and refusing to sign if the market moves or they otherwise have second thoughts, and (3) you're ignoring the fiat side of the exchange.

Trustless exchanges can work, but they generally need much more infrastructure and possible changes to bitcoin (or a side chain).

Points 2) and 3) can be solved, an exchange that accepts fiat and signs a transfer immediately after placing an offer is entirely possible. At Bitalo we chose not to accept fiat, but it's not a limitation of multisig scheme.

I'm not convinced no fractional reserve is the absolute answer. I am fine with exchanges making some money from what I keep there. In one way or another it will benefit me. What needs to be worked on is the actual fraction they can get insured for in the low-probability case everyone wants to run out with their coins.

If an exchanged promises fractional reserve they should still prove that they are within the promised ratio.

Fair point. The original argument was advocating non-fractional though.

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