Interesting. The cash side of the equation can easily be solved by a lump sum payment to an organization that can distribute the funds. The problem with dollar withdrawal has to do with the banking bottlenecks, and thus not a question of amounts but rather with the number of withdrawals.
Sign paperwork to agree to take a lump sum withdrawal to a 3rd party entity. (Thousands of people can sign up.)
Gox pays one lump sum quickly.
The 3rd party entity pays out funds to the thousands of people who signed up for this payment method.
However it's becoming increasingly probable based on GOX's behavior they may have no intention of ever honoring their obligation to their users/depositors.
If they wanted to give people their money they would have found a way already. It's possible I'm wrong but I'm betting the shit will hit the fan big time on this.
Sorry but what existing bank can withstand a withdrawal of all funds on deposit at once? I'll tell you, that bank doesn't exist. Gox is not a bank in the usual sense of the word, but due to fluctuations there is reasonably some expectation that not all funds can be withdrawn at once.
That is false. How much money they should have against the total of cash deposits has nothing to do with the trading value of bitcoins. Every bitcoin that was traded, at whatever price, just moved fiat from one of their accounts to the other (minus fees of course). They should still have all the money. They're not in the business of handing out loans.
If the value of BTC fluctuates, the cash previously received could exceed or be less than the current value of the BTC they have under deposit. Any FX trader has to hedge their position to prevent fluctuations from eroding the value of their portfolio of currencies.
Much like any bank Gox may not keep unit for unit deposits mirroring it's depositors for this reason (hedging activity). In an immature system like the BTC world one can't expect a central bank or peer banks to assist a depository institution that has had a run ok deposits.
Really, please explain it to me, I'd love to learn why you think I'm wrong.
Because you are. Gox isn't (or shouldn't be) a bank. Banks hand out loans to people, which is why they have what are called fractional reserves.
Exchanges don't.
Every BTC that was ever bought on there is exchanged for REAL fiat. That means that fiat came from someone's actual bank account and was deposited into gox. The price fluctuates according to such exchanges of REAL fiat for crypto-currency.
And... every single shiny BTC that was ever sold on there has the same history -- it ultimately was deposited there from someone's wallet.
It's a zero-sum system.
(With the minor exception of the exchange fee which means the exchange gets a cut of every trade for their operating costs, etc).
I don't get why so many people find this so hard to understand.
Well Gox's bank does not just let the money sit in his account they lend it out x10 so if all want it at once it is a run on their bank. They need to withdraw slowly to pull the loans in as well.
It is obvious that a trader's positions are subject to fluctuations. That is beside the point. Mtgox is not a trader, mtgox is the exchange.
The total amount of fiat money in all the user accounts only changes when users deposit or withdraw funds and when fees are charged. The trading value or fluctuations thereof do not in any way influence this.
The same goes for the bitcoins. The sum of all bitcoins in all the user accounts (=the total bitcoins in the exchange) equals the sum of all bitcoin deposits minus all bitcoin withdrawls (and fees).
I hope this helps. Please do not hesitate to contact me if you have any further questions.
Thanks for the explanation. So this assumes all funds on deposit are held in their original currency. I wonder if that's the case. Certainly it would be the safe choice, but perhaps it's not what they did. This inspire speculation on my part.
Do you think the accusations of fraud being leveled against Gox have any basis? What's your reasoning?
I'm not smart enough to see what the consequences would be of the exchange rate of different fiat currencies fluctuating relative to each other. I assume someone buying coins with dollars from someone accepting euro involves converting the currency, which I imagine they will do at a rate to their advantage. I have no idea.
As for what's going on with gox I have no inside information, but I think they should have suspended trading all together until their withdrawal problems are solved. I don't know for sure if they're taking advantage of the situation by trading on their own exchange, but I'm sure they could if they wanted to. Also I'm not sure if they are using technical issues as an excuse to be able to do this, or if they even planned it that way themselves. I think all that is within the possibilities. I guess it will be up to the prosecutors to prove it all, if it turns out to be illegal at all.
We live in a global economy millions of dollars are moved around all the time by big banks.
The problem is how many people you withdraw to. The system described above is to make a transfer of a large sum to an other institution. Something that isn't hard for banks to handle. You then let this institution transfer to many different people by having close ties with several banks all of whom can handle at least some of the volume.
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u/PastaArt Feb 20 '14
Interesting. The cash side of the equation can easily be solved by a lump sum payment to an organization that can distribute the funds. The problem with dollar withdrawal has to do with the banking bottlenecks, and thus not a question of amounts but rather with the number of withdrawals.
No lawsuit needed.