Mark decided that he would do what he thought was right: he would slowly earn back the lost bitcoin with MtGox trading fee profits and eventually make his customers whole again. He still had over 500,000 BTC left—he moved 424242.42424242 BTC between bitcoin addresses and convinced the community that MtGox was solvent.
So, bitcoin is actually a hybrid fiat+cryptocurrency? Since there is little transparency, a significant fraction of the BTC market capital might actually exist as fiat!
Version 2 of a cryptocurrency protocol needs to protect against incompetently implemented exchanges as well.
EDIT: Apparently, there is a BTC scheme for proving solvency. Making this mandatory for exchanges would go a long way to improving things.
There is not only the MB money supply (total number of paper dollars that exist), there is also the M1 money supply (MB + number of Traveler's Checks, and other highly liquid bank inventions), and M2 (which includes deposits).
The true size of the monetary base can artificially grow and shrink in ways completely uncontrollable by the central-authority. This is true with both the USD and Bitcoins.
The ultimate reminder is... the US implementation of fractional reserve banking forces banks to do no worse than 10%. In unregulated markets, the "banks" (ie: MT. Gox) will tend to lie and cheat, and will have ratios at far far worse rates.
Yes, but the BTC infrastructure itself provides a cryptographically strong method of proving reserves. If a large nation decided to implement its own hybrid fiat/cryptocurrency, it would basically be an unstoppable juggernaut, assuming no one ever broke the crypto protocols in a widely exploitable way. (And even then, the fiat currency might survive.)
Agree'd. Although, to reach this conclusion, you have to first shed the commonly idiotic notions of anti-government anti-social stupidity, and recognize the utility of a public-private partnership.
Anyway, I think from a "infrastructure" point of view, BTC is not good enough yet. I'm finding proof-of-stake systems (peercoin / NXTcoin) far more technically useful than BTC... in particular, the fact that they're "greener" and don't waste electricity like the current mining rigs do.
The ideal system probably would be a decentralized proof-of-stake cryptocoin with regulated exchanges.
But it does mean, "I've got X value, because we all just agreed to pretend." Whereas cryptocurrency is supposed to mean, "I've got X value, because we all just agreed to pretend, and here's some crypto to back it so we can't cheat." By MtGOX becoming part fiat, I mean that he secretly went from scenario 2 to scenario 1 with a large part of the assets he was entrusted with.
So, bitcoin is actually a hybrid fiat+cryptocurrency? Since there is little transparency, a significant fraction of the BTC market capital might actually exist as fiat!
Version 2 of a cryptocurrency protocol needs to protect against incompetently implemented exchanges as well.
EDIT: Apparently, there is a BTC scheme for proving solvency. Making this mandatory for exchanges would go a long way to improving things.