Regulating Bitcoin
Ross Anderson has a new paper on cryptocurrency exchanges. From his blog:
Bitcoin Redux explains what’s going wrong in the world of cryptocurrencies. The bitcoin exchanges are developing into a shadow banking system, which do not give their customers actual bitcoin but rather display a “balance” and allow them to transact with others. However if Alice sends Bob a bitcoin, and they’re both customers of the same exchange, it just adjusts their balances rather than doing anything on the blockchain. This is an e-money service, according to European law, but is the law enforced? Not where it matters. We’ve been looking at the details.
The paper.
Frank • June 5, 2018 7:38 AM
It would not be secure for exchanges to move bitcoin around when customers buy and sell from their accounts. This would involve private keys being in constant danger of being exposed. Also, bitcoin is less secure when there are multiple transactions per private/public key pair. In addition, the trading system would become much more complicated to program with private/public keys needed for every type of coin. The banking approach is the only practical way.