What are ways a BTC Exchange could steal from its customers, and how can they protect themselves?



Mt Gox is the dominant Exchange that handles BTC to USD conversions. Given the recent spike in price, and that Mt Gox is the primary exchange that publishes this price, it's conceivable that a second set of books could be used to manipulate the public -vs- non-published value of the coins.

  • What are the methods in which an Exchange can steal from its customers? (dual set of books, etc)

  • How can consumers and businesses protect themselves from exchange based fraud?


Posted 2013-04-09T15:01:15.023

Reputation: 12 166

Here's probably the most valuable advice: Trust no one: http://bitcointalk.org/index.php?topic=33835.0

– Stephen Gornick – 2013-04-10T10:06:14.117

Choose businesses that run on a quality framework. Not many but in time this will become less of a problem. https://github.com/FellowTraveler/Open-Transactions

– MaxSan – 2013-05-31T13:38:53.320

@StephenGornick, Yes the question is not how we can trust the people, but how can we can come up with trustable methods which proofs the people's actions. – Pacerier – 2014-03-08T14:07:37.223



One way an exchange could prove that it is liquid is to move all the funds from one address to another, and publish the transactionID. This would be visible in the block chain.


Posted 2013-04-09T15:01:15.023

Reputation: 12 166


It's possible that, at any time, the exchanges could close down and keep all your coins. I doubt the larger exchanges would do this but smaller rogue operators could essentially fold up and take everything. But then again -as seen in Cyprus- banks can do the same thing!


Posted 2013-04-09T15:01:15.023

Reputation: 11


Each jurisdiction has varying regulations for varying industries.

In some jurisdictions, for instance, a financial brokerage has regulations requiring segregation of funds so that the financial insolvency of the brokerage wouldn't impact customer's funds.

Bitcoin exchanges might not fall under existing regulation, depending on jurisdiction.

So it is best to consider funds deposited with an exchange as being an open account with the operator. This means to not assume that a segregation of funds exists and instead that funds deposited are simply a debt that the exchange owes to the account holder.

For this reason, it is likely financially risky to store funds with an exchange or E-Wallet provider located in a jurisdiction other than your own.

Stephen Gornick

Posted 2013-04-09T15:01:15.023

Reputation: 26 454


Think of for example: arbitrage (any type really),market making, dark pool and any good type of algotrading that exchange can implement so that when you hit 'place order' it gets processed by the algo first before it lands in th eorderbook for public.


Posted 2013-04-09T15:01:15.023

Reputation: 133

What do you mean, exactly? Could you explain this method more? – morsecoder – 2015-06-17T14:10:53.210