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The Danger of Fractional Reserve Bitcoin is Here

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@zoidsoft
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Unfortunately people are making the same mistake that they once did with the banks and this is happening with the crypto exchanges becoming the new banking system. How do we know that exchanges are actually buying bitcoin from miners and sellers when you hold your crypto on an exchange? The answer is that you don't. There's no regulation saying that your exchange has to go and buy bitcoin when you give them national fiat. They might simply have recorded that transaction in their central database and issue an "IOU".

So are these IOU's now exceeding the total supply of bitcoin? Exchanges are incentivized to avoid the volatility of crypto by holding stable coins like Tether and DAI. Then they can arbitrage the prices of various coins and make more money.

The new centralized exchanges are going to become the future JP Morgan's and Citibanks of the world if you continue to make the mistake of holding your crypto on exchanges. Regulators will make sure of that and we already see the trend of exchanges bowing to authority and submitting to regulation.

If you hold your crypto on a centralized exchange, you have not exited the system and you run the risk of not just depressing the value, but also of the coins being stolen from you.

Not your keys, not your crypto.