Ask HN: Why is finding cryptocurrency fraud difficult?
Shouldn't we be able to look at the blockchain to determine if online exchanges are operating as fractional reserves? Why is it so difficult to do this, and why did it come as a huge surprise when Mt Gox was found to be missing so many bitcoins? I guess that even 100% reserve exchanges would keep a significant portion of all assets in "cold wallets" to minimize the risk of hacker attacks.
These are difficult to audit, then. Also, The exchange could always claim that some of their users demanded a transfer, which would explain a withdrawal from on of their audited wallet. So, without knowing the "virtual" balances of their users, wallet audits would be meaningless.