I would disagree that traditional fractional reserve banking is a scam.

What happens in a traditional fractional reserve system is that someone deposits $100 in a bank, so the bank would have $100 in assets (the $100 bill) and $100 in liabilities (the deposit to the account holder). What the bank will do with part of the $100 is they will lend it to a borrower. So now they will still have $100 in assets (now a $10 and $90 that is owed to them from the borrower) and $100 in liabilities (the same $100 deposit).

What is potentially happening with Chinese exchanges is they are taking a 1 BTC deposit, and spending some amount of it, say .1 BTC. In this example they have only .9 BTC in assets (they spend the .1 on themselves) but 1 BTC is liabilities. Hopefully you can see how different these two scenarios are.
[/quote]

Right. Trouble can occur if a bank has bad loans, which is what caused the last financial crisis. But there were real loans, and real houses behind them. What happened was that the value of those houses declined, and the people owning them stopped making payments.

Also, banks are heavily regulated, and in many countries backed up by deposit insurance. No US depositor lost money because the bank in which they had a deposit made bad loans. (Many bank depositors in Iceland did lose money. Look up "Icesave".)

Fractional reserve banking does not mean the bank gets to skim off most of the money.