Presumably under the assumption that an exchange such as Mt Gox would be able to keep the coins safer than they themselves could, which now doesn't seem like a particularly sound assumption to make.
I can confirm, this was my line of thought. After the first hack, and the seemingly professionalisation of MtGox, especially compared to the other exchanges.
In a proper BTC exchange, most of the Bitcoin are in cold storage, which means they can't be stolen even if the exchange was hacked. The hot wallet would represent the variability in the exchanges BTC holdings and would be very small, so that in case of theft it could be either insured or covered.
That to me sounds like it's safer than any scheme I can come up with, without losing the mobility of the BTC.
Of course, if this document is true, it means MtGox did absolutely no accountancy on their cold wallets for the past 3 years.. that's just plain crazy :(
I wonder if it would be possible to write an AI to manage a Bitcoin exchange; cut out the human element and the potential for mistakes/scamming completely? Before the exchange is launched, publish the AI's source and have it undergo an extensive public audit.
