"However, in practice, the short seller is required to post margin or collateral to cover losses, and inability to do so in a timely way would cause its broker or counterparty to liquidate the position."
That's exactly what the Bitcoin exchange will do, as well. Since the exchange actually holds the assets (i.e. bitcoin and dollars), it can also determine whether such liquidation is backed by orders.
"However, in practice, the short seller is required to post margin or collateral to cover losses, and inability to do so in a timely way would cause its broker or counterparty to liquidate the position."
That's exactly what the Bitcoin exchange will do, as well. Since the exchange actually holds the assets (i.e. bitcoin and dollars), it can also determine whether such liquidation is backed by orders.