That is most definitely dropsy. This will help you understand the various "levels" of the ailment.
Dropsy
Ascites
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Description:
Dropsy itself is not a disease, but rather a result of some other cause. Dropsy is a term given to the swelling that occurs internally in the fish. There are multiple possible causes. Sometimes it's not contageous, but sick fish should be isolated and treated since determining the actual cause may be impossible, and also because this will be easier on the fish.
The fish's body will become swelled with fluid it is unable to expel. Eventually the swelling will cause the scales to raise, giving the fish what is called the "pine-cone" appearance.
Diagnosis, One of these situations may be the culprit:
Acute Dropsy: Sudden swelling: A bacterial infection will cause internal bleeding.
Chronic Dropsy: Slow swelling: Growing tumors, or even parasites, in the fish may cause it to swell.
Chronic Dropsy: Slow swelling: Mycobacterium tuberculosis. Highly contageous!
Other unknown causes, such as a virus, or permanent damage to the fish's internal organs. Damage to kidneys can occur due to over-use of medication or use of too strong of medication.
Treatment:
It is difficult to treat, but in some cases where the problem is due to bacteria, if detected early enough, it can be treated. This is why you should closely examine the fish's environment for a bacterial problem, and deal with the source of the problem as a part of treatment and preventative.
By the time the scales begin to raise, however, it is very fatal to the fish. Salt baths can help to draw the fluid out of the fish. A variety of medications can be purchased that treat dropsy, which sometimes occurs due to an internal bacterial problem. Medications for external bacterial problems only will not be effective for this problem.
Gouramies and Cyprinids are highly susceptible to this disorder.