By
Steve Muchoki
April 19th, 2024
In addition to being Bitcoin’s 10th birthday, Jan. 3, 2019 will go down in history as being the crypto world’s inaugural Proof of Keys day.
The ‘Proof of Keys’ initiative was started by Trace Meyer just weeks ago and was intended as an intentional cryptocurrency exchange run. Specifically, Mayer tried to encourage people to withdraw all their Bitcoin and cryptocurrencies from third-party cryptocurrency exchanges on January 3rd.
The guiding principle was that the exchanges often hold their customers’ crypto assets in the name of storing them. However, the customers are not able to access the assets stored on the exchanges at any point. The event emphasized the need for crypto holders to have control over their private keys and to possess them at will, even if the asset lies with the exchanges.
Mayer wrote:
“By demanding and taking possession of their assets, individuals will learn real fast with blockchain proof whether they are part of the elite HODLers or not. Proof of Keys is the annual HODLer initiation.”
However, according to Trace Mayer and the Proof of Keys’ event’s official page, in addition to HitBTC, some other exchanges also had issues leading up to or on the day of the event.
PurseIO halted withdrawals without any reasonable explanation.
@TraceMayer It looks like #ProofOfKeys has impacted @PurseIO somehow. They have halted withdrawals without reasonable explanation. 🔑 pic.twitter.com/qAyeg2kWRN
— Senior Crypto (@crypto_senior) January 3, 2019
Even though RobinHood promised to support Proof of Keys day, it seems they didn’t. They twitted:
Failed Proof of Keys 2019
Promised and Did Not Deliver.
“Coin Withdrawals
At this time we don’t support coin withdrawals, though we plan to do so in the future.”
— Dr. Benyamýn ibn Westgate (@BenWestgate_) January 4, 2019
Poloniex also allegedly had been whitelisting its users.
https://twitter.com/megacity_4/status/1080898318148857857
One user said:
“The last four days Poloniex is making me jump through hoops trying to get transfer. Everyday is a new hoop and a day delay. I’ve never had this problem before with them in the past.”
Mayer Accusing HitBTC to Freeze Account Withdrawals
HitBTC has failed to comment about ongoing withdrawal issues within it, but it seems that they could have had solvency issues. Just three days ago, Mayer accused cryptocurrency exchange HitBTC in freezing account withdrawals on the threshold of the Proof of Keys event.
He was subsequently joined by others in his suspicion, including John McAfee, wallet manufacturer Bitfi and entrepreneur Tuur Demeester.
HitBTC has subsequently rejected the allegations. They denied any link between account freezes and the ongoing event.
Not all of the exchanges listed in the “failures” section of the official Proof of Keys site are currently having withdrawal issues. Coinbase pointed out that the issue reported back at the end of December was fixed not long after it was initially reported.
Bitfinex also resolved their issues saying:
We are aware of some issues on our platform and are working quickly to resolve. Please be assured all funds are safe. We appreciate your patience.
— Bitfinex (@bitfinex) January 3, 2019
One thing is for sure: several exchanges are probably falsifying their trading volume for advertising purposes. One less-notable figure in the crypto community alleges that nearly all exchanges have to be lying about their volume due to the actual nature and size of the market.
If exchanges are willing to somewhat nakedly lie about their trading volume, is it possible they’re also lying about having funds securely on hand?
History shows that it’s far from impossible. The first major incident of bubble popping and bloodshed in cryptocurrency was Mt. Gox, which became insolvent and tried to cover it for many moons before eventually getting caught. Founder Mark Karpeles may be looking at a ten-year prison sentence as a result.
Solvency as an Important Issue
To further cement his point for the need of a “proof of key” celebration, Mayer pointed out that it is essential for users to show their independence from time to time. He stated that this is quite important especially for new users who are still very ignorant about the rudiments of investing in cryptocurrency.
Also, increase in crypto exchange hacks has left users feeling very unsure about how secured their funds are on exchange platforms. The Proof of Keys event seeks to test the blockchain network consensus and to prove the validity of various asset chains through withdrawing the assets in theory. Mayer appealed to the overall crypto community to utilize this event to identify crypto exchanges and other third parties that can provide proof of the funds in their custody, adding that it “is a fight over your monetary sovereignty.”
Mayer was citing Satoshi Nakamoto saying:
“What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.”
However, we need to be aware that solvency is a seriously important issue in a financial system which is designed such that you must control the private keys in order to truly control the money.
The Proof of Keys event was designed to remind the trading community that while decentralized exchanges are emerging, the majority of the volume still takes place on exchanges which have full control of the money traded. Bitcoin itself is designed to remove the need for trust in financial transactions. Perhaps the only hope can be that the event grows in popularity in years to come and that exchanges which do not “fail” it in any way are lauded.
At the time of writing, Bitcoin was back in the red, down 1.43% to $3,831.4, with moves through yesterday trading seeing Bitcoin fall from a start of a day morning high $3,924.3 to a morning low $3,890.0 before moving back through to $3,900 levels.
While the day’s major support and resistance levels were left untested early on, direction in the day ahead will be hinged on the outcome to the Proof of Keys event, any negative news likely to weigh, though it may not be as bad as one would assume, with a large number of Bitcoin holders reportedly unaware of today’s event.