Avoiding the next Mt. Gox: Vault of Satoshi bitcoin exchange launches proof-of-solvency service
As the bitcoin community continues to recover from a series of high-profile exchange and wallet platform failures, none bigger than the multi-hundred million dollar implosion of Mt. Gox, trust remains a big issue.
Consumers (and likely regulators) are starting to demand increased transparency and accountability on the part of these institutions to verify both their solvency and compliance. As a result, a number of prominent bitcoin companies have subjected themselves to audits, either by respected peers or by independent third-parties.
Yesterday, “unapologetically Canadian” exchange Vault of Satoshi took things a step further by unveiling a full, public proof-of-solvency service for its customers, which it claims to be an industry first. The service goes beyond a traditional audit, according to the company, by providing proof of reserves via cryptographic trees.
Essentially, the company has published its "cold wallet," or the bitcoins it stores offline, meaning that 94 to 95 percent of all its reserves will be navigable by the public. (It has not published its 'hot wallet," however, for security reasons). Registered exchange users can log into their accounts, visit the company’s online security center, and validate that their personal deposits are fully in-tact.
Vault of Satoshi Director of Marketing Adam Cochran took to the comment section under the original post to explain the proof-of-solvency service and to address user questions. He writes:
...basically it's a two part system, one system (created by us) spits out "According to this website you have X coins and the total wallet has XXXXX coins" then you put it into another tool (open source by Bitcoin Devs) and it goes "Yup, they have XXXXX coins and you have X coins! Solvency!"Cochran later addresses one commentator's prediction that public proof of solvency will become a must-have service for any exchange wishing to remain in business:
Businesses that operate on sketchy practices or screw over their users give Bitcoin in general a bad name. As a community/industry, Bitcoin consumers as a whole need to demand more responsible practices from the businesses in this industry.
...We at Vault of Satoshi have always felt we have a responsibility to step up to the plate and be everything we can be on our users behalf. The trust our users place in us is not something to be taken lightly and we should provide every assurance we can afford! Vault of Satoshi recently ceased its US operations, citing an increasingly hostile regulatory environment. The company explained in a Reddit post that it found the process of complying with FinCEN regulations as a Canadian company to be unworkable and thus made the decision to focus on serving the Canadian and international bitcoin communities. Cochran calls this a temporary situation and reveals that Vault of Satoshi will re-enter the US on a state-by-state basis in the near future.
It’s a troubling development nonetheless that illustrates the fears raised by prominent bitcoin investors and entrepreneurs during both public hearings and closed door meeting with regulators, where these community representatives predicted that the US would be left behind in bitcoin innovation if regulations were not streamlined.
Around the same time it was pulling out of the US, Vault of Satoshi was able to obtain a license to operate as a Money Service Business in Canada. This means, among other things, that non-US users can now use wire transfers, certified checks, money orders, and ACH-like Interac debits to buy and sell digital currencies. The company also added the option, via its Coin-to-Coin service, for users to exchange any digital currency directly, without first using Bitcoin or Litecoin as an intermediary.
Cochran hinted at a number of upcoming improvements to the service in the comments section. By popular request, the company is working on an overhaul of its order page and is also adding quicker withdrawal options to go with its newly implemented deposit methods. The six-month-old company is currently processing approximately 100 BTC in transactions per day and growing steadily according to Cochran.
Vault of Satoshi is not even among the dozen largest bitcoin exchanges in the world, and yet the company is leading the way in terms of transparency and setting an example for other exchanges to follow.
“It was quite an undertaking, a lot of time was invested into first figuring out away (sic) to do it that is transparent but also safe and secure and doesn't jeopardize an individuals (sic) information,” Cochran writes. “As for other exchanges, I can't speak on their behalf, but I know that our mantra is to ‘never settle for good enough.’ Yeah we could have got by on an external audit like other companies do - but why settle? Don't our customers deserve the best? We think they do!”
(Read the full proof-of-solvency announcement below.)
At Vault of Satoshi we have always tried to embody the mantra of being an open, honest and transparent exchange. We feel it's our duty to do so when you make the decision to place your funds in our hands.
For this reason we have long sought after a way to prove our reserves to the public in a safe and reliable manner, while most exchanges issue a third-party audit, we felt that simply wasn't open enough - so today at Vault of Satoshi we are proud to announce full proof of solvency and the publication of our cold wallet!
Users can self validate both their balance and the overall reserves of the exchange by navigating to our security center and selecting "BTC Proof of Solvency". From there, load the partial tree list, select "online tools" and copy paste in the relevant information to validate the holdings.
Note: While our secured cold wallet is listed and public, we have decided to not publish the hot wallet address for security reasons, and so the total value may have a discrepancy of up to 5-6%.
We at Vault of Satoshi want to thank you for your trust and your continued patronage. We will continue to take steps to be transparent and promote honest, customer oriented practices in the Cryptocurrency market.
All the best,
Director of Marketing
Vault of Satoshi