Grayscale, an investment firm for cryptocurrencies, has declined to release its proof-of-reserves due to “security concerns.“ The action has sparked questions about the company’s financial stability.
The organization said in a Saturday tweet that prominent cryptocurrency exchange Coinbase, which Grayscale uses as a custodian, routinely conducts “on-chain validation,“ adding that they cannot publish their proof of reserves owing to security concerns.
“Due to security concerns, we do not make such on-chain wallet information and confirmation information publicly available through a cryptographic Proof-of-Reserve, or other advanced cryptographic accounting procedure,” the company said.
In the world of cryptocurrencies, the proof of reserves approach enables users to demonstrate whether or not an independent auditor has the resources of a particular exchange or company. It gathers data using Merkle Trees and generates a set of fingerprints that allow customers to confirm that an outside party correctly audited their funds.
Keeping Reserves Secret will disappoint Investors
Grayscale admitted that some investors would be “disappointed” by its decision to keep the details of its reserves secret. According to the business,
“Panic sparked by others is not a good enough reason to circumvent complex security arrangements that have kept our investors’ assets safe for years.”
However, user confidence in Grayscale has only been weakened due to the latest disclosure. The vast majority of crypto users appear unconvinced by the company’s argument, especially because other big crypto exchanges, such as Binance and Crypto.com, have revealed their proof of reserves.
“I wasn’t concerned about GBTC solvency until reading this statement, please explain how proof of reserve is a security risk?” said ChainLinkGod.eth, a well-known figure in the cryptocurrency field and a Chainlink CommunityAmbassador, remarked.
Allaying mistrust, Crypto Companies Share Evidence of Reserves?
Many in the cryptocurrency sector expressed concern about the dependability of centralized players after the unusual collapse of FTX, once the third-largest cryptocurrency exchange and known for leading the industry’s bailouts during the current crypto crash.
Executives in the crypto industry started to share proof of reserves to allay this mistrust. One example is that Crypto.com revealed the cryptocurrency addresses associated with the amount and types of cryptocurrencies it keeps on behalf of its users.
