When institutional investors with openly advertised exposure to decentralized assets like Bitcoin, which comically enough is fundamentally designed to enforce transparency at the core, come up to say that “proof of reserve” is a bad idea with an argument of risks, they are either vastly ignorant of what makes any of these digital assets valued in the first place, hence what is expected of any business dealing with them or simply have fraudulent intents that would be threatened in an event of reserve addresses being made public.
Anyone who's been here long enough to witness the last bullrun knows why proof of reserves is a thing of great importance at this time in our industry.
When FTX filed for bankruptcy in 2022 and was found to have misused billions in users funds for high leverage trading and investments to which the FTT token was a key collaboral asset to the fraud, it became apparent the urgency of transparency amongst centralized cryptocurrency exchanges for consumer protection.
For those who don't know it, Proof of Reserves (PoR) is a method used by cryptocurrency exchanges and custodians to demonstrate that they hold enough assets to cover all customer balances, essentially proving that the platform is not insolvent or operating in a fractional reserve manner.
Proof of reserves are generally cryptographically proven, meaning that anyone can verify that these exchanges and custodians actually hold the specified amounts of assets in their proof of reserve dashboards.
Saylor says onchain proof-of-reserves a ‘bad idea’ due to security risks
Michael Saylor, the executive chair of major Bitcoin-buying firm Strategy, formerly MicroStrategy, says institutions posting onchain proof-of-reserves is a “bad idea” that could pose security risks.
“The current, conventional way to publish proof of reserves is an insecure proof of reserves,” Saylor said when asked about institutions adopting the transparency measure at a May 26 event on the sidelines of the Bitcoin 2025 conference in Las Vegas.
“It actually dilutes the security of the issuer, the custodians, the exchanges and the investors. It’s not a good idea, it’s a bad idea.”
“No institutional-grade or enterprise security analyst would think it’s a good idea to publish all of the wallet addresses, such that you could be traced back and forth.” — Cointelegraph report
It is quite a wild statement to make that exposing addresses to prove that institutions hold the assets they claim to hold is a security risk in any way.
First things first, irrespective of individual businesses or institutions proving their holdings, every bitcoin address is already public and traceable. If their public nature were a risk then individual holders would have already been attacked, but that's clearly not the case.
It's also quite comical that Saylor tries to make it seem like he's against proof of reserves because the current system of proving is bad when in reality he really just doesn't want to ever do it.
I mean, your company already announces these billion dollar purchases with your face everywhere, what other risks are there exactly than all that's already known?
How does releasing the addresses where these assets are held a risk comparable to releasing physical addresses of people exactly?
Or is it a risk of hacking and if the answer is yes, why would you use a service, system or custodian that can be hacked if the addresses were ever exposed to the public?
The argument against transparency for a public company of that much exposure to Bitcoin is BS that should be heavily kicked against.
When publicly traded traditional companies step into the world of crypto assets, they have to be ready to be transparent about their holdings.
It's concerning to be against a proof of reserve as that suggests that Strategy may be involved in fraudulent market practices that Michael Saylor doesn't want known to the public.
What are the odds this ends very badly?