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Crypto investment firm Grayscale has refused to share its proof-of-reserve, citing “security concerns”. The move has fueled speculation about the financial health of the company.
In a Saturday tweet, the company said that major cryptocurrency exchange Coinbase, which is used by Grayscale as a custodian, frequently performs “on-chain verification”, adding that they do not verify their reserves due to security risks. Can’t share.
“Due to security concerns, we do not make such on-chain wallet information and confirmation information publicly available through cryptographic proof-of-reserve or other advanced cryptographic accounting process,” the company said.
In crypto, proof of stores is a method that allows users to prove to an independent auditor whether a specific exchange or business has reserves. It uses Merkle trees to capture data and derive a set of fingerprints that let users verify that their funds were properly audited by third parties.
Grayscale acknowledged that the decision to keep its reserve information private will be a “disappointment” for some investors. However, the company claimed that “panic spread by others is not sufficient reason to circumvent the complex security arrangements that have protected our investors’ wealth for years.”
Nonetheless, the recent revelations have only increased user confidence in Greyscale. It appears that most crypto users are not convinced by the company’s reasoning, especially since other major crypto exchanges, including Binance and Crypto.com, have shared their proof of stores.
“I wasn’t worried about GBTC solvency before reading this statement, please explain how Proof of Reserves is a security risk?” said Chainlinkgod.eth, a prominent member of the cryptocurrency community and ambassador for the Chainlink community.
Prominent cryptographer Adam Back also claimed that Grayscale’s statements “don’t make that much sense.”
“Tracing firms know UTXOs, and it is not difficult to ask about exports. The only vague thing you can argue is that if Coinbase Custody moves them or changes their IP addresses or geolocations on p2p.” But use Tor,” he said.
Why do crypto platforms need to share their proof of reserve?
The unprecedented collapse of FTX, the once third-largest cryptocurrency exchange that earned a reputation as the bail-out king of crypto during the recent crypto meltdown, has many in the crypto industry expressing concern over the credibility of centralized players.
To allay this skepticism, crypto authorities began sharing proof of stores. Crypto.com, for one published Its crypto address tells how much and which cryptocurrencies it stores on behalf of its customers.
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