In Light of MTGOX - Proposal for Transparency of Bitcon Exchanges Balance Sheets

[Against Hunger]

I sent the following document to the exchanges on twitter today for request for comment.     http://www.againsthunger.org/files/1313/9379/5032/Cold_Storage_Verification.pdf

I thought I would post the main points here. These recommendations are obviously a starting point and are designed to open up dialogue in the bitcoin community on how we as a community should proceed to ensure openness and transparency in the management of external parties cryptocurrencies

Proposal for Crytpocurrency Balance Monitoring.


There have been several instances in the past where the general public has received notification that Bitcoin balances in cold storage were being reported inaccurately. When a discrepancy occurs a long time after an event it becomes more difficult to trace the coins on the block chain. Issues can also continue to occur without the holding organization or the general public’s knowledge. This can result in additional losses, and people may also continue to invest into this organization without the investors being made aware of the situation.

I would like to make the following recommendations to provide transparency into the practice of holding and storing cryptocurrencies on behalf of another party.  

1 )   The public addresses of cryptocurrencies that are held in either “Cold” or “Warm” storage by exchanges, hosted wallets or other organizations are made available to a third party organization for external monitoring.
2 )   The cold storage address or at minimum the transferring addresses to the cold storage will be signed and verified to ensure proof of ownership.
3 )   Transfer to a paper wallet must occur in a single transfer and the paper wallet public address should be provided to the 3rd party monitoring organization.
4 )   If additional transfers to another paper wallet or cold / warm storage are to occur the wallet will need to be signed and verified and again destination public address provided for monitoring.  
5 )   Small donations can also be made as an additional proof of ownership over and above signing and verification to ensure you can transfer coins from the address.
6 )   The Balance of these wallets will be continually  monitored and electronic notification will be made public when any changes to these balances occur. Publication of changes would be made available via an API and published on a public networks.  
7 )   Monthly reconciliation of wallet Balances will be made public to ensure that the number of coins reported by the holding organization is in fact equal to the number of coins within the monitored wallet.
8 )   Cold storage practices of the holding organization are made public and adhered to, with the option to audit the process at any time.

[Against Hunger]

Bump for comments.

[btcrich]

Well said.

I completely agree that exchanges should be more transparent about their holdings.  At least if the exchange doesn't notice that thousands of Bitcoins are being stolen from them over a period of 1-2 years, at least some clever folks looking at their records would be able to point it out fairly quick.

Some exchanges claim to have external auditors, but I don't think that's enough.

[Against Hunger]

Well said.

I completely agree that exchanges should be more transparent about their holdings.  At least if the exchange doesn't notice that thousands of Bitcoins are being stolen from them over a period of 1-2 years, at least some clever folks looking at their records would be able to point it out fairly quick.

Some exchanges claim to have external auditors, but I don't think that's enough.

I believe if one exchange takes this action, others will follow. Would you place your coins in an exchange that tells you to believe they have 750K Bitcoins but provides no proof or would you place your coins in an exchange that provides an open record of accounts that is monitored and you can personally verify the details?

[smoothie]

I would like to see this happen.

[Against Hunger]

I would like to see this happen.

Any thoughts on how we could move this forward.  Is this something the Bitcoin Foundation should Shepard.  I think we all understand the derivative model for exchanges and if an exchanges use that model and the community is OK with that, I just believe everyone need to understand the risks.

[ISAWHIM]

The bitcoin foundation should have been doing this already...

The point of a foundation, is that they actually have access and rules for joining, other than paying for ad-space and filling the foundations pockets for doing nothing.

We need a new foundation, a real foundation. One not run by the businesses themselves.

[whtchocla7e]

The bitcoin foundation should have been doing this already...

The point of a foundation, is that they actually have access and rules for joining, other than paying for ad-space and filling the foundations pockets for doing nothing.

That's centralization and/or regulation.

[Against Hunger]

The bitcoin foundation should have been doing this already...

The point of a foundation, is that they actually have access and rules for joining, other than paying for ad-space and filling the foundations pockets for doing nothing.

That's centralization and/or regulation.

I don't think anyone is calling out for Centralization and regulation but I do think the community is looking for openness and transparency  (and isn't that the basic premise of bilcoin).  If that requires an external body and maybe this is the foundation or maybe it is NewCo an (independent community elected team) but I think this can be accomplished very easily through self disclosure.   This may not even need to be a body or group and simply the community migration to exchanges that are open.  

[Against Hunger]

Phil Raymond made the following blog post on his Wild Duck Blog http://awildduck.com/?p=3142  that is worth a read on his proposal on how this could be approached. 

Also if you are a member of Linkedin Bitcoin group there is survey polling the public for their opinion.

http://www.linkedin.com/groupItem?view=&gid=3721050&type=member&item=5845495990626320384&qid=7f4a5444-d689-4841-8bfa-87e81c8aa7e5&trk=groups_most_popular-0-b-ttl&goback=%2Egmp_3721050%2Egna_3721050%2Egmp_3721050

[Armis]

The bitcoin foundation should have been doing this already...

The point of a foundation, is that they actually have access and rules for joining, other than paying for ad-space and filling the foundations pockets for doing nothing.

That's centralization and/or regulation.

I don't think anyone is calling out for Centralization and regulation but I do think the community is looking for openness and transparency  (and isn't that the basic premise of bilcoin).  If that requires an external body and maybe this is the foundation or maybe it is NewCo an (independent community elected team) but I think this can be accomplished very easily through self disclosure.   This may not even need to be a body or group and simply the community migration to exchanges that are open.  

Centralization and regulation are not bad words just like needle and surgery are not bad when your system needs them urgently

anyone that talk with an idealized view of bitcoin has not lost tons of money in the space, via Mt Gox, hacking, scams, or any other way, the simple fact is the space it far too dangerous to operate in any reasonably ordinary way. 

I'm not just calling for what you have provided for in the OP but also improvements to the btc protocol so security is written in; also for exchanges to be certified by community organizations, and for exchanges to be far more responsive to customer needs.   

The space is too small for pervasive nonsense it's time for responsible players to emerge, be recognized, and duplicated.