Coinfloor, a London Based Bitcoin Exchange, holds all funds in cold storage. In addition to the cold storage of all client funds, all transactions are cleared through a multi-sig system where multiple keyholders check to be sure the transactions are legitimate prior to sending them out.
Multi-signature wallets require more than one signature in order to send out a transaction; this drastically increases security against theft for any companies dealing with large amounts of Bitcoin. As an individual user or very small Bitcoin business, it might not make sense to use a multi-sig wallet.
Coinfloor’s policy prevents any unintended withdrawals and protects consumer funds against theft from the inside or outside, and also reduces the risk of negligence from an employee. According to Coinfloor, all client Bitcoins are stored and sent out from underground vaults that have the same security as The Bank Of England.
Mark Lamb, CEO of Coinfloor states:
“We want to enable our customers to audit our system by publishing the Provable Solvency Report. The standards of the established financial ecosystem are quarterly audits done by a single firm. The advantage that Coinfloor has by existing in the bitcoin ecosystem is that we can have monthly audits that are viewable to anyone and auditable cryptographically rather than by a single firm. It’s a level of openness and auditability that you just don’t get with gold or really any other asset class.”
Coinfloor Is the First Exchange to Do Monthly Audits of Funds
Proof of solvency is becoming increasingly important as Bitcoin continues to grow. There have been countless numbers of scam exchanges, and finding one that is trustworthy is very important for the everyday trader. A few exchanges have gone through proof of solvency audits; however Coinfloor is the first exchange to do monthly audits of funds to show customers that all funds are held in cold storage. Ever since the Mt Gox disaster, users have been very wary about putting their money in any exchange. OKCoin, Bitfinex, and a few other exchanges have passed proof of solvency audits conducted by Stefan Thomas. By ensuring that all funds are held securely, users can invest their funds more securely.
Coinfloor generates a report of all current client balances then generates an SHA-256 hash of the report. After the first two steps are completed, Coinfloor then completes a transaction to themselves with all of the Bitcoins held in their storage and includes the output script in the SHA-256 hash of the report, thus proving that at the time the report was made, Coinfloor is in possession of all client funds claimed to be held in the report. Coinfloor users can verify this report themselves by following step by step instructions on the Coinfloor website. As of 10/22/2014, Coinfloor passed proof of solvency with 2509.8 BTC.
As Bitcoin continues to grow, so will the demand for Bitcoin and other cryptocurrencies continues to grow, so will the demand for dependable, secure exchanges. Coinfloors monthly proof of solvency is a very nice feature which will help build trust with users of the exchange.
What do you think about the importance of proof of solvency? Comment Below!
Images from Coinfloor and Shutterstock.