OKCoin has passed a Proof of Solvency/Proof of Reserves audit conducted by Stefan Thomas. The audit was announced on Weibo yesterday. Fellow Chinese Bitcoin exchanges, Huobi and BTC China, are also expected to release similar announcements soon. Stefan Thomas previously conducted the same Proof of Solvency/Proof of Reserve audits for Bitfinex and Kraken. Similarly, Bitstamp was able to pass an independent test and prove their solvency to BitcoinJ developer Mike Hearn. OKCoin, along with many other industry-leading Bitcoin exchanges around the world, all now believe that providing Proof of Reserves is a new industry standard following the ongoing Mt Gox disaster.
Previous audits by Stefan Thomas revealed ~100.5% Bitcoin reserves at Kraken and 102.82% Bitcoin reserves. OKCoin breaks previous “records” with 104.86% Bitcoin reserves. To put that in perspective, a 4.86% reserve surplus is more than some banks in many countries, including the United States, have on hand to fulfill their legally required reserve ratios.
OKCoin has been making steady moves into the international market since receiving $10 million in funding. OKCoin has since implemented margin trading, p2p lending, and futures trading. Along with BTC China, a competing Chinese Bitcoin exchange, OKCoin has launched an English language website and now accepts USD deposits for its designated USD trading books.
OKCoin’s CEO, Star Xu, had this to say:
“We believe that this is a necessary step towards financial transparency for Bitcoin businesses. We acknowledge the fact that today’s audit is just ‘one point in time’ and it is for this reason that we aim to perform a series of regular audits to give confidence to our users.”
How Is Proof of Reserves Established?
The process of establishing a Bitcoin Exchange’s proof of reserves requires two steps to verify two separate claims. The first claim that must be verified is that (1) the Bitcoin exchange controls a certain amount of Bitcoin. To verify this claim, the Bitcoin exchange provides a JSON file with a list of all their Bitcoin addresses and balances, which is then compared to the blockchain. The comparison is made using the ‘cryptoshi audit’ command in libcoin.
The second claim that must be verified is that (2) the amount from claim 1 is greater than the amount contained in all of the Bitcoin exchange’s user balances. To prove this, the Bitcoin exchange provides a JSON file containing a set of anonymized user balances. At this point, Stefan Thomas uses his own tool, ‘easy-audit,’ to calculate the reserve ratio using the data from claim 1 and also the root hash. The code for Thomas’s ‘easy-audit’ can be found at his github. OKCoin has taken the additional step of including this tool on its website for users to verify that their balance was included in the root hash used by Stefan Thomas in his audit.
The technical details of the process will be explained by Stefan Thomas in a post, presumably to his site or the Bitcoin Forum, soon. Unfortunately, no Bitcoin exchange has undergone a publicized fiat financial audit yet, and the brave handful that have stepped forward thus far have only proved Bitcoin reserves.
Stefan Thomas has previously stated:
“As always, an audit does not constitute an endorsement and it does not address any risks outside of present insolvency. It’s also not infallible, exchanges can borrow money or ask others to sign their audit message. Finally, until we can implement fully zero-knowledge, cryptographically provable audits, you have to trust the auditor, i.e. me, to have done my job correctly.
Also same as last time, I did not receive any compensation for the audit and I did it in my free time.”