Some believe that insuring deposits and returning the funds, as done when Bitstamp was hacked, is enough. Others feel that some form of multi-signature transactions needs to become the rule rather than the exception for exchange platforms. And then there is Vaultoro; a new, Bitcoin gold exchange that is betting big on being fully auditable.
Vaultoro Co-founder Joshua Scigala, who along with thousands of others got hit financially by the fall of Mt. Gox, used the collapse as inspiration to think more about how exchanges could be regulated without global state regulatory solutions.
Vaultoro’s answer is simple, hide nothing but personal details. This is known as their “glass books” approach. “I wanted to show how transparency in exchanges through math and protocol could create market forces where people do business with exchanges that voluntarily adhere to open and transparent auditing,” said Scigala.
The Vaultoro blog further states:
The audit proves that we are always running on full reserves. This is possible due to the nature of gold and bitcoin. We are the only exchange that offers this level of transparency. We hope that other exchanges will adopt our approach to provide better transparency in the industry.
Vague explanations and supposed world class security are not enough in an age of battle-hardened cryptocurrency holders and investors. In short, people want to see your books.
Account holders at Vaultoro are able, at any time, to verify the vaults holding the gold and the bitcoin cold wallets holding the bitcoin. Customers who are concerned about their deposits being covered by the exchange can view the data at any time.
The main goals [of Vaultoro] were to create an exchange where people could hedge the volatility of bitcoin without going back to fiat, and to become the most transparent exchange in the industry, while at the same time keeping user privacy intact. We do this by giving every user a secret ID, which only they know. We then publicly publish all secret ID’s with their holdings. This means that any client, at any time, can randomly check the audit list and find themselves and their balance without us knowing about it. This means that we can’t change people’s holdings because someone would notice. Anonymity can work very well for transparency. Anyone can then see the sum of all users holdings and simply compare that to our bitcoin cold and warm wallets. The sum of users gold holdings can be checked against the statement from the top-tier vault operator, the BDO Audit certificate and insurance papers.
Other exchanges are willing to verify that deposits exist, and other approaches to transparency have popped up as well. Some exchanges have even decided to do away with the need for deposits altogether, preferring to create instant transactions. But it seems that exchanges competing for the increasing Bitcoin user base will be forced to step their efforts up to similar levels of transparency and ease of use of Vaultoro.
Customers will increasingly scrutinize the security and transparency efforts of Bitcoin exchanges more equally, with the understanding that security doesn’t mean a thing if the books are not balanced.
Do you think public auditing, strong security, and highly insured deposits are the way of the future? Let us know your thoughts in the comments.
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