Grayscale, a crypto investing firm, has declined to publish its proof-of-reserves due to “security concerns.” The action has sparked questions about the company’s financial stability.
In a tweet on Saturday, it said that prominent cryptocurrency exchange Coinbase, which Grayscale uses as a custodian, often conducts on-chain validation but that they cannot publish their proof of reserves owing to security concerns.
6) Coinbase frequently performs on-chain validation. Due to security concerns, we do not make such on-chain wallet information and confirmation information publicly available through a cryptographic Proof-of-Reserve, or other advanced cryptographic accounting procedure.
— Grayscale (@Grayscale) November 18, 2022
Proof of reserves is a technique used in cryptocurrency that enables users to show whether or not an independent auditor has the reserves of a particular exchange or company. It gathers data using Merkle Trees and generates a set of fingerprints for users to confirm that an outside party correctly audited their funds.
Grayscale admitted that some investors would be disappointed by its choice to keep its reserve information confidential. According to the business, fear caused by others is not a good enough excuse to disregard sophisticated security measures that have protected our investors’ assets for years.
However, the most recent disclosure has only weakened user faith in Grayscale. Because other significant cryptocurrency exchanges, such as Binance and Crypto.com, have disclosed their proof of reserves, most crypto users are not persuaded by Grayscale’s justification. According to available data, GBTC is trading at a discount of 45.08% to the net asset value.
Many in the crypto sector have expressed concern about the dependability of centralised exchanges in the wake of the unprecedented collapse of FTX.
Executives in the crypto industry started to share proof of reserves to allay this mistrust. For instance, Crypto.com revealed the crypto addresses associated with the amount and types of cryptocurrencies it keeps on behalf of its users.