Many in the crypto world are already aware of the importance of today’s date (January 3rd, 2019), but for those who might not know — this is the 10th anniversary of Bitcoin (BTC) first block launch. The crypto community has always taken this date seriously, and the celebration of it became something of an ongoing trend.
This year, however, an additional event was added to the celebration, the Proof of Keys campaign.
What is Proof of Keys and why does it matter?
Proof of Keys is a campaign launched by Trace Mayer that requests crypto users to withdraw their funds from third-party controlled wallets, like the ones that crypto exchanges are offering. Instead of keeping their funds on the exchange’s platform, users are advised to store them somewhere where they will hold the private key themselves. The intention behind it is to check the legitimacy of the third-party controlled wallets and test their solvency.
The event has already started earlier today, January 3rd, and it is expected to become an annual occurrence. The movement came to be as a way of confirming that crypto users are actually in charge, and in real possession, of their coins. In other words, exchange customers wish to get proof that their money is there.
As crypto traders and investors already know, centralized exchanges offer users the possibility to store funds on users’ behalf. Taking advantage of this offer is generally considered to be a bad move, as many issues can endanger users’ funds. Hacking is one of these big issues, and in the history of crypto, there were already numerous big hacks that resulted in the theft of millions of dollars in crypto.
Another big problem is the possibility that the exchange doesn’t own enough money of its own to pay off all of its traders and investors. Simply put, the movement behind Proof of Keys believes that users should cash out of centralized exchanges as a way of determining that the exchange is not scamming users and using their money.
The movement is quite similar to a bank run, which is necessarily an event where bank customers all come and request to be cashed out at the same time. This is one of the causes of the infamous Great Depression that happened around 90 years ago.
After Bitcoin’s launch ten years ago, many investors started turning to crypto, hoping that the possibility of not being in charge of their funds will go away with crypto. However, over the years, many of the centralized exchanges have become just as bad as the banks, which is why the movement is now deemed necessary to ensure that the situation is not as bad as many believe it to be. The worst case scenario is that the situation is concerning, in which case, it is probably better to discover it sooner, rather than later.
One thing to note is that decentralized exchanges are not included in the event, as they do not offer to store users’ coins on their behalf. This event is revolved around centralized exchanges only, which tend to exploit traders that are not aware of the fact that they are not indeed in possession of their coins as long as they are not in their wallet.
The crypto market’s reaction to the event
As it was to be expected, a lot of crypto holders thought that the event is an excellent idea. Not only is it a great experiment to test how trustworthy the exchanges are, but it also has several other benefits. For example, it allowed the crypto community to come together and celebrate the 10th anniversary of Bitcoin’s Genesis Block being mined in a way that has reminded everyone why cryptos exist in the first place. Also, it can serve as a great way to test the scalability of blockchains.
However, not everyone was thrilled by the event, especially when it comes to exchanges themselves. One exchange, in particular, HitBTC, even supposedly decided to freeze customer accounts just before the event started. HitBTC is infamous for sometimes freezing customer accounts, and not undoing the move for months. One Reddit user even stated that it took months, and over 40 emails to make the exchange unfreeze their account once more.
Now, after the event was announced, the exchange did it again, as reported by the same Reddit user. Supposedly, they feared that this might happened which has inspired them to try and withdraw the funds before the event, and the account was frozen once more. While the accounts will likely be fully operational once more, after the event is over, this is precisely the point of the event itself. There is no true decentralization as long as users depend on centralized exchanges.
If someone can freeze your funds and prevent you from accessing your money at any time — you are not in control of your funds. This is the reason why the event was created, and why it will likely continue in future years if it ends up being successful. In the meanwhile, users are advised not to keep their funds in exchanges, and to learn how to store them properly in wallets that they control personally.