There are now just 25 days remaining until the annual Bitcoin Proof of Keys event, which sees potentially tens of thousands of bitcoin owners withdraw their BTC from their exchange wallet to an address where they control the private keys.
January 03, 2020 marks by the 11th anniversary of the day the Bitcoin genesis block was mined. This will also be the date of the second Proof of Keys event thus far, and a critical moment for many cryptocurrency exchanges, which will see their reserves tested once again.
Proof of Bitcoin Keys
By hoping to inspire a large number of users to withdraw their funds from their exchange account, the organizers believe this stress test will help to identify which exchanges are operating a fractional reserve, which essentially means they don’t actually have sufficient Bitcoin on hand to cover 100% of user balances.
In the run-up to previous Proof of Keys events, large numbers of users withdrew their BTC from dozens of cryptocurrency exchanges, and the event was partially responsible for the collapse of QuadrigaCX—a Canadian cryptocurrency exchange that was declared bankrupt earlier this year.
Proof of Keys leader and well-known cryptocurrency investor Trace Mayer encourages anybody looking to participate in the event to show their support on Twitter by adding ‘[Jan/3➞₿🔑∎]’ to their Twitter handle. The official Proof of Keys website has also created a Google Form to help track how many bitcoin holders are participating.
Not Your Keys, Not Your Coins
For the most part, cryptocurrency exchanges are considered to be a much more convenient way to store cryptocurrencies. After all, they offer much the same functionality as client-side wallets, while also allowing Bitcoin holders to trade and invest all in one place.
However, by storing particularly large sums of Bitcoin or any other cryptocurrency in a single place, holders can be left vulnerable, since cryptocurrency exchanges are notorious for being hacked. This is doubly problematic when you consider that very few cryptocurrency exchanges have insurance over user funds, and some operate in jurisdictions that make them practically untouchable by regulators and lawmakers.
Because of this, it is widely thought that individuals storing their own private keys have far less chance of losing funds in the long run, while also helping to improve the Bitcoin network. After all, the more people that participate in Bitcoin’s consensus network, the more resistant it becomes to censorship attempts and manipulation. It also has the benefit of ensuring that fewer people will be left vulnerable to potential hacks and scams.
Images are courtesy of Twitter, Shutterstock.