A Guide to the Proof of Keys Movement
Do you really own your Bitcoin? That was the question veteran Bitcoin enthusiast Trace Mayer put to the blockchain community in December 2018, when he called for a new Proof of Keys (PoK) “cultural tradition” to be celebrated annually, starting on January 3rd, 2019.
Coinciding with the creation of the Genesis block—the first ever Bitcoin block created by Satoshi Nakamoto exactly a decade earlier—the significance of the 3rd of January wasn’t lost on Mayer.
Those familiar with Bitcoin’s Genesis block will know that embedded within the block’s coinbase was the following text: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.“; widely interpreted as a critique of fractional-reserve banking’s inherent instability.
Ten years later, it seems that Mayer would like to remind the Bitcoin community of what this sentiment truly means.
The Problem with Trusting Third Parties
When Nakamoto first produced the Bitcoin whitepaper in 2008, individual monetary sovereignty—the total control of your own assets—was of paramount importance.
To this end, the Proof of Keys movement works around one simple principle, best described in a phrase from Bitcoin security expert Andreas Antonopoulos: “Your keys, your Bitcoin. Not your keys, Not your Bitcoin”.
Described as a combat readiness drill, PoK encouraged everyone with bitcoin held by third parties to withdraw their funds on or before the 3rd of January—even just for one day—into a private wallet they fully control. The idea behind this gesture was to celebrate the very essence of Satoshi Nakamoto’s vision of decentralized currency.
Trusted third parties aren’t always trustworthy. Simply put, bitcoin holders who entrust their private keys to third parties, such as centralized exchanges, don’t actually own their bitcoin. Rather, they trust that when withdrawing their digital assets, the third party will have adequate solvency to fulfill their request.
Those who hold both their private keys and perform network consensus (the right of a node to add new transactions to the blockchain), have come to be referred to as “HODLers of last resort”; essential participants of the Bitcoin network who break negative feedback loops, for instance in periods of intense panic selling.
Most importantly, HODLers don’t risk their digital assets with third parties and they don’t rely on trust. They do however verify network transactions, and they do rightfully control their assets—provable on the blockchain.
Proof of Keys to Encourage Monetary Sovereignty
Proof of Keys, however, is more than just a celebration—it’s an annual test of trust.
History has a way of repeating itself. As we have seen with exchanges like Mt. Gox and Bitfinex, when trusted third parties have issues with the number of Bitcoins they hold, or during exchange hacks, they impose verification and withdrawal limits.
This may result in digital asset holders being unable to withdraw all their funds at once or paying extortionate fees to do so.
Proof of Keys believes that by coordinating the withdrawal of funds away from trusted third parties at pre-defined dates each year, companies and exchanges will have to prove their trustworthiness and consensus by meeting withdrawal demands.
Meyer likewise implores new holders to adopt best practices in security by not leaving their digital assets under third party control. With a huge influx of new investors during 2017 and early 2018, Mayer felt it necessary to reiterate blockchain’s core values and “declare and re-declare our monetary sovereignty on a regular basis”.
Proof of Keys Outreach
So, who took up the call to arms? The Proof of Keys website lists 285 individuals who withdrew all their bitcoins to private wallets. Among these were prominent blockchain industry figures, including Max Keiser, Erik Voorhees, Tuur Demeester, and Stacy Herbert.
Some supporters took to Twitter to voice their participation, including industry legends Nick Szabo and Caitlin Long, while others signed private expressions of support.
Proof of Keys Third Party Failures
However, not everyone was ready and willing for PoK.
Several exchanges were reported to be having severe issues with user withdrawals, including Bitfinex, Poloniex, Robinhood, and even Coinbase. However, the most scrutinized exchange was undoubtedly HitBTC.
With some users reporting that accounts with significant bitcoin holdings were frozen ahead of PoK, there was speculation that HitBTC didn’t have the Bitcoin holdings required to provide solvency to PoK participants. Even heavyweight thought leaders like John McAfee took to Twitter, writing scathing reviews of the exchange.
At Cryptanite we are committed to the ideals of the PoK movement and want our users to maintain full custody of their digital assets. Since the release of the Cryptanite wallet application in May 2018, we have provided users with both public and private keys that are generated offline for cold storage. Our exchange also allows users to trade peer-to-peer directly from both imported and locally generated public and private keys. With Cryptanite, you retain sole ownership of your stored cryptocurrency.