Not only people, but also cryptocurrencies can enjoy some long holidays. And if we can celebrate the new year twice, the old and the new, then Bitcoin can celebrate its birthday twice: on October 31st, the day the white paper was published, and on January 3rd, the day the genesis block was generated. Therefore, as soon as the first wave of congratulations resounds, the community will be preparing for a new holiday.
A New Tradition
On December 9th, Trace Mayer, an investor and host of the Bitcoin Knowledge podcast, called for the 10th anniversary of the Genesis block to be celebrated with the Proof of Keys campaign. Cryptocurrency holders must withdraw Bitcoins from third party services (in particular, from hot wallets and exchanges) to personal cold wallets with a private key. “I want to start a new cultural tradition in which we proclaim and reaffirm monetary sovereignty every January 3 as a celebration of the genesis block,” says Mayer in his video message.
In support of the campaign, Mayer created a website, proofofkeys.com, with the slogan “Not your keys; not your Bitcoin” posted on the main page. Mayer also refers to words from the Bitcoin white paper introductory paragraph, where Satoshi talks about the need to create “an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party”. Ironically, today's crypto market infrastructure leads users to the same model of intermediaries (most often centralized), which, in fact, are no better than traditional banks that fully control user funds.
“Many people don’t want others to have their own private keys,” says Mayer, and so they don’t participate in consensus building with the network. According to him, the Proof of Keys campaign should be a “final stress test” that doesn’t cost a lot “maybe several transaction fees” but “proves ownership and strengthens the network consensus.” “Companies and exchanges must prove their reliability and dedication to the consensus,” as Mayer writes.
Apparently, it will be clear only after January 3rd who will succeed in this, however, some representatives of the industry have already assured users of their reliability: “Binance users always have the opportunity to withdraw funds from the exchange and return them, therefore additional readiness from the exchange is not required. In general, we do not see the need for any additional stress tests. For those users who need to keep their own keys, a decentralized exchange is planned to be launched soon,” as stated in a commentary for DeCenter by Gleb Kostarev, a Binance representative in Russia.
Hodlers Of Last Resort
This expression was introduced by Mayer by analogy with the “lender of last resort”. In the world of traditional assets, it is an organization (usually the central bank) that provides banks with liquidity in a situation where no one else can provide it.
In the crypto market, this function is performed by the hodlers. In April, in an interview with the podcast This Week in Startups, the Abra cryptobank’s CEO Bill Bargidt noted that long term hodlers maintain a minimum lower level of Bitcoin prices. According to him, the price of a cryptocurrency depends on the number of buyers, while the number of sellers is relatively constant, since some hodlers are not interested in selling, regardless of the cost. In Meyer’s terminology, this is the hodlers of last resort.
“If it were easy to be a $BTC Hodler of Last Resort then everyone would,” Mayer writes in his November tweet. He notes that this requires discipline: “Mentally for research & emotionally for price cycles where market weeds out the weak & undisciplined.”
The January campaign also aims to identify such whales who are “holding the crypto world”: “By demanding and taking possession of their assets, individuals will learn real fast with blockchain proof whether they are part of the elite HODLers or not. Proof of Keys is the annual HODLer initiation,” as Mayer writes on the campaign website.
The description of Proof of Keys appeared on Mayer’s Twitter on December 9th, but the concept of this campaign was described on Reddit by a new user under the nickname sotashi in five identical posts starting from December 7th. In one of these threads, a comment appeared from the user under the nickname Bitcoinknowledge (the name of the Mayers podcast): “Great idea. I created the Proof of Keys to help spread this information,” he wrote.
“The time has come for us to test what we have created. Trust in numbers yet we trust in exchanges, in people, in corporations. On the 3rd of January 2019, 10 years on, let us all withdraw our BTC to wallets we control. Let's see if it is all there, let us see who fails, let us see the network work. We lose nothing, we risk nothing, those companies and exchanges that cannot be trusted will be exposed. We must assert control, we must prove this is ours,” as written in the post of sotashi on December 7. Later, exactly the same posts were published by this user on December 8, 10, 14 and 17. He proposed that by 16:00 UTC on January 3, all transactions within the campaign be completed and the Bitcoins withdrawn into personal wallets. “04/Jan/2019 we return to business as usual, with renewed confidence,” writes sotashi.
At the same time, the essence of the event is broader than just proof of ownership of Bitcoins: “Do I own Bitcoin?” Is not the only question that requires an answer. “is our money being used, if so, for what?” is also a question, and by withdrawing money, we can say “no, it is not”, stresses sotashi.
On December 14th, sotashi published a post with an alternative proposal, saying that it is possible to check the fairness of the exchanges not by a withdrawal campaign, but with the help of a study: “Bitcoin IS under attack, it's value does not reflect the sentiment, the network value, network cost, the usage, the user base, transaction volume, supply and demand, or any metric upon which fiat value should be measured. Value has been disconnected, we can assert that this disconnect is for financial gain. Somewhere there is a cabal manipulating, trading bots replicate these moves throughout different exchanges. Losses and gains are magnified on leveraged trading platforms. Our alternative, is to research, to stop worrying about price movement and start looking at where it is moving first, then why, then finally expose the who. You, we, are being robbed, temporarily, what we have created is being undermined, hijacked, attacked. At what difficulty/hashrate do we say enough, how big must the cold storage coffers of exchanges become, for how long do we suggest paper bitcoins and fractional reserve before we take action and prove it is so,” wrote sotashi.
One of the users of Reddit asked sotashi to explain how the storage of Bitcoins on the exchange can affect the price. “Suppose just two of the top 50 exchanges utilize ~1% of the BTC they hold, and use it for market manipulation purposes. Coinbase cold wallet is roughly 865,000. Let us say this gives just two players around 15,000 BTC to adjust markets at will,” replied sotashi, implying that there are many more such players, and the percentage of funds they can use to manipulate is also higher.
The fact that such concerns are not groundless is obvious enough. We can recall a study published in March by trader Sylvain Reibs, in which he concluded that the trading volumes at OKEx and Huobi Pro were fabricated and overestimated by 93% and 81.8%, respectively. The indictment of the UPbit major South Korean exchange can also be indicative: On December 21st, three senior members of the exchange’s management, including its founder Song Chi Hyun, were charged with fraudulent transactions. Presumably, the management created bogus orders through a fake corporate account in order to inflate trade volume figures and attract more users to the exchange. The total value of such orders is estimated at 254 trillion won ($226.2 billion). The exchange really quickly broke into the lead, taking first place in daily trading volume three months after launch. The company denied the fraud charges, but admitted that it “provided liquidity to the corporate account in order to stabilize trading at the launch stage” and carried out several transactions over the first two months of its existence for marketing purposes.
Many members of the community supported the campaign. Mayer suggested confirming support by adding the [Jan / 3] on the Twitter handle, which have already appeared in the accounts of Nick Sabo, Max Kaiser, Bitcoin Art Gallery, planB and other members of the community. Users can also fill out a form on proofofkeys.com, and their name will be reflected on the campaign website. Currently, the list of supporters of the initiative includes 13 companies, including the BTC.com exchange, and more than 300 regular users.
Despite the fairly widespread support, the popular opinion that has spread in the comments under sotashi’s proposal was that conscious hodlers never kept funds on the exchange, while those who were less security-minded (and in general, did not care about Bitcoin), and they will not care about such global problems, and the event is unlikely to change that. “I can’t withdraw Bitcoins from the exchange, because I don’t store any Bitcoins on the exchange. The thought of allowing someone else to control my money led me to give up Fiat. Why do I need to come back to this,” writes the user dalebewan. “You cannot imagine what a hollow stare I get when I tell people that if you do not control private keys, then these are no longer your Bitcoins," as rivierafrank replied to this. “Anyone who knows about this and cares about it probably does not keep their coins on the exchange. People who are stupid enough to do it probably won't hear about it or they won't care,” as the user under the nickname R_u_having_fun_yet wrote. “It's sad, but I agree. Most people storing Bitcoins on Coinbase probably don’t even know how to get them out,” said another user.
Alexander Garkusha, a co founder of Modern Token, also believes that the campaign will not have sufficient support, since convenience will win over cypherpunk ideals. “Eric Cantona (French footballer. DeCenter) once offered the same event to banks, and it did not take place. The campaign is ideologically correct, but convenience and user interfaces are the Goliath that always defeats David. We could all use cash instead of bank cards, but we were wooed by the convenience of writing off fractional amounts and not having to carry sliced up pieces of paper,” as Garkusha said in a commentary for DeCenter.