What Does GrayScale Think About The Proof of Reserve?

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What does GrayScale think about the proof of reserve? Grayscale said it would not follow the procedure and demonstrate safety because it would not be the best thing to do.

The cryptocurrency industry was built on the slogan: “don’t trust, verify”. But Grayscale is different from other cryptocurrency-related businesses. In a recent Twitter thread questioning the need for transparency in the company following the failure of FTX, Grayscale tried to allay the fears of investors, assuring them that The laws that affect its various companies make it impossible for FTX.

Grayscale says money is bad, trust us

Grayscale ensures that each of its products is correctly registered as a separate company with its own standards. They explain that the laws and regulations governing each of its crypto trusts prevent the sale, loan or transfer of the underlying assets.

In the following tweet, Greyscale assures that it is a holding service provided by Coinbase, the only regulated and publicly listed cryptocurrency exchange in the United States. And now comes the tricky question. What about proof of reservation? Grayscale refused to do such a thing, citing security. They explain that Coinbase, as a supervisor, works on a timely basis, and as such, they will not reveal the address or any information that is considered confidential so as not to affect the nature of the product they:

  • “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 November 18, 2022

Is proof of reservation really necessary?

Evidence of security is the only way for users to prove that an independent auditor has reviewed and demonstrated the security of an exchange or company. It uses a Merkle tree to capture data and obtain a fingerprint that allows users to verify that their money has been properly verified by others.

The announcement of Reserve Policy began to make a lot of noise in the cryptocurrency community following the collapse of FTX, the latest member of the cryptocurrency winter led to a large load of companies such as Terra, 3AC and °C. The idea is to give users a way to verify company assets through a cryptographic system that facilitates data transparency. Recently, Binance agreed to work alongside Vitalik Buterin to implement a new version of the Reserve Protocol that should be more effective and safer than the current methods. However, Grayscale strongly believes that some things should be kept private.

  • “We know the preceding point in particular will be a disappointment to some, but panic sparked by others is not a good enough reason to circumvent complex security arrangements that have kept our investors’ assets safe for years.” — Grayscale November 18, 2022

Grayscale currently has the largest cryptocurrency trust in the industry, to the extent that it is considered the best way to gain exposure to the cryptocurrency market among corporate clients. However, after the crypto winter, each share of trust is trading around 40% below the price of BTC as a base. Grayscale also tried to turn its trust into a Bitcoin ETF, but the SEC has not given its approval for the project to go forward.

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