It is a public secret that traditional Bitcoin companies are often faced with one pressing question: are they solvent or not? Despite the usage of an open ledger to record transactions and balances, most Bitcoin companies do not disclose company wallet addresses. But, if we ever want to take Bitcoin to a mainstream audience, that situation might have to change sooner rather than later.
The Issue of Solvency Slows Down Bitcoin Adoption
Bitcoin’s history has been filled with scams; companies going bankrupt and services disappearing into thin air. Most of the stories stem forth from one common issue: not being solvent to continue operations. Rather than being transparent about this fact towards customers, most companies simply continue operations until there is no more money coming in altogether.
In more recent times, various companies have chosen the route of conducting private audits on a regular basis. And while these audits are a great first step on the road towards providing transparency to customers, it is far from a perfect solution. After all, an audit represents a brief period during which a company is either solvent or not, but it doesn’t tell the entire story.
However, such a solution will not come overnight, and various Bitcoin companies are working on a proper solution. BitGo, one of the industry leaders in terms of Bitcoin security, has created their own VeriSign-like certificate, which will indicate a company’s solvency. This certificate should bring more legitimacy and trust to Bitcoin platforms all around the world.
Verified by BitGo – Proof of Reserve Certificate
BitGo’s new certificate will serve as a “proof of reserve” product, and is called “Verified By BitGo”. Every platform holding this certificate can theoretically be trusted to hold enough funds to safely conduct the business they are actively advertising. But there is a twist, as this solvency will not be measured in real-time.
“It’s a way we can help our customers — meaning Bitcoin businesses – show their end users that they’re operating in a good state, and make sure everyone can trust everybody. It’s kind of like an online audit that everyone has access to in a safe way all the time. Demand for this product came from Bitcoin businesses, and not consumers.” – BitGo’s Chief Executive Mike Belshe told DigitalMoneyTimes.
The process of determining whether or not a company can be deemed solvent will take shape in the form of several phases. First of all, BitGo will calculate the company’s liabilities and assets. Assuming the assets outweigh the liabilities, said company will be given the right to display a “Verified by BitGo” certificate on their website. Furthermore, it is important to note this certificate is only available to companies securing their assets at BitGo.
For the time being, these verifications will take place on a monthly basis. While this can be seen as a positive sign for Bitcoin platforms, it still leaves the door open for insolvent companies in between monthly audits. BitGo’s ultimate goal is to conduct these audits on a daily basis in the near future.
In a surprising turn of events, the first company to take BitGo up on this new service is popular Bitcoin tipping service ChangeTip. Even though ChangeTip handles users’ money by storing it into a wallet and letting them spend it through monikers such as “beer” or “pizza”, it should be interesting to see what the company audit will look like.
Images courtesy of BitGo and Shutterstock