As a greater need for transparency, security and integrity has emerged for Bitcoin, and related digital currencies, amid recent security breaches, thefts, hacks, and company’s going belly-up, the latest company to show that its taking proactive measures to prove its position is Payward, operator of the fast growing Kraken.com. The audit follows a similar procedure from Bitstamp earlier this year as well as announcement from industry leaders to apply greater transparency following the collapse of MtGox.
Kraken is a competing bitcoin exchange – which according to a post on Bitcointalk – has completed a successful audit to verify that the total amount of bitcoins held by Kraken matches the amount required to cover its customer balances.
Over the past several weeks, Kraken has successfully developed and completed an industry-leading, independent, cryptographically-verified audit, which passed with a 100% score, as cited according to the update.
Stefan Thomas, CTO of Ripple Labs, and who is also founder of WeUseCoins.com, BitcoinJS, and a Bitcointalk admin, was the volunteer auditor, according to a description on the Kraken website.
Since Kraken holds full reserves, they have implemented an independent, cryptographically-verified audit in order to prove to third parties, including its customers, that customer-funds are properly held, as per the description on its website.
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A copy of the audit letter that Mr. Thomas confirmed for the successful Kraken audit, as posted on https://bitcointalk.org/index.php?topic=528432.0 Bitcointalk.org by a credible user, said:
“This post is to report on an audit I performed for the Kraken Bitcoin exchange on March 11th, 2014 and March 22nd, 2014 at their offices here in San Francisco. I’ve not received any payment for this audit – my personal goal with this is to help improve the stability of and confidence in the math-based currency industry overall.”
In addition to taking into consideration privacy concerns developing the auditing process so that personally identifiable information is not exposed, the company enhanced the processed to keep it very strict in protecting such customer data -even from its auditors. Mr. Stefan added in the report, “If you are a customer of Kraken, you’ll be able to verify using open-source tools that your balance at the time of the audit is part of this root hash,” as per the above mentioned blog update.
While the method behind the audit has been enhanced for the sake of added credibility with regards to the results and overall process, a degree of trust in the auditor is still required, and something that Stefan Thomas acknowledged in his report letter of the results. He also noted how, Kraken has expressed interest in doing regular audits with different auditors each time, thus eliminating any concentrated risk in using the same auditor each time.
As regulators, industry bodies, and lawmakers review the newly emerging trends and findings surround crypto-currencies, and their risk versus rewards, and how to best handle them, industry-driven efforts like these to self-regulate by performing audits designed to verify customer balances, among other efforts to help afford clients security, could be well needed in wake of recent events that have left many questioning the advent of digital currencies.