Michael Saylor’s Argument against the Concept of Proof-of-Reserves: Unveiled

Key Points

• Michael Saylor, the CEO of Strategy, has dismissed the idea of providing proof of reserves (PoR) for his company’s Bitcoin holdings.
• The crypto community has expressed mixed reactions to Saylor’s stance, with some considering it a red flag.

Michael Saylor, the head of Strategy (previously known as MicroStrategy), has rejected requests for his company to disclose proof of reserves (PoR) for its claimed Bitcoin [BTC] holdings.

During the Bitcoin Conference in Las Vegas, Saylor labeled PoR as a ‘bad idea’ and a threat to security.

Saylor’s Perspective on PoR

Saylor stated, “The current, conventional way of publishing proof of reserves is insecure. It actually dilutes the security of the issuer, custodians, exchange, and investors.” He compared it to revealing personal information such as addresses, bank accounts, and phone numbers, which could potentially compromise security.

According to Saylor, the present PoR is meaningless without the audited liabilities of institutions. Therefore, he suggested that companies audited by the Big 4 (PWC, KPMG, etc.) might be the safest option for secure crypto reserve attestation.

Reactions from the Crypto Community

However, not everyone in the crypto community agreed with Saylor’s viewpoint. Whale Panda, for example, deemed Saylor’s stance a ‘major red flag.’ Pledditor, another market observer, expressed similar sentiments, suggesting that Saylor might have something to hide or be ignorant about how Bitcoin operates.

The proof of reserve concept gained popularity following the FTX implosion in 2022 due to gross misappropriation of customer funds. As a result, industry leaders, particularly exchanges like Kraken, began publishing their PoR to ensure transparency.

Nevertheless, disclosing wallet addresses with funds could attract threat actors. The debate is not about who is right or wrong, but about finding a balance between transparency and security.

Strategy currently owns 580,250 BTC, which is approximately 2.7% of the total supply. This amounts to about $63.46 billion at current prices. The acquisition cost is reported to be $40B, implying the company has over $22 billion in unrealized profit. However, only $35B BTC of its holdings have been traced by Arkham.

Saylor has publicly declared that he will not sell the BTC holdings and will always buy the top. However, any negative news such as a sell-off by Strategy, a breach, bankruptcy, or any other negative update may impact BTC and the overall crypto market.

This risk concern has been raised by the crypto community in the past, given Strategy’s increasing influence on BTC supply. Strategy’s stock, MSTR, closed the trading session on 26th of May at $269, marking a 7.5% loss. MSTR’s performance followed BTC’s price fluctuation above $106K.