On May 26, 2014 a report was released by Bitstamp showing that the exchange has successfully passed an audit performed by Mike Hearn of Vinumeris, who is also a well known Bitcoin developer, and Richard Muirhead of Firestartr.
How Much Bitcoin Does Bitstamp Have?
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According to the report, Bitstamp currently has 183,497.40310794 Bitcoin in cold storage. When the total in cold storage is combined with the total they hold in their hot wallets, the exchange has ~45 Bitcoin more than the total of all user’s deposits. This is amazing news for the Bitcoin community, as there has been growing unrest, and distrust of exchanges, after the Mt. Gox debacle decimated many individual’s Bitcoin holdings. Bitstamp has long been considered to be the most legitimate, and stable, of the remaining exchanges, and this audit reinforces that claim.
What Does This Mean For The Average User?
This audit sets a precedent for the exchanges, and could cause Bitstamp to capture a larger portion of the market if the other big players do not follow suit. This will increase the safety, and security, of the entire community, as exchanges will be held accountable for their management of users’ funds. With this type of transparency, Bitcoin as a whole will become much more attractive to businesses and investors, which could spur acceptance and growth in a way that Bitcoin has not experienced before.
The average user can expect to see the value of their holdings increase, and feel less wary about using an exchange. Of course, that does not mean that an exchange should be used as a bank account, nor does it mean that there is no risk with Bitstamp. There is always some level of risk when you transfer bitcoins to another party, whether that be an online wallet or an exchange. However, when it is known that the exchange has a large enough pool of funds to cover it’s users’ deposits, and the exchange is processing high volumes of trades, thus earning a high amount of income from it’s fees, the risk is significantly reduced.
Is This Enough?
The type of auditing performed by Mr. Hearn and Mr. Muirhead is quite effective in providing evidence that an exchange is solvent, and their work is to be applauded. That being said, more thorough auditing will be needed as Bitcoin continues to grow, and the exchange systems will need to be updated to provide absolute transparency, while maintaining a high level of security. The development of this type of system will be time consuming and expensive, but it is an absolute necessity.
After this display by Bitstamp, I believe that they will likely move in that direction. It seems that at least one exchange understands what will be required to survive Bitcoin’s move into mainstream.