The idea behind Proof of Keys is to withdraw cryptocurrencies en masse from exchanges and other centralised platforms. By doing so, Meyer was promoting full control of coins by cryptocurrency enthusiasts. The date was not chosen randomly - it was January 3 in 2009 when the first block of Bitcoin was mined after the launch of its network. Most interestingly, proving the keys took on a particular meaning after the collapse of the major FTX exchange last November.


The name itself is a modified version of the Proof-of-Work consensus algorithm, or Proof of Work Done, on which the network of the first cryptocurrency and many other coins operates. In this case, “keys” refers to the private keys of a particular address in the blockchain, which the user of the coins must hold in order to be considered a full owner.

Bitcoin holdings

Meanwhile, the withdrawal of cryptocurrencies from exchanges at the end of last year was accelerating, due to the growing distrust of centralised platforms amid the collapse of FTX. At the end of December 2022, for example, Glassnode reported that the exchanges’ BTC balances sagged to 2.25 million coins. And that’s equivalent to a 21 per cent drop from this year’s high.

Bitcoin balance graph on cryptocurrency exchanges

Why withdraw cryptocurrencies from exchanges

The philosophy behind Proof of Key is simple: when a user leaves their crypto on an exchange, the security of its storage depends entirely on the centralised site. That is, the investor is deprived of full ownership of his funds. This is actually where the famous expression “not your keys, not your coins” comes from: if you don’t have a private key to your cryptocurrency wallet because it is on an exchange, those coins don’t actually belong to you.

Trace Meyer’s tweet in 2020 calling for an anniversary for Proof-of-Keys

Previously, the FTX exchange was one of the leaders in terms of transaction volume and the number of clients on the market. Such a large company seemed in the eyes of many to be a good place to store crypto, or at least to transact in it. However, experience has shown that even the biggest cryptocurrencies can turn to dust in just a couple of days. That’s exactly what happened to FTX in November, although the collapse of the exchange was preceded by a lengthy period of negligent management by its management.

According to Coinkite CEO Rodolfo Novak, storing crypto in your own wallet is much easier now than it was a few years ago. Therefore, investors simply have no excuse not to follow the Proof of Keys tradition, Novak said in a statement to Decrypt journalists. Here’s his rejoinder.

Everyone should take advantage of Bitcoin’s most important attribute – the ability to self-storage assets! January 3 has become a “Bitcoin holiday” as we collectively remember this important endeavour.

Ledger Nano X hardware wallet

But everything needs to be approached first and foremost with safety in mind – something Novak emphasised during a Twitter Spaces conference on the holiday, organised by Casa. First and foremost, users are urged not to store their cryptocurrency passwords in the cloud. It is also best to leave the crypto on a hardware wallet that is isolated from the internet.

As a reminder, losing the private key of a crypto wallet means losing all funds in it. This also applies to hardware wallets and any other media. Throughout Bitcoin's history, there have been many cases where investors have lost millions of dollars due to their own indiscretion.

Potential hacking attacks should also not be forgotten. A well-known Bitcoin developer Luke Dash Jr. recently fell victim to them. He claimed on Twitter that someone managed to gain access to his private keys, causing Luke to preliminarily lose at least 200 BTC.

Cryptocurrency owners

Unfortunately, this news has led to pessimistic statements from other crypto-enthusiasts. If even a Bitcoin developer can’t save their crypto, how can the average user do so? In fact, Dash Jr’s problem is a rare event, which was also facilitated by a server hack. Well, by isolating their passwords and wallets to other users, it is quite realistic to avoid theft.


It should be noted that representatives of cryptocurrency exchanges treat the idea of mass withdrawal of digital assets from their platforms calmly. For example, the head of Binance, Changpen Zhao, suggested in mid-December that such events should be held regularly, as they are good for the industry and the credibility of its players. And WOO Network spokeswoman Julia Bulach stated bluntly in our interview that exchanges should not be seen as your wallet. Only coins used for transactions should be deposited there.


Cryptocurrency investors who keep coins on their own


We think that such an initiative is really important. Still, as practice shows, the best way to check solvency of used exchange is to make temporary withdrawal of cryptocurrency. However, this should clearly be done more often than once a year. More frequent withdrawals will motivate trading platform managers to keep a large stock of coins on the platforms at all times to avoid potential problems. And this would clearly restore trust in centralised players within the industry.


What do you think about this? Share your opinion in our millionaires cryptochat. There we will discuss other important developments in the world of blockchain and decentralised platforms.