{"id":483887,"date":"2025-06-08T18:00:36","date_gmt":"2025-06-08T17:00:36","guid":{"rendered":"https:\/\/cryptoslate.com\/?p=483887"},"modified":"2025-06-08T21:08:33","modified_gmt":"2025-06-08T20:08:33","slug":"proof-of-reserves-is-it-applicable-to-microstrategy","status":"publish","type":"post","link":"https:\/\/cryptoslate.com\/proof-of-reserves-is-it-applicable-to-microstrategy\/","title":{"rendered":"Proof-of-Reserves: Is it applicable to MicroStrategy?"},"content":{"rendered":"

The following is a guest post and analysis from Shane Neagle, Editor In Chief fromThe Tokenist.<\/em><\/p>\n

On Tuesday, Michael Saylor<\/a>, the Executive Chairman of MicroStrategy<\/a> (NASDAQ: MSTR), riled up the Bitcoin part of the internet. At an event adjacent to Bitcoin 2025 conference in Las Vegas, Saylor was asked whether the company (rebranded as Strategy) has any plans to publish proof-of-reserves for its Bitcoin stash, presently holding 580,250 BTC (~$62.8 billion).<\/p>\n

Answering the question, Saylor made it apparent he is not a fan of the idea because:<\/p>\n

\u201cIt actually dilutes the security of the issuer, the custodians, the exchanges and the investors. It\u2019s not a good idea, it\u2019s a bad idea. It\u2019s like publishing the addresses and the bank accounts of all your kids and the phone numbers of all your kids. And then thinking, somehow, it makes your family better.\u201d<\/p><\/blockquote>\n

Many influencers have already likened such sentiment to Sam Bankman-Fried. It was during the collapse of his FTX crypto exchange when the term proof-of-reserves (PoR) was introduced to the wider public. This prompted Binance, the world\u2019s largest crypto exchange, to implement its own PoR system in late 2022.<\/p>\n

Others have also likened Saylor to Do Kwon, having headed the collapsed Terra (LUNA) blockchain project, powered by algorithmic stablecoins, yields, and Bitcoin reserves. After the catastrophic cascade of crypto bankruptcies during 2022, it is reasonable to be cautious, but is Michael Saylor\u2019s stance as problematic as some make it seem?<\/p>\n

Proof-of-Reserves Origin<\/h2>\n

Pushed by the collapse of Mt.Gox exchange in 2014, proof-of-reserves (PoR) was first floated as a way to instill trust in custodial institutions. Although Mt.Gox is commonly known as a hack, wherein up to 850k BTC was pilfered from hot wallets, the exchange was also mishandled outside technical security.<\/p>\n

Namely, Mt.Gox CEO Mark Karpeles, was convicted for tampering with the exchange\u2019s records in order to inflate the company\u2019s holdings, Karpeles received a 2.5-year sentence that was suspended for four years in early 2019. Following the worst year of 2022 for the crypto sector, exchanges were scrambling to lift confidence.<\/p>\n

Just using the example of imploded BlockFi, the vulnerability of asset holding follows a clear pattern across the board:<\/p>\n

If a custodial institution holds 1 BTC, it generates a liability for the user for that 1 BTC. Otherwise, in a self-custodial scenario, the user would generate their own liability.<\/p>\n

But what if the custodial party wants to increase attraction to their business?
\nThen the users\u2019 holdings would be utilized to offer crypto-backed loans and yields on savings accounts.<\/p>\n

Under the hood, this would mean that the ideal 1:1 redemption liquidity would be stretched to other parties. In the case of BlockFi, this was Three Arrows Capital (3AC).<\/p>\n

And if liquidity is stretched (diluted), the initial depositor can no longer count on getting their 1 BTC as reliably in all market conditions.<\/p>\n

This pattern created a PoR race in 2022, aiming to reveal which types of assets are covered, by how much, how frequently they are audited, and by whom.<\/p>\n

\"\"
Image credit: Nic Carter at niccarter.info<\/a><\/em><\/figcaption><\/figure>\n

However, even shortly after the FTX collapse, as Binance hurried to report its PoR, it became obvious there are some inherent problems with this approach.<\/p>\n

PoR Usefulness<\/h2>\n

In the global system of fractional reserve banking, it is not possible to redeem all the money if all the banks\u2019 clients were to suddenly attempt to withdraw. With that said, institutions checking on banks, such as FDIC, take into account both their assets and liabilities to determine their overall state of solvency.<\/p>\n

Additionally, the central bank is the lender of last resort (LOLR), able to add funds electronically to the bank\u2019s balance sheet. We have seen this in play in early 2023 during the regional banking crisis<\/span><\/a> in the US. During this period, Bitcoin saw its first major rally after recovery from abysmal 2022.<\/p>\n

That\u2019s because Bitcoin, as a digital ledger available for public scrutiny<\/span><\/a>, has embedded transparency. Every bit of its 21 million supply is recorded, backed by computing proof-of-work power. While Bitcoin does not natively include a Proof of Reserves mechanism, the visibility of balances and transactions enables external PoR audits when entities sign messages from their addresses.<\/p>\n

If BTC addresses can be reliably linked to specific holders, further insight into asset ownership and distribution becomes possible. The problem is, how to check if entities holding BTC hold the amounts they claim to hold? There are multiple ways in which this can be manipulated:<\/p>\n