So by now most in the bitcoin community know that one of the largest bitcoin exchanges (Bitfinex) was hacked and the thieves got away with around 120 thousand bitcoin!
As if losing around 71 million dollars of customer funds was not bad enough, Bitfinex then dealt with the problem by having a “bail-in”. Spreading the bitcoin losses across everyone that had anything on the exchange. So everybody got a 36% haircut regardless if they were holding bitcoin, cash or an altcoin on the exchange.
People are furious about losing money especially those who weren’t holding bitcoin. Some are even organising a class action.
I wanted to talk about how Vaultoro is vastly different.
All gold bought on the Vaultoro marketplace is off the company’s balance sheet, once purchased. The gold is the user’s legal property, secured in their name.
Many do not know this but when you deposit money into a normal bank that money becomes the bank’s property. They only promise to pay you when you want it back.
Unlike a bank, when you hold gold on Vaultoro, the gold is your legal property secured by us in a bailment contract. Vaultoro has no legal right to take someone’s property and share it out amongst its other clients.
It would be legally impossible for us to have a “bail-in”
This is the great thing about holding gold. You are set free from the notion of debt-based instruments. Vaultoro cannot speculate with your gold, can not lend it and can not even touch it without verifiable client permission to trade it back for bitcoin.
Bail-in’s don’t only affect hacked bitcoin exchanges, they are being used more and more by mainstream banks to bail themselves out of bankruptcy when their speculations go south. We saw this in Cyprus and more recently Greece.
With Vaultoro, our clients do not need to worry about our solvency, a bank’s solvency or even a countries solvency because even if something happened to Vaultoro, our clients gold is sitting in the top-tier Pro Aurum Vaulting facility, even liquidators could not get access to our client’s property. All clients property is off our balance sheet.
Bitcoin wallet security on Vaultoro.
Bitfinex had effectively all its bitcoin stored in a hot wallet. Meaning, the bitcoin’s were all available from an online wallet. Yes, they were multisig but from what I have read the second key bot was auto signing any transaction that it got given. This completely removed any security that multisig provides.
Vaultoro holds the vast majority of users’ bitcoin in multisig cold wallets. This means that there is no way a hacker can access the funds without physically getting hold of a bunch of keys. This is almost impossible as the keys you would need are in different geographical regions.
Security over convenience.
If many people want to withdraw their bitcoins at once it could take up to a day to replenish the hot wallet from the cold. The feedback we have had from our traders is that they would rather have the security of knowing their coins are safe offline than always being able to have access to them within seconds.
This has only happened to our hot wallet twice since we launched. So we feel we have the correct ratio of security and convenience to keep our clients happy and safe.
The other thing we have done is work closely with Block cypher to enable very fast confirmation of bitcoin deposits. If the conditions are correct, with enough fee and a bunch of other details, your deposit can show up on Vaultoro within minutes. This helps you because you do not need to hold your bitcoin by us if you do not want to. You can hold your own bitcoin and send them to us to trade for gold all in a few minutes.
We at Vaultoro are dedicated to security, transparency and promoting the use of asset-based money like bitcoin and gold.