“Can we pretend February never happened?” asked Gavin Andresen at Bitcoin2014, in an oblique reference to the collapse of Mt Gox.
It’s easy to sympathise with the sentiment. Mt Gox’s demise shone a spotlight on the bitcoin community’s ability to weed out bad actors and found it lacking.
While the legal disputes around Mt Gox continue to trundle on in the background, one issue has risen to prominence as a result of the affair: transparency.
However, with each third-party 'audit’ of bitcoin exchanges and other businesses, the question of who should be performing these checks, and what they should involve, is of increasing importance.
Trust is not enough
Major bitcoin exchanges and wallet providers moved quickly to reassure customers following Mt Gox’s collapse, issuing a joint statement that called for “appropriate security safeguards that are independently audited and tested on a regular basis”.
To date, those independent tests have largely been carried out by trusted individuals within the bitcoin community, who have avoided calling their admittedly narrow checks 'audits'.
The system so far has been largely ad-hoc, with exchanges promising to submit to regular checks and selecting different developers each time (which is preferential to the same individual auditing an exchange repeatedly).
In the long-term, though, said George Quigley, a partner at accountancy firm BDO, the community needs an institution-based approach that looks at much more than just how much bitcoin is held:
Bitcoin auditors needed
Of course, one would expect an auditing company to make that argument, but it’s an issue that the community has recognized too. Kraken CEO Jesse Powell has previously told CoinDesk of the need for a bitcoin auditing firm, saying:
However, he also added some scepticism about whether established firms could fulfil this role: “Traditionally, this skill set is not what accounting firms are known for.”
One company that has used established firms is Netagio, which boasts that “all funds are audited to an ISAE standard” (ISAE standing for 'International Standards for Assurance Engagements').
Despite engaging BDO, a known name in the auditing industry, to provide assurance that the company is properly run, though, Hamblin said Netagio still faces the same problems as other bitcoin businesses:
A gap in the market
Building trust in the bitcoin economy will help to move things forward faster, and proper checks and audits will undoubtedly be a large part of that.
Mike Hearn thinks it’s too early to build a standardised approach to auditing bitcoin businesses, telling CoinDesk earlier this week:
What’s clear is that the demand for transparency has left a gap in the market, not only for established accountancy firms like BDO, but also for new bitcoin-specific accountancy firms. What they’ll look like is still up in the air.
Magnifying glass image via Shutterstock
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