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Sometimes, I feel the past and the future pressing so hard on either side that there’s no room for the present at all.
Evelyn Waugh, Brideshead Revisited
Portfolio goal
My objective is to reach a portfolio of $2 180 000 by 1 July 2021. This would produce a real annual income of about $87 000 (in 2020 dollars).
This portfolio objective is based on an expected average real return of 3.99 per cent, or a nominal return of 6.49 per cent.
Portfolio summary
Vanguard Lifestrategy High Growth Fund $728,112
Vanguard Lifestrategy Growth Fund $41,606
Vanguard Lifestrategy Balanced Fund $78,564
Vanguard Diversified Bonds Fund $109,495
Vanguard Australian Shares ETF (VAS) $231,548
Vanguard International Shares ETF (VGS) $75,298
Betashares Australia 200 ETF (A200) $231,199
Telstra shares (TLS) $1,428
Insurance Australia Group shares (IAG) $6,043
NIB Holdings shares (NHF) $4,992
Gold ETF (GOLD.ASX) $121,009
Secured physical gold $19,482
Ratesetter (P2P lending) $7,363
Bitcoin $218,040
Raiz app (Aggressive portfolio) $17,488
Spaceship Voyager app (Index portfolio) $2,841
BrickX (P2P rental real estate) $4,447
Total portfolio value $1,898,955 (+$73,218)
Asset allocation
Australian shares 40.8%
Global shares 22.4%
Emerging market shares 2.1%
International small companies 2.7%
Total international shares 27.3%
Total shares 68.1% (-6.9%)
Total property securities 0.2% (+0.2%)
Australian bonds 4.1%
International bonds 8.6%
Total bonds 12.8% (-2.2%)
Gold 7.4%
Bitcoin 11.5%
Gold and alternatives 18.9% (+8.9%)
Presented visually, the chart below is a high-level view of the current asset allocation of the portfolio.
[Chart]
Comments
This month the portfolio expanded by around $73,000, continuing the strong overall pattern of recovery since March. This has resulted in portfolio growth of 4 per cent, which has taken the value of the portfolio to a new monthly high.
[Chart]
The portfolio was affected by small price falls across global shares, a modest increase in Australian share values, with limited movement in gold and bond holdings.
This means that the majority of gains in the portfolio have been from an appreciation in the price of Bitcoin, which in fact made up more than 90 per cent of the total monthly gains. This appears to be based on some early steps by Paypal to increase use of Bitcoin, and some recent corporate decisions by a US technology firm to seek to employ it as a corporate treasury store of value.
[Chart]
This element of the portfolio, more a product of curiosity than deliberate investment intent, now represents a surprising 11 per cent of total assets held. Combined, Bitcoin and the gold components of the portfolio have expanded in value over the past few years to currently sit at their highest dollar value ever. This is despite no significant investments in either for nearly five years.
What this means in practice is that while these values increase, to hold other elements of the portfolio close to their targets, equity purchasing continues. In essence, as these defensive (or at least uncorrelated) assets appreciate, there is a strong automatic signal through my asset allocation plan to increase equity holdings to maintain balance.
This month this translated to continued purchases of Vanguard exchange traded funds, with units bought using Selfwealth in both the Australian shares (VAS) and international shares (VGS) funds.
Third quarter dividends start to grow
Third quarter dividends from the three equity ETFs held (VAS $1,702, Betashares A200 $1,583 and VGS $275) were received this month. These totalled close to the $3,600 expected, but were around 40 per cent lower than past historical distributions for the same period.
In addition, a distribution from the Vanguard diversified bond fund of $2,483 was received, a far higher payout than average. These distributions were all reinvested through the month.
Estimating future distributions – some further explorations
As I start to think ahead to the December half-year distributions, I will primarily rely on the approach of estimating approximately the average level of distributions per ETF or fund unit, drawing on historical records. Then I will likely apply a broad downward adjust to reflect expected cancelled or deferred dividend payouts during the pandemic.
Doing some early work on this has turned up a potential issue of under-estimation of future distributions from applying this approach. Put simply, while payouts per unit for ETFs show no particular trends, the ‘cents per units’ distributions paid out of the Vanguard retail funds (in particular the High Growth, Growth and Balanced funds) have generally grown over time.
The trend is evident at least for June distributions measured over the last decade, as can be seen in the chart below. Interestingly, however, the issue does not seem to be as clearly present for December distributions.
[Chart]
At an annual aggregate level, this can mean that simple averages or median figures may not necessarily be representative of trends in recent, and potential future, payouts.
Presumably part of the reason for this is that some elements of the capital growth experienced by the retail funds are being ’embedded’ in the price of the retail fund units over time. This can be thought of as akin to a share price increasing over time, but the precise drivers for this happening are not entirely clear.
Early work suggests that giving weight to more recent fund distributions would substantially raise the estimated future portfolio income – by almost $20 000. Yet in these COVID-affected market conditions, this effect may not be discernible compared to broader dividend reductions.
Centre of the load – changing balance of holdings
Since the commencement of the journey in 2017 there have been some substantial changes in the shape of the financial independence portfolio.
Many of these changes have been documented elsewhere, including the growth in the overall size of equity holdings, and a strong rebalancing towards Australian equities based on the portfolio plan.
The focus of much of the portfolio analysis contained in this record focuses on asset allocation. That is, the specifics of what is owned, rather than the how – or the precise investment structures through which these assets are owned.
This is entirely the right way to think about the issues for most purposes – as generally it makes little difference if a share in global firms is owned through an ETF, a passive low-cost managed fund, or even a Fintech mobile app such as Spaceship or Raiz.
Yet day to day, it is these investment structures I deal with, and choose to expand my investments in, or receive distributions from. Over time these choices are shaping the overall characteristics of the portfolio in ways that are only slowly becoming apparent.
Comparing past and present investment structures
The portfolio at the commencement of this record was a legacy of two competing characteristics – consistency and a taste for experimentation.
The chart below shows the composition of the portfolio by investment structure in January 2017.
[Chart]
Starting the journey, this meant a solid basis of larger investments in Vanguard retail funds. The largest of these – the Vanguard High Growth Fund – comprised around 6 in every 10 dollars invested. Collectively, all Vanguard retail funds constituted 82 per cent of the portfolio.
By contrast, a range of small experimental investments made up a tiny proportion of the portfolio, with Raiz, Spaceship, and Bitcoin only representing around 1-2 per cent of the entire portfolio.
The portfolio, viewed by structure, looks quite different today.
Investments structures which have not received new contributions have naturally shrunk as the overall portfolio has approximately doubled across the past four years. The chart below shows the portfolio by investment structure today.
[Chart]
Overall, the portfolio has a greater number of individual structures. This is mostly the result of a shift in the focus of new investments towards exchange traded funds.
The shifting balance and portfolio implications
The major changes in terms of portfolio and investment structures have been:
A declining importance of Vanguard passive index funds – The Vanguard retail funds are only around half of the portfolio by value, with the High Growth fund alone declining from 59 to 38 per cent of the portfolio.
With ETFs growing in portfolio significance – Exchange traded funds (VAS, A200 and VGS) have grown to just under a third of the total portfolio.
And from nowhere, Bitcoin arrives as a portfolio component – Bitcoin has come from being an inconsequential part of the portfolio, to constituting more than 11 per cent of its value.
Smaller investment structures have even more negligible impact – with the five smallest investment collectively making up only 2 per cent of the overall portfolio in 2017, and half that today.
These significant changes have a few different implications.
First, the portfolio performance is increasingly a function of how the Vanguard High Growth fund, Australian equity ETFs (A200 and VAS), and Bitcoin perform through time. These four investment structures represent nearly 80 per cent of the portfolio. This has some benefits in terms of simplicity, as it is easier to get a broad sense of performance from just a few data points.
Second, and conversely, a significant number of investments simply have negligible effect on overall portfolio outcomes, representing less than one per cent of holdings.
Third, with a number of these investment structures being lower cost, this increasing concentration in these vehicles has the overall effect of lowering average fees across the portfolio. These currently sit at around 0.24 per cent.
Trends in average credit card expenses
Similar to recent months, average monthly expenditure on credit cards has continued to fall. The rolling average level of distributions is also gradually falling, reflecting some larger distributions in the older data being excluded over time.
[Chart]
Reviewing monthly figures, total expenditure continues to track at levels above estimated distributions, while credit card expenses remain fully met.
[Chart]
Progress
Measure Portfolio All Assets
Portfolio objective – $2 180 000 (or $87 000 pa) 87.1% 117.3%
Credit card purchases – $71 000 pa 106.3% 143.2%
Total expenses – $89 000 pa 85.1% 114.7%
Summary
There was a small pleasant surprise in the past week, in the form of recognition in this Business Insider piece on the topic of choosing a FIRE lifestyle. With the portfolio moving beyond previous monthly highs it has been tempting to consider the journey smoothly back on track, and that the timeline for the portfolio goal of July 2021 may yet be attainable.
Yet the sense of changing regimes – monetary, fiscal, and inflationary – is unmistakeable, with the International Monetary Fund, for example, openly calling for a new ‘Bretton Woods‘ moment. Nobel prize winning economists are increasingly questioning a series of pervasive puzzles across markets, and the foundational concept of risk-free rates that sit behind all market asset prices.
These same forces have found their expression in the portfolio this month, with unanticipated increases in non-traditional and alternative asset types. These seem caught in a struggle between the past and future, and the portfolio itself seems poised at the same potential inflection point.
The shape of some of these inflection points is well described in this piece on the historical premium for investors assuming equity and bond risks over the past 300 years. Critically, it reinforces the extraordinary and atypical performance of bonds over the past 40 years, and their poor outlook going forwards.
Likewise, this recent work by Professor Robert Shiller points to increasing fears in the US of poor future equity returns. For another perspective, this academic piece highlights a potentially more stable underlying connection between price fluctuations and value in key international equity markets.
This month I have also sought out perspectives from a slightly shorter time period, beginning Felix Somary’s memoirs The Raven of Zurich. It is a story of an extraordinary financier’s life, a life intersecting with almost every major world event in the first half of the twentieth century. The contents are a stark reminder that predictions and warnings can go unheeded, and that identification of risks is only one half of their resolution.
Reflecting on the memoir, one is reminded that nobody has ever had a choice of what history they live through. The only choice lies in how to respond, what actions to take.
With looming US elections likely to be highly contested, increased uncertainty and fear driving markets, there is a sense of there being hardly room for the present. Yet this narrow present is the one we must act in, to seek to progress the chosen journey.
Masks meant something different one year ago when I posted the highly popular “Happy Halloween - Audit Status of Canadian Cryptocurrency Exchanges”. Since then,
Blockchain provides the full ability for exchanges to prove asset backing, yet we continue to have to guess which platforms are backed. In an effort to help Canadians find the exchanges which are most transparent, we divide platforms into 5 categories:
If Proof of Reserve or another form of verification was standard on all exchanges, people like Gerald Cotten and Dave Smilie wouldn’t have been able to pull off massive fraud, and cases such as Einstein would have been known long before it resulted in insolvency. Supporting exchanges that don’t provide public validation or transparency is supporting fraud. Even if the platform is 100% honest, they are setting a dangerous standard that enables other fraudsters to hide in plain sight.
FlexCoin - As “the world's first bitcoin bank” that’s “not a true bank”, FlexCoin provides “a central location for all of your bitcoins”. “Bitcoins deposited with flexcoin will be stored on [thei]r secure servers” so you can “send bitcoins to non-technical individual[s] via e-mail”. Unlike blockchain, “flexcoin to flexcoin transfers are free”.
MapleChange - “[S]wift, reliable and to-the-point!” “One of [their] primary concerns is security for [their] customers'' which is why “keys are cryptographically encrypted”. More Canadian than anyone! Excuse me while we hold the door open to our crypto! "[W]ithdraws(sic) are next to instantaneous", "rel[ying] solely on the aspect of swiftness"!
Canadian Bitcoins - Funds stored for convenience in a professional Rogers data center, which has the highest level of courtesy and customer service - always going above and beyond to provide expedient service whenever a request comes in!
CoinTrader/NewNote - A “meticulously engineered Bitcoin Exchange” “focused on security and tak[ing] these risks seriously”. “[Y]ou don’t have to worry”, they have “90+% cold storage” and their “cold storage is fully insured by Xapo”. Plus, as “a registered Canadian corporation” they “leverage the good guys to fight the bad guys”.
Einstein - You can get “your money deposited and withdrawn faster than any other exchange”. As one customer said "With so many hacks and exit scams, it gives me confidence knowing Einstein is backed by hard-working people just like me." Just check the user experience on their subreddit from their "220,000+ satisfied customers".
EZ-BTC - As the world’s “most user-friendly and bespoke crypto currency management platform”, they have “strong security”. “All your coins are kept in cold storage. They’re safe.”. The presence of physical ATMs was one of the strategies to build customer confidence for their promised 9% annual return on stored funds.
QuadrigaCX - Operating since 2013, with “vast cryptocurrency reserves” right up to the end. "Bitcoins that are funded in QuadrigaCX are stored in cold storage, using some of the most secure cryptographic procedures possible." Even today some of the funds remain 100% secure in their cold storage!
If there are any others I missed, let me know!
BitVo - Whether “Canada's premier cryptocurrency exchange” or merely “on a mission to become Canada’s premier cryptocurrency exchange”, we have to praise BitVo’s security for including “multiple signatures of a select group of trusted individuals” which are “not connected to the exchange platform or a network”. It is unfortunate that such common sense concepts are “proprietary” instead of the standard on all Canadian platforms. While assuring that they operate “on a full-reserve basis” and talking about “transparency”, the proof is lacking and nothing indicates it to have been verified externally or even internally. The withdrawal-based fee structure incentivizes users to keep funds “safe and secure” on the platform - which is “owned and operated by banking and security experts”. The “banking” side shows for sure in these hidden fine-print fees, which go well with transparency.
CoinField - Apparently no longer the "most secure trading platform in Canada" but now instead the “Best Bitcoin & Cryptocurrency Exchange In Canada” - based in Estonia and no longer having a Canadian office. They’re “fully regulated” in 193+ countries, except for the period between October 2019 and June 2020, when they weren’t even registered as an MSB. They offer a huge range of trading pairs except for the ones you need, with high liquidity except for the pairs that don’t have any, and you can withdraw and trade all of your funds as long as you leave a small amount behind at every stage.
CoinSmart - Not sure what "[i]ndustry leading cold storage" is, but luckily it’s “bank level”. No mention of multi-sig. They’re so "accountable to [their] clients, community and to each other" and "committed to being open and honest" that they don’t include any audit. Deposits are easy and withdrawals are fun - like a video game. Advance through each stage to prove your willpower, complete with warnings, SMS verification that doesn’t display errors (but luckily you can change the number to anything at all without further verification), and even an elaborate high-resolution selfie requirement you have to email in. If you can’t complete or don’t feel comfortable sending info via email, your money is held hostage - no big deal at all really.
Coinut - As "the most secure cryptocurrency exchange", they provide “a comprehensive cryptocurrency exchange platform for trading cryptocurrencies”. (Not to be confused with a cryptocurrency exchange platform for trading coconuts.) They’ve been “running securely for about three years” “by storing cryptocurrencies offline” in a single “offline computer”. In addition to not using multi-sig and "not us[ing] USB drives, as the online computer may be infected with virus", they also don’t appear to use audits or any form of public verification.
NDAX - “Canada’s most secure trading platform” to "set the standard for the Canadian cryptocurrency industry". While NDax promotes “segregated accounts” and “95-98% of user funds in an offline, multi-signature wallet”, there’s nothing to indicate backing of assets on the platform. While apparently partnered with a Canadian bank, the bank is not revealed. No audit found but at least there’s a full-page risk disclosure and disclaimer. You can sleep peacefully knowing that they’re legally protected, even “for losses suffer(sic) to you as a result of any defaults of by(sic) insolvency of other Users.” What does that even mean? Apparently, even with their industry-record withdrawal fees, they couldn’t afford a legal team with proper grammar.
Newton - Newton was one of the first to announce third party custody. You should give your funds to Newton, because they’ll give them to Balance, and they’ll do this for free! And “[m]ultinational companies trust” Balance. According to the Balance terms, “the digital assets you purchase via the Platform are not protected by any government or other insurance”. "Prospective clients...will hold the entire liability associated with purchasing a Digital Asset Cache™️ and using [Balance] services, potentially including partial or total loss of capital." "Balance does not represent or guarantee that the Balance Platform will be free from loss, corruption, attack, viruses, interference, hacking, or other security intrusion, and Balance disclaims any liability relating thereto." "No data transmission over the Internet can be guaranteed to be 100% secure, and as a result [they] cannot ensure or warrant the security of any information you transmit to [them]." "You are solely responsible for maintaining the confidentiality and security of your Account." If someone else should “[w]ithdraw the digital assets in your DAC to [thei]r external digital wallets as soon as within the same business day.” "Balance shall not be responsible for any losses arising out of the unauthorized or other improper use of your Account." The security of Balance custodianship comes down to (a) proprietary “HSMs” tested by their team of experts are more secure than hardware wallets tested by thousands of teams of experts around the globe, (b) a standardized and documented system of physical security in facilities accessible to a select number of people is superior to a combination of unique physical security, exclusive signing procedure, and complete locational secrecy that could be employed separately by multiple reasonably competent individuals, and (c) placing your trust in the team of Newton, the team of Balance, and the security of a website is more secure than simply trusting a single team to manage the private keys in an offline multi-sig fashion.
While Balance has an extensive page on security and internal controls, I was unable to locate any audit nor verification that the assets on Newton or custodian Balance are actually fully backed against deposits. From the demo page, we can see that Newton has visibility to see their balances on Balance, so at least Dustin and the team can check diligently and make sure they aren’t taken. Why not give some of that visibility to your customers? Why has Newton, which has been a leader in so many other areas (“commission-free”, working to get the best rates, etc…) not been a leader in putting together any level of public visibility to the backing of customer funds on their platform?
CoinBerry - While hard to judge from a few excerpts of what’s likely a multi-page (or even a multi-chapter) policy, it remains to be seen if their new insurance will ever come to use, given that CoinBerry was already using the best practices of offline multi-sig for the storage of all customer funds, a set-up which, to date, has a breach-less record historically. It would also be the first time that insurance has ever paid out in the history of cryptocurrency, and would cover up to $1m of client funds. It would appear that CoinBerry is counting on a structure with multiple wallets to limit losses, which is an interesting strategy, given the number of times that platforms have suffered the simultaneous breach of multiple wallets (Bitfinex, VinDAX, Bithumb, Altsbit, BitPoint, Cryptopia, and just recently KuCoin all had multiple wallets breached all at the same time). Assuming the private keys are properly managed by separate trained people, CoinBerry client funds appear to be stored in what’s essentially a giant cold storage wallet, with all withdrawals handled and verified by multiple people before being approved, which is the most secure setup possible in cryptocurrency.
CoinBerry is also “trusted by Canadian Municipalities”, a deal that enabled “the first payment of property taxes with Bitcoin in Canadian History”. They reportedly also “undergo annual 3rd party financial statement audits”. From records, these appear to be conducted by the firm MNP which is an accounting firm. CoinBerry has not, however, publicly declared themselves to be “fully-backed”, nor have they published any verification on the backing level of funds on the platform. Rather the audits are “secret”. This is concerning given the large referral bonuses paid out by the platform to new customers (including a popular $25 referral bonus for purchasing $50 of bitcoin), multiple issues with withdrawal delays, including one affecting hundreds of customers earlier this year, and the slow increase to their “fair pricing and industry-leading low fees.” Fees have gone from 0.5% to 1%, to a tiny sentence about “adding a margin, or spread, of between 0% and 2% to the rate offered by [thei]r liquidity sources”. Luckily, they “don’t hide fees across your trading experience.” In case you should sign up and find that (up to 2%) rate to be too high, “[a]ccounts requesting a withdrawal of Fiat or Crypto currency in original form, without conducting a trade will be...charged an account maintenance fee calculated as the larger of $25 or 5% of the total amount requested.” You will also need to pay additional “mining fees for crypto withdrawals”, which significantly exceed typical transaction costs and are only mentioned in the fine print of their fees page. CoinBerry has publicly expressed agreement that you should not store funds on cryptocurrency exchanges including their own. Neither their insurance nor world-class security will do anything whatsoever if their platform goes insolvent.
CoinSquare - CoinSquare has had a rough year, most notably with being publicly declared as having inflated trading volume and having to pay multi-million dollar fines. As usual, the Reddit community was already on top of this and apparently, some staff at the company were even open about it. Ironically, one could argue that their dishonest practice did more to stand up to Quadriga than regulators ever did, may have saved thousands of Canadians from losing their funds, and may even have been a key factor in bringing Quadriga down. It remains to be seen what will become of the shell of one of Canada's oldest exchanges. It would be the ultimate in poetic irony if the actions of the OSC to protect CoinSquare investors ultimately destroyed the full value of their investment. If that plays out, I'm sure they will heap praise on the OSC for so publicly and fragrantly shaming CoinSquare for a practice which was similarly employed on other exchanges globally and which they'd already voluntarily ceased months prior to the conclusion of the 6-figure investigation and 7-figure fines.
That said, CoinSquare already had a lack of visibility into their security practices, which they describe as “100% proprietary”. This would imply the team at CoinSquare is smarter than established security standards by experts all around the world at protecting your funds, contradicting previously reported incidents. They describe “SSL and 2FA”, which are more or less standard features of all exchanges. A “95% cold storage” policy is low compared to many other platforms, and it doesn’t appear to be mentioned whether multi-sig is being employed or not. And of course, their apparent regular audits are not public (allegedly by “a national accounting firm whose identity is protected under an NDA"). They’ve routinely described themselves as solvent rather than fully backed.
Kraken - A kraken is “an enormous mythical sea monster”, and likewise Kraken, the exchange, is enormous, the largest and oldest exchange platform in North America. Kraken recently achieved the momentous accomplishment of becoming the first cryptocurrency exchange to be a regulated bank by completing a charter in the state of Wyoming. Kraken calls itself the “most trusted cryptocurrency exchange” and apparently “provides world class financial stability by maintaining full reserves, healthy banking relationships and the highest standards of legal compliance”. While many individual Kraken customers have been hacked, the platform overall never has, which is an impressive record.
Similarities abound further. According to legend, kraken exist off the coast of Norway. According to alleged court papers, Kraken operated illegally in the state of New York. Should you encounter a kraken, you may be best to leave silently. If you should work at the counter for Kraken, you may be legally silenced. One of the former employees for Kraken alleges wrongful dismissal and that the bank accounts of Kraken are actually running millions of dollars short of where they should have been. But don't worry - Kraken’s website features a Proof of Reserve page, stating that “[o]ver the past several weeks, Kraken has successfully developed and completed an industry-leading, independent, cryptographically-verified audit.” But the page was written in 2014 and among the long list of limitations, the process does not enable any validation on the blockchain. Kraken hasn't done any validation or publishing of reserves in 6 years and counting.
NetCoins - Once upon a time, the cofounder of CoinTrader (sound familiar?) decided to found a new exchange - “Canada’s easiest, most trusted way to buy and sell crypto”. As they say on the FAQ, “[t]rading cryptocurrency is completely safe”. Having your own wallet is “entirely up to you! You can certainly keep cryptocurrency, or fiat, or both, on the app.” “Get verified in minutes!” While comforting to know that parent corporation BIGG Digital Assets is audited by Manning Elliott LLP and they have “[r]eal human beings you can get in touch with easily”, this doesn't make up for no visibility whatsoever into how funds are stored or what portions are backed.
There are only two exchanges in Canada meeting these criteria.
BitBuy - BitBuy has operated since 2016, and was the very first to get a “Proof of Reserve and Security Audit Report” from third party CipherBlade. Since that time, they’ve also established themselves as the first company to get two separate third party validations, with the second one from Blockchain Intelligence Group. The platform’s initial operation as a non-custodial “Express Trade” model lends additional credibility. Therefore, with now two independent third party reports, BitBuy maintains the title as the most transparent exchange in Canada.
However, “Bitbuy has moved its existing bitcoin holdings over to Knox”. You now have to trust both teams and platforms for the security of your funds. This is described by them as an “industry leading push for best practices”. Insurance is of course “subject to the full policy terms, conditions and exclusions”. And “Bitbuy will be Knox’s first platform partner”. Knox has never done this before for any other platform. Their security model is “a mouthful for most”, but let’s break down their pitch. They have “air-gapped specialized hardware”. So is a standard typical hardware wallet. It’s running “custom policy logic”, which could be a good or a bad thing depending on the logic. Their logic has probably been vetted by a single team of experts, which is a standard shy of most hardware wallet protocols vetted by thousands of experts globally. They use a “dual-control operational model”, which if you look up dual-control, it actually refers to the fact that the functionality of the module is simultaneously performing actions and being monitored”. It allows one to “experiment with the system so as to learn about its behavior and control it better in the future” which you can decide for yourself if that’s a good thing to have or not in the hardware that controls withdrawals of an active exchange platform. There is “offline transaction processing”, which again is a standard feature of a hardware wallet. “Geographically distinct facilities” is a good idea, though easily achieved by not storing all the private keys in the same place. Saying that the facilities “communicate in a closed network” is an interesting concept. How can you know that a network is closed? If the facilities are close together, they can be breached together. If far apart, someone can get in the middle. The network is no longer closed the moment any part of it is breached. I can go on and on and break down every one of their systems if I have to, but instead, I’ll quote their own security advice about “minimizing the attack surface of the entire key lifecycle”. The minimum attack surface for a private key is having an individual generate it secretly and securely using a process which is vetted by hundreds of security experts around the world, and not relying on a third party to have to control anything to do with that key. This is already available from most standard hardware wallets, with experts debating whether other advanced experts can find a way to extract the key with access to extremely sophisticated equipment and physical access to the hardware. The best and most efficient way to mitigate a weak or corruptible party is through multi-sig where all parties have to sign the transaction. Adding intermediary custodians instead means funds are lost when any one of them is breached, and when using the same in-house hardware as Knox does, any vulnerability on that hardware or supply chain can compromise multiple wallets at once.
Now, insurance. The policy isn’t public on its website. It gives high-level features only. What’s astounding is that “collusion” is considered a break-through, which says a lot about the state of third party insurance in the space. I requested an example policy from their team. Their response was that it was “proprietary” and that they only “go over it with serious buyers”. In other words, no one has visibility to the actual policy details of what’s really covered outside of BitBuy or Knox, and neither party has any incentive to present that information objectively. For now, until someone cares to prove me wrong, I’ll quote their own website, “[m]ost policies covering Bitcoin theft and loss fall short and provide a false sense of security”.
One of the issues with the BitBuy validation is that it offers no visibility whatsoever for customers to know if their balances were included in any of their third-party validations. As such, BitBuy could have excluded any number of customers and passed both verifications with flying colours. That's why it isn’t a full Proof of Reserve. Also, they stopped talking to me again. But I still believe that BitBuy is one of the least worst platforms, now with reserves verified by two separate third parties.
ShakePay - Firstly, congratulations. The formerly trustless raccoon has now got a third party validation - a key step forward. The ShakePay platform is incredibly good at marketing, with the most powerful “Shaking Sats” program to literally get thousands of Canadians to think about buying more cryptocurrency every single day, or at least to pay homage to their great raccoon mascot. More recently, ShakePay completed a security assessment provided by CipherTrace, and added further insurance. CipherTrace found that reserves appeared to be fully backed including extensive analysis of the transactions and provided data.
ShakePay could be upfront that they charge a market spread or list the buy and sell prices. Instead, they promote the service as “no fees” and list only one price for bitcoin or ethereum, the only coins they sell. To find the model you have to click through to a separate page. The spread and pricing information is only ever available from within a registered account. ShakePay does not offer any additional trading functionality or coins.
ShakePay states that the “majority of all digital currencies are stored securely offline”. The CipherBlade report found this ratio was at “93% of Bitcoin and 91% of Ethereum” in cold storage at the time of the report, though it “var[ies] periodically to some degree throughout the day”. The report refers to a “multi-signature wallet interface”, which they later call a “service to access its sending and receiving multi-signature wallets”, which apparently also “does not have control over cryptocurrency in the hot wallets”. This part doesn’t exactly make sense, as one would most likely consider “access” to a “sending” function as “control”. Apparently, this “not mentioned” service is “without any known security risks” and there are also “redundancy measures” in place as well. Whatever that means in the context of irreversible transactions is a mystery.
However, the majority of funds are no longer stored with ShakePay but have now been given to an undisclosed “trust company registered under the NYDFS”. The “variety of security protocols” in place here include “address whitelisting”, the only policy they are willing to disclose publicly “for security reasons”. While ShakePay won’t identify the third party, “CipherBlade can confidently conclude that Shakepay controls these cold wallets” even though “they are controlled by [the] cold storage provider” and “the cold storage provider ultimately holds the private keys”. ShakePay does receive “an account statement” “which includes applicable wallet addresses and balances held” and “[d]ata found on the blockchain was also in line with information found on these statements.” It will be interesting to see in one of many “quite unlikely” events what “the cold storage provider’s policy and Shakepay’s own policy” would cover, given that the details of both policies are completely secret. Luckily, “[t]he vast majority of Shakepay customers who purchase cryptocurrency on the Shakepay platform withdraw it promptly thereafter.”
It’s important to note that this report is not a Proof nor an Audit (as originally named). “The reviewer is not a professional accountant, and CipherBlade has not performed a professional financial audit or an audit of internal controls and expresses no assurance on the accounting records of Shakepay.” ShakePay was happy to remove “audit” but they still continue to insist on calling this a “proof”, when it’s not. They claim “Proof of Reserves can have a variety of setups” and they cited Nic Carter’s blog post, which also listed all the criteria for the proof, which they did not meet. In discussion with Nic (who is amazingly open to chat), he’s agreed “what they are doing is not a full PoR” and he “didn’t believe it would be a widely consulted thing - [he] was mostly doing it to encourage custodians to take PoR seriously”. The point of a “proof” and why it’s called a “proof” is because it leaves no doubt. A Proof of Reserve needs to prove the reserves - that funds exist on the blockchain, are spendable by the platform, and fully back the assets of any customer who bothers to check. ShakePay’s does not.
Presently all platforms in Canada have refused to provide visibility to the public blockchain entries backing funds on their platform. They have refused to sign a proof of spendability for any funds they control. All claims and verifications have been against customer lists provided by the platform with no ability for any customers to validate they were included. This is a recipe for more Gerald Cottens and Dave Smillies.
I understand Proof of Reserve is not practical for all platforms. I was able to come up with an alternative that doesn’t require public blockchain visibility, could be implemented today using reputable third parties, and effectively validates all customers are included.
The first and largest issue has always been a lack of transparency. Far more funds have been lost to fraudulent platforms and wallet services than hacks. Honest platforms need to be giving greater visibility and certainty to their customers to make fraud obvious.
Secondly, no platform employing offline storage and multi-sig has ever been breached. We need to agree on the basic standards of what it takes to keep assets secure and create an environment where best practices are shared instead of hidden between platforms.
And thirdly, third party insurance incentivizes high fees, it limits coverage, and it does everything possible to avoid a payout. We need an organized insurance strategy that is run by platform operators and overseen with the full protection of Canadians in mind.
What’s possible is exciting, but not guaranteed. There are a lot of irreversibly horrible futures which are even more likely if we merely sit back and watch.
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All our products come with lifetime warranty
Please contact us if you want to buy in 5% off, we are giving discount for members using bitcoin to purchase. PayPal users will not get any discount. Btc users message us and we will give you a coupon code. Not necessary paying in btc, you can always pay in paypal
Autobuy shop here https://sellix.io/gucciarmani
Or you can click this here For any more questions please ask :) We are selling at very cheap prices
To join our discord server click here
To join our telegram group click here
Windows 10 pro key lifetime for only 15$
Disney plus for only 9.99$ Yes you heard it right Disney plus for only 9.99$ one time payment and you also get Lifetime warranty.
Spotify upgrades for 9.99$ We provide invite link and address from which you upgrade your account to premium. Incase the account gets kicked out I provide a replacement if I'm awake. Yes we can upgrade your current existing account. We provide lifetime warranty for only 9.99$ grab your invite now and enjoy premium for the rest of your life.
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crunchyroll for 7$, These are crunchyroll shared accounts. No screen limit warning, watch in 1080P. All latest shows. We provide lifetime warranty for crunchyroll as well, all you have gotta do is ask and we will respond within 24 hours
Sexyhub account with 25 premium porn sites like Brazzers,babes,twistys,femalefaketaxi,wicked for 45$, Grammarly premium for 20$,
Unlimited Google Drive Storage On Your Personal Account [LIFETIME] for 10$, When you buy this we provide you with the method to get you unlimited storage in 1 min. However if you want to skip this process we can do it for you. You simply have to send us your email, and we will add unlimited storage.
Spotify family owner account lifetime, add upto 5 family members for 38$ Full access spotify account, you can change email and password. Only you have access to the account no one else. You can invite upto 5 members for only 38$. Better deal then the Spotify member upgrade which costs 9.99$. I would suggest buying this.
Netflix UHD 4 screens 1 year warranty for 10 This is a 1 year warranty Netflix account which is shared and you are not allowed to change password, or make new profile. Would recommend buying the lifetime one :)
Biaheza's FULL dropshipping course for 20$ Very good course if you want to learn drop shipping in a few hours.
Ubereats,grubhub,justeat,zomato,swiggy free food method for 20$ This basically teaches you how you can refund every order you ever make in food services like Zomato, swiggy,doordash etc
Nublies porn for 20$ per year Self explanatory.
Vypervpn for 20$ Vyprvpn accountt
Pornhub premium with portal for 20$
FREE EDU EMAIL | NEW GUIDE | SELL .EDU MAIL AND MAKE PROFIT for 20$
1000X STEAM WITH HQ GAMES FULL CAPTURE [NO GUARD] for 20$
850X PANDORA MONTHLY ACCOUNTS for 20$
Red dead redemption 2 for 20$
Fraud bible 2020 and 2019 edition for only 15$
Amazon prime method for 10$
(450+ Pages) Doxing Ebook By Ex-FBI Agent for 30$(DEAL)
Drop shipping course for 20$
MEGA HACKING Course PACK || Total size : 36.90 GB || Course worth : 3000$ (50$) (DEAL)
Ddosing method for 20$ deal
full 0 to 100 - refund guide for amazon, mircosoft, google etc get free items for (35$) BEST SELLER
scalable passive income with proof [no or little investment] for (45$) very cheap
all in one cracking guide | tools, basics, high hit combos, money making methods for (60$)
private fbi manipulation techniques [uhq] actual cost: 120$ We are selling only for (39.99$)
mega leak | 400+ ebooks | whole ebookleaks.com database | all kind of ebooks | (70$)
[150$ ebook] => the #1 cutting-edge income program (50$)
Grammarly premium for 20$
Hulu no ads and live tv for 15$
Spotify upgrade token packages starting from 20$
Spotify upgrade token reseller packages starting from 80$
Discord- Noobgraphics#4339
All our products come with lifetime warranty
Please contact us if you want to buy in 5% off, we are giving discount for members using bitcoin to purchase. PayPal users will not get any discount. Btc users message us and we will give you a coupon code. Not necessary paying in btc, you can always pay in paypal
Autobuy shop here https://sellix.io/gucciarmani
Or you can click this here For any more questions please ask :) We are selling at very cheap prices
To join our discord server click here
To join our telegram group click here
Windows 10 pro key lifetime for only 15$
Disney plus for only 9.99$ Yes you heard it right Disney plus for only 9.99$ one time payment and you also get Lifetime warranty.
Spotify upgrades for 9.99$ We provide invite link and address from which you upgrade your account to premium. Incase the account gets kicked out I provide a replacement if I'm awake. Yes we can upgrade your current existing account. We provide lifetime warranty for only 9.99$ grab your invite now and enjoy premium for the rest of your life.
netflix UHD 4 screens lifetime warranty for 12.99$ This is a shared account, you are not allowed to change password or make new profile, however if the password ever gets changed by the actual owner we provide replacement very soon. Grab your account now and get lifetime warranty for only 12.99$
Nord vpn for 4.99$, These are inactive accounts, expiration : 2024, 2023. You'll receive more then 100 accounts for only 4.99$ all of them working. After a few years when they expire we provide replacement. Very good deal I would recommend buying.
crunchyroll for 7$, These are crunchyroll shared accounts. No screen limit warning, watch in 1080P. All latest shows. We provide lifetime warranty for crunchyroll as well, all you have gotta do is ask and we will respond within 24 hours
Sexyhub account with 25 premium porn sites like Brazzers,babes,twistys,femalefaketaxi,wicked for 45$, Grammarly premium for 20$,
Unlimited Google Drive Storage On Your Personal Account [LIFETIME] for 10$, When you buy this we provide you with the method to get you unlimited storage in 1 min. However if you want to skip this process we can do it for you. You simply have to send us your email, and we will add unlimited storage.
Spotify family owner account lifetime, add upto 5 family members for 38$ Full access spotify account, you can change email and password. Only you have access to the account no one else. You can invite upto 5 members for only 38$. Better deal then the Spotify member upgrade which costs 9.99$. I would suggest buying this.
Netflix UHD 4 screens 1 year warranty for 10 This is a 1 year warranty Netflix account which is shared and you are not allowed to change password, or make new profile. Would recommend buying the lifetime one :)
Biaheza's FULL dropshipping course for 20$ Very good course if you want to learn drop shipping in a few hours.
Ubereats,grubhub,justeat,zomato,swiggy free food method for 20$ This basically teaches you how you can refund every order you ever make in food services like Zomato, swiggy,doordash etc
Nublies porn for 20$ per year Self explanatory.
Vypervpn for 20$ Vyprvpn accountt
Pornhub premium with portal for 20$
FREE EDU EMAIL | NEW GUIDE | SELL .EDU MAIL AND MAKE PROFIT for 20$
1000X STEAM WITH HQ GAMES FULL CAPTURE [NO GUARD] for 20$
850X PANDORA MONTHLY ACCOUNTS for 20$
Red dead redemption 2 for 20$
Fraud bible 2020 and 2019 edition for only 15$
Amazon prime method for 10$
(450+ Pages) Doxing Ebook By Ex-FBI Agent for 30$(DEAL)
Drop shipping course for 20$
MEGA HACKING Course PACK || Total size : 36.90 GB || Course worth : 3000$ (50$) (DEAL)
Ddosing method for 20$ deal
full 0 to 100 - refund guide for amazon, mircosoft, google etc get free items for (35$) BEST SELLER
scalable passive income with proof [no or little investment] for (45$) very cheap
all in one cracking guide | tools, basics, high hit combos, money making methods for (60$)
private fbi manipulation techniques [uhq] actual cost: 120$ We are selling only for (39.99$)
mega leak | 400+ ebooks | whole ebookleaks.com database | all kind of ebooks | (70$)
[150$ ebook] => the #1 cutting-edge income program (50$)
Grammarly premium for 20$
Hulu no ads and live tv for 15$
Spotify upgrade token packages starting from 20$
Spotify upgrade token reseller packages starting from 80$
Discord- Noobgraphics#4339
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