About two days ago, a buzz about the alleged freezing of some customers accounts on one of the top cryptocurrency exchanges HitBTC was trending on several news headlines. At the time, the exchange did not respond to any of the allegations nor did any of the alleged victims have their complaints resolved.

The allegation of the freezing of accounts was founded upon the reality of an annual Proof of Keys event spearheaded by Trace Mayer, a major figure in the cryptocurrency industry. He said that all cryptocurrency traders should withdraw their funds from third-party exchanges simultaneously in order to test them for solvency. This event was scheduled to take place on 3 January.

Ahead of this event, a few customers of the HitBTC cryptocurrency exchange complained on Reddit about their accounts being frozen on the attempt of withdrawing their funds late December – hence the allegation, and that it was an agitated response to the forthcoming Proof of Keys event.

One of the users explained how he had sent numerous tickets and received automated responses. At the time, the exchange did not respond to any of the allegations nor did any of the alleged victims have their complaints resolved.

Event organizer Trace Mayer had opined on Twitter that HitBTC may have been on the fall side of the pending event, he said: “Has @hitbtc failed #ProofOfKeys? I do not have an account. Asked a friend to initiate a withdrawal. BEWARE! Result: Withdrawals are temporarily disabled on your account.”

A recent report by one of the cryptocurrency news outlet Cointelegraph revealed that the exchange denied the allegations in a closed email shared with the source.

The source said that Peter Swen who is a representative from the exchange’s marketing team denied the circumstantial allegations. According to the source, he called the Proof of Keys event a “flash mob,” emphasizing on company policies towards KYC and AML as baseline measure that must have been temporarily initiated and would neither be turned off on regular days or on special events as that of the Proof of Keys’.

However, the exchange has taken a hit in its 24hr trading volume and is among the top 3 losers having a -41% drop in activity among the first 100 by adjusted volume according to CoinMarketCap.

The Reality of #ProofOfKeys

The event kicked off successfully commemorating Bitcoin’s 10th year anniversary, with a lot of cryptocurrency enthusiasts appreciating the initiative. It felt like spring cleaning for some; feedbacks from the actions include:

“I’ve made good on my promise. Found 4 UTXOs in old accounts/wallets, 2 of which were not already under my control. I knew about 1 of the 4 but the other three were like free money…not much money, but free! In total, I moved over $4,000 worth of bitcoin.” – Doctor ₿ Goss, MD

Another user also said he had unspent output lying dormant on one exchange:

“#Proofofkeys allowed me to consolidate my bitcoin holdings. I found I had bitcoin in an exchange that I didn’t use for 1 year. Thank you @TraceMayer for this great idea! Happy birthday, bitcoin!” – Motoshi Nakasato

The risks of leaving funds on a cryptocurrency exchange where one doesn’t control the private keys cannot be overemphasized. While it does makes a lot of sense for day traders, the risks sometimes outweigh the benefits. One specific horrid event in the history of cryptocurrency that comes to mind is the Mt. Gox experience, this alongside all the other stories of hacks makes one wonder why cryptocurrency traders shouldn’t be in control of their private keys on centralized exchanges?

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