Proof of Proof: Does it apply to MicroStrategy?
Below is a guest post and analysis from Shane Neagle, Editor-in-Chief of Token Specialist.
On Tuesday, Michael Saylor, CEO of MicroStrategy (NASDAQ: MSTR), turned on the Bitcoin portion of the internet. At an event adjacent to the Bitcoin 2025 conference in Las Vegas, Saylor was asked whether the company (rebranded as Strategy) had any plans to publish proof-of-stake for its Bitcoin stash, which currently holds 580,250 BTC (about $62.8 billion).
Answering the question, Saylor explained that he is not a fan of the idea because:
"It actually reduces the security of the issuer, the custodians, the exchanges, and the investors. It's not a good idea, it's a bad idea. It's like publishing the addresses and bank accounts of all your children and the phone numbers of all your children. And then thinking, somehow, you're making your family better."
Many influencers have already expressed similar sentiments toward the fried Sam Bankman. It was during the collapse of the FTX crypto exchange that the term Proof-of-Reserves (POR) was introduced to the wider public. This prompted Binance, the world's largest crypto exchange, to implement its own POR system in late 2022.
Others have also likened Saylor to Kwon, having spearheaded the Terra (Luna) blockchain project, powered by algorithmic stablecoins, reserves, and Bitcoin. After a string of cryptocurrency bankruptcies throughout 2022, it's reasonable to be cautious, but is Michael Saylor's position as problematic as it appears?
Proof that the original is preserved
Fueled by the collapse of the Mt.GOX exchange in 2014, Proof-of-Reserves (POR) was first introduced as a means of instilling confidence in hot wallets. While Mt.gox is most commonly known for the hack, in which up to 850,000 BTC were stolen from hot wallets, the exchange was also down due to technical security concerns.
Mark Karpeles, CEO of MT.GOX, was convicted of tampering with exchange records to inflate the company's holdings. Karpeles received a 2.5-year prison sentence, suspended for four years, in early 2019. Following the worst year of 2022 for the cryptocurrency sector, exchange operations were in a downturn.
Just using the example of BlockFi, the scalability of assets follows a clear pattern across the board:
If a Custodial institution owns 1 BTC, it generates liability for the user for that 1 BTC. Otherwise, in a self-serving scenario, the user generates their own liability.
But what if the security party wants to increase the attractiveness of their business?
Users' holdings will then be used to make crypto-backed loans to savings accounts.
Under the hood, this means that perfect 1:1 liquidity will be channeled to other parties. In BlockFi's case, this was Three Capital (3AC).
If liquidity is extended (diluted), the initial depositor will not be able to count on getting 1 BTC reliably in all market conditions.
This pattern created a POR race in 2022, aiming to uncover what types of assets are covered, how much, how often they are audited, and by whom.
Photo credit: Nick Carter at niccarter.info
However, even shortly after the FTX collapse, with Binance rushing to report the POR, it became clear that there were some inherent problems with this approach.
benefit
In a global fractional reserve banking system, not all funds can be recovered if all bank customers suddenly try to withdraw. However, institutions that inspect banks, such as the FDIC, consider both their assets and liabilities to determine their overall solvency.
Additionally, the central bank is a lender of last resort (LOLR), able to electronically add funds to the bank's balance sheet. We saw this in action in early 2023 during the regional banking crisis in the United States. During this period, Bitcoin experienced its first major rally after recovering from the 2022 Abysmal crash.
This is because Bitcoin, as a digital currency accessible to public scrutiny, has built-in transparency. Every single part of its 21 million supply is recorded, powered by computing power. Although Bitcoin doesn't inherently include a reserve mechanism, visibility into balances and transactions enables external POR audits when entities sign messages from their addresses.
If BTC addresses can be reliably linked to specific owners, greater insight into asset ownership and distribution becomes possible. The question is, how do we verify whether entities holding BTC are holding the amounts they claim to? There are several ways to address this:
Prior to the POR, the custodian could inflate reserves by temporarily borrowing assets. Therefore, audits should be random.
A POR snapshot as such does not guarantee 1:1 reserves until the next snapshot.
Ultimately, POR audits are not standardized, meaning there is a wiggle room where exchanges can selectively disclose information, use varying methodologies, or omit important details, ultimately undermining the consistency, transparency, and reliability of the proof-of-concept process.
Where does MicroStrategy fit in?
As you may have noticed, MicroStrategy is not a cryptocurrency exchange, but rather a publicly traded company with a penchant for blending software development with more traditional Web3. As such, the company is required to file quarterly (10-Q) and annual (10-K) reports. Furthermore, publicly traded companies are required to file Form 8-Ks for unscheduled events and changes that impact shareholders' bottom lines.
All of this information is readily available through the SEC's Edgar system. In other words, the strategy is already operating in a regulated arena with certain expectations. This review covers its liabilities, assets, and stock holdings in the reports mentioned above, as well as acquisition costs and impairments.
But the strategy would fall apart if it suddenly began revealing BTC wallet addresses, which are not committed to zero. Conversely, the strategy could be held accountable and lose confidence if on-chain activity becomes subject to scrutiny, misinterpretation, and hacking attempts.
Furthermore, if the strategy's BTC holdings are held in tether storage or multi-signature wallets, public disclosure of wallet addresses would likely contravene regulated best practices. In short, by doing so, the strategy is viewed as a non-compliant company.
What is the overall objective of the strategy?
The overall goal of the strategy remains the same: raising capital by selling new MSTR shares to purchase more Bitcoin, an asset that appreciates due to its constant scarcity. As of Q1 2025, the strategy reported 65% completion of this "21/21" plan to raise $42 billion.
Raise $21 billion in equities and $21 billion in fixed income between 2025 and 2027. Image credit: microStrategy
To attract investors, the strategy launched Series A Perpetual Strike (Strk) preferred shares with an 8% cumulative annual dividend. Starting June 30, STRF is another preferred stock with a 10% dividend, paid quarterly. In addition to offering a higher yield, STRF is also non-executable as a form of riskier income, with potential returns of up to 18%.
In other words, these are dividends paid to buy Bitcoin. Investors will buy MSTR shares rather than Bitcoin itself because demand creates a premium over its Net Asset Value (NAV). He also notes that many investors don't want the responsibility of self-reliance or the need to think through risk management, which is why MSTR, a Nasdaq-regulated stock, makes it an attractive Bitcoin proxy.
At the end of the day, Michael Saylor isn't printing new Bitcoin and isn't exceeding the highs we saw with SBF or Do Kwon. In an interview with the Financial Times, he noted, "Bitcoin could drop 90% and stay there for four or five years, and we'd still be stable."
Bottom line
It may be that, for some reason, Bitcoin has stalled in the adoption era.
However, such a scenario would be far removed from concerns about the validity of the strategy, whether it would be adopted as a plan or ignored as a commitment. Ultimately, the significance of POR as applied to strategy appears to be a confusion of categories.
Or rather, it seems that the justified energy gained from the harsh lessons of 2022 is being channeled.
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