One of the first crypto exchanges to disclose its proof-of-reserves was Binance, and a lot of other companies soon followed. These previous proofs of reserves, however, were nothing more than the contents of the exchange’s cold wallet accounts.
Binance attempted to set a standard for the sector by finally releasing its Merkle Tree proof-of-reserves with cryptographic evidence. However, Jesse Powell, CEO of Kraken, criticized Binance’s reserves on Twitter:
Powell claims that for a proof-of-reserve audit to be comprehensive, it must contain the total of client liabilities, user-verifiable cryptographic proof that each account was included in the total, and signatures demonstrating the custodian’s authority over the wallets.
The CEO of Kraken continued by saying that the goal of being open and transparent was to determine whether a cryptocurrency exchange held more cryptocurrency in its possession than it owed to its customers.
In reaction to Jesse’s statement, CZ pointed out that it was “in crypto” that exchange owners openly called one other out, and he believed that this was advantageous for a more positive crypto atmosphere.
Binance revealed its reserves to the general public and stated that it would initially begin with its Bitcoin holdings and thereafter add other tokens & networks. Zhao also noted that third-party auditor participation was now under consideration.
The failure of the crypto exchange FTX highlighted the value of proof-of-reserves in preventing circumstances involving the theft of customers’ money.
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