As a response to FTX recent traumatic deathan industry-wide cryptocurrency exchange binance Crypto.com is committed to displaying proof of reserves as a way to increase transparency. The goal is to prevent such a disaster from happening again.
Leaders across the industry applaud this sudden shift to transparency.Submission of proof of stockpilingHow to prove that the custodian still has the user’s fundsIt has been possible for many years and now exchanges are actually implementing the technology in practice.
However, some industry leaders warn users to remember that proving reserves has its limits.
Casa CTO Jameson Lop said Decryption “One of the main problems is that it is impossible to prove the negative. That is, you cannot prove that you have more liabilities than assets.”
this is his follow up Tweet Claimed last week that “it’s better to have” [proof of reserves] But it is not a “panacea”. Others worry that these evidences will lure users into temptation. a false sense of security If they do not understand the limits of what proving reserves can and cannot prove.
snap shot
“Proof of reserves” is essentially a snapshotIts accuracy is backed by cryptographic proofThe number of reserves held by a custodian at one time, using the transparency of Bitcoin and other cryptocurrency blockchains. This is a way to prove that an exchange or other third party custodian actually has the user’s money.
This type of evidence has been in the news a lot lately as the industry explores it as a way to deliver future FTX scenarios.In response, major exchange Crypto.com announced a proof of reserve last week, stating that 20% of the reserve I’m in Shiba Inu, a dog memecoin modeled after Dogecoin that started as a joke.Binance, the world’s largest cryptocurrency exchange I’m planning We are working on a Proof of Reserve protocol invented by Vitalik Buterin, the creator of Ethereum.
One thing to keep in mind is that there are different types of proof of reserves, some more rigorous than others. Crypto analyst Nick Carter, who has championed proof of reserves for years, said: that including rePolin addition to debtPolRing Reserve to give a clearer picture of where the custodian stands financially.
upon his websitehe tracks how many custodians have implemented proof of reserves. liabilities In snapshots, other sites such as Crypto.com only show snapshots of reserves so far.
Carter agrees that proof of reserves is not perfect, but it is necessary to improve the industry. “To those who refuse [proof of reserves] I would answer that perfection is the enemy of good, because the current implementation is not completely unreliable.Today, industry standards are virtually non-transparent,” he wrote. his website.
“Neither a key nor a coin”
The trick is that even with proof of reserves in place, things can still go wrong. accused of diverting millions of dollars Allow other exchanges to pass proof of reserves audits. This is unproven, but theoretically possible.
Then there is always the possibility that the exchange will not be rerunPolall of its debts.
“What [proof of reserve] It really is, proof. We trust our audits to be complete and accurate. And having such a certificate doesn’t change that custodian’s security model as a customer,” he said.
As BitGo CEO Mike Bershe put it: “Proving reserves is a good starting point. But it is impossible to prove that no debt exists. Debt tracking comes with solid and clean financial, auditing, and regulation.”
Needless to say, proof of reserves cannot prevent hacking. General method Exchanges and cryptocurrency projects have lost money over the years.
Is there a surefire way to ensure that no coins are lost by a trusted third party?
Many in the industry argue that the best way to prevent third parties from stealing your funds is to not trust them at all. After all, a common saying across the industry is, “It’s not your key, it’s not your coin.”
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