How proof of reserves audits work: a comprehensive guide

Proof of Reserves (PoR) audits are crucial for ensuring the safety and security of customer funds in the cryptocurrency industry. This guide aims to provide a comprehensive understanding of PoR audits and their importance in verifying a platform's solvency.

Is the exchange solvent?

The exchange claims to be 100% solvent and provides methods for customers to verify this claim. They offer an industry-leading approach that includes regular PoR audits, publishing reserve ratios, and developing an open-source feature for users to self-verify solvency on-chain.

What are the exchange's current reserve ratios?

The exchange calculates reserve ratios using the formula: (Amount of [asset] / Amount of [asset] users hold) * 100. This applies to Bitcoin, Ethereum, and USDT, demonstrating that the platform holds more assets than it owes to its customers.

What's the difference between Proof of Reserves and Proof of Solvency?

While often confused, PoR and Proof of Solvency (PoS) are distinct concepts:

• PoR proves a custodian holds claimed assets.
• Proof of Liabilities (PoL) proves the total assets owed to customers.
• PoS demonstrates that a custodian has sufficient assets to repay all customers.

The exchange's reserve ratios offer a PoS, showing they hold more assets than owed to customers.

What are the exchange's reserves?

The platform claims to have 100% clean reserves, with high-quality assets making up over 92% of holdings. They also state that most reserves are held in cold storage for maximum security.

How to verify the exchange's reserves

The exchange offers two methods for customers to verify their holdings:

1. Using their self-audit tool
2. Using third-party tools to verify signatures on various blockchains

How does the exchange's PoR work?

The platform uses summation Merkle trees for its PoR system. This allows users to verify their balance within the total exchange balance and compare it to the exchange's public on-chain wallet balance. The technical process involves creating a snapshot of user accounts, assigning unique hash IDs, and generating a Merkle root representing all user holdings.

What else is the exchange doing to increase transparency?

In addition to PoR and PoL publications, the exchange commits to:

• Conducting third-party audits
• Enhancing their global compliance program
• Pursuing licenses where applicable
• Maintaining a strong balance sheet with zero external debt
• Never using customer funds without explicit mandate
• Maintaining robust risk-management systems

Conclusion

Proof of Reserves audits play a vital role in maintaining transparency and trust in the cryptocurrency industry. The exchange's approach to PoR demonstrates a commitment to user security and financial transparency. By offering self-verification tools and regular audits, they aim to set a new standard for the industry. However, users should always remain vigilant and take advantage of these verification methods to ensure the safety of their funds.

FAQ

What is a PoC in crypto?

PoC in crypto stands for Proof of Capacity, a consensus mechanism where miners use hard drive space to validate transactions and create new blocks on the blockchain.

Is a crypto reserve a good idea?

Yes, a crypto reserve is a good idea. It enhances transparency, builds trust, and provides security for users' assets in the volatile crypto market.