What is Proof of Reserves? [ Why These Exchanges Are Adhering to the New Standard ]

So after the FTX collapse,
a number of cryptocurrency exchanges Have now moved to restore faith
in centralized exchanges by posting Their proof of reserves on November
11th of 2020 to The then third largest cryptocurrency
exchange by trading volume filed For voluntary Chapter 11 bankruptcy
after it was revealed That it was operating
a fractional reserve. Following a sudden liquidity crunch
with just $900 million in liquid assets But close to $9 billion in liabilities,
FTX was unable to meet The withdrawal demands of its customers
and was forced to shut down operations. This has a significant knock on effect
on the industry as a whole sending Bitcoin and many other cryptocurrencies,
plummeting to yearly lows And precipitating the interruption
or collapse of several other victims, Including Galois Capital,
Genesis Crypto and also BlockFi. In the aftermath of its collapse,
it is still unknown Just how many major industry players
have significant exposure to FTX And may be forced to shut down operations. Not to mention the more than 1
million users that lost funds as a result. While the collapse of FTX did shine
a light on the risks Associated with storing funds
on a centralized platform. A number of cryptocurrency exchanges
have now moved to restore faith In centralized exchanges
by posting their proof of reserves. So what is a proof of reserve As described in CoinMarketCa
Alexandria Glossary entry. Proof of reserves is a technique
that crypto exchanges lenders And other custody providers
use to demonstrate their solvency And prove that all balances are backed
1 to 1 with their assets held on chain. So the push for full proof of reserves
or POR, was initiated by Binance's CEO Changpeng Zhao, or CZ
who urged all crypto exchanges to provide A Merkle tree proof of reserves To prove that they're not running
a fractional reserve by using a Merkle Tree to encrypt blockchain transaction
data. Users can easily Verify that the exchange holds their funds
both securely and privately. A full Merkle tree based proof of reserves
should allow anybody to easily audit

The total holdings of the exchange
and also allow individuals To verify their specific transactions
that contributed to the total balance. So which exchanges will adhere
to the new standard? Since Binance's actually set the movement
into motion on November 10th of 2022, Many of the most popular cryptocurrency
exchanges have pledged to actually Prove their solvency by adhering
to the proof of reserves standard. So as of this video, Most of these exchanges have provided
either a basic audit of their holdings Or a full breakdown
of their digital wallet. A small number of those Have actually posted a full auditable
Merkle tree, proof of reserves, And some of the most prominent
actually currently include Binance. So on November
11th of July 22, Binance became The first cryptocurrency exchange
to post its provisional proof of reserves. So in the post that Binance provides
a breakdown of the balances Held in cold storage for its six
most popular assets Bitcoin, Ethereum, Tether, Binance USD,
USDC and BNB. In total, Binance holds a more than $69
billion in hot and cold wallets, And it also provided The public wallet addresses
for six of the 600 assets it supports. And in the weeks ahead, Binance plans
to release a full Merkle tree Based proof of reserves for its balances
providing peace of mind to users. Next up, we have Coinbase. So the second largest cryptocurrency spot
exchange by trading volume. Coinbase was one of the first exchanges
to step up the plate and also put Customers minds at ease by clarifying
just how many funds they actually hold. A recent tweet thread by Coinbase
CEO Brian Armstrong details What Coinbase does with user funds. We don't do anything with our customers
funds unless directed to by the customer. The exchange Also maintains an audit of its financials,
which can be checked at any time. And according to a recent report,
the exchange ended Q3 2022 With $5.6 billion in holdings. And next up, we have Kraken.

So the popular US based cryptocurrency
exchange has been providing proof Of reserve audits for its client balances
since February of 2022. So the platform is one of the few Cryptocurrency exchanges
to aggregate all balances Into a Merkle tree and then provide
a solution to allow users to easily check If their account was audited
and included in the snapshot. And unlike other platforms at Kraken,
did not post a full breakdown of Its wallets and their balances,
but instead simply allows users to check That their funds are safe
and accounted for it using a simple tool. Next up, we have Gate.io. So Gate.io has always been transparent
about its reserves, And previously It published a proof of reserves
that were audited by an independent agency Back in May of 2020
and also back in October of 2022. But the exchange went one step further By making its proof of reserves
auditing solution open source on GitHub. So the platform currently
has more than 108% of client Liabilities in Bitcoin
and 104% of the same in Ethereum. Next up, we have Bitfinex. So on November 11th, Bitfinex,
one of the longest running Cryptocurrency exchanges,
posted its proof of reserves. The exchange's main wallets
now hold more than 204,000 bitcoins And 1.2 million ether, making it
among the largest holders for both. And it also announced plans
to revive its open source proof Of solvency and also its custody
solution known as Antani. And next up, we have HUOBI. So despite rumors that the exchange
was insolvent, HUOBI actually became One of the first exchanges to provide a
full Merkle tree proof of reserves audit. And according to its overview
of the digital assets that it holds in Custody, HUOBI actually currently holds
around 32,000 Bitcoin for 274,000 Ether and over 800 million USD stablecoin
and it also recently guaranteed The security of users assets and promised
not to restrict user withdrawals. Next up, we have OKX. So OKX has not yet
provided a full proof of reserves,

But it did provide a list of 23
Bitcoin addresses and 13 Ethereum addresses
actually containing 69,000 bitcoin And $2 billion in ether
and also ERC 20 tokens respectively. So the exchange is instead
hiring an auditor To produce an audited Merkle tree
based proof of reserves instead. And this is also due to be released ASAP. So Crypto.com
the prominent blockchain product ecosystem And cryptocurrency exchange
Crypto.com released its first Transparency report on November
11th of 2022. So though not a complete proof of reserves
audit, the report actually provides A breakdown of almost a dozen wallet
addresses containing around $3 billion In various crypto assets. The exchange actually expects
to provide a full and audited proof Of reserves report by November
25th of 2022. And next up, we have Deribit. A cryptocurrency options exchange
actually became one of the first crypto Derivatives trading platforms
to provide a proof of reserves. And according to the latest update posted
on November 11th of 2022, the exchange Holds 50,600 Bitcoins, 516,000 Ether, and also 476,000
Solana in its wallets. The landscape of exchanges
conforming to the new proof of reserve Standards is changing rapidly. But most popular exchanges
have already pledged To post their proof of reserves soon. And fortunately, you can now easily check
whether your exchange has posted Proof of its financial reserves
directly on its Coinmarketcap page. So exchanges
that have made their reserve status Transparent will have a section
titled Financial Reserves, And this will provide a full breakdown
of its reserves if publicly available. So exchanges that lack
a financial reserve section Either haven't yet made their holdings
publicly available Or do not adhere to the new proof
of reserve standards. At this time.

Coinbase
OUR TAKE

Coinbase is a popular cryptocurrency exchange. It makes it easy to buy, sell, and exchange cryptocurrencies like Bitcoin. Coinbase also has a brokerage service that makes it easy to buy Bitcoin as easily as buying stocks through an online broker. However, Coinbase can be expensive due to the fees it charges and its poor customer service.

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