The Role of Proof of Reserves in Crypto Exchange Transparency

hd49728

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Quote from: Churchillvv on May 05, 2024, 01:35:40 AM

No matter how an exchange tries to prove their trustworthy it doesn't guarantee any safety. The proof of reserve has also been done by those exchanges that went bankrupt but what will happen will still happen.

Because proof of reserves are done as snapshots but it can be changed with time. It's in Read-only mode which means you can not do anything with exchange activities on your fund.

Quote

They claim to get hacked and funds of customers are lost to them. At the end they will only used a percent of the reserved funds to compensate it's customers whom are aggressive whereas the compensation amount is usually very poor to the invested funds.

Exchanges can die, bankrupt, scam exit with many reasons include hacks.

Exchange graveyard
List of hacked exchanges since 2011

Churchillvv

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No matter how an exchange tries to prove their trustworthy it doesn't guarantee any safety. The proof of reserve has also been done by those exchanges that went bankrupt but what will happen will still happen. They claim to get hacked and funds of customers are lost to them. At the end they will only used a percent of the reserved funds to compensate it's customers whom are aggressive whereas the compensation amount is usually very poor to the invested funds.

An independent audit doesn't add any thing to the exchange, it's one of the popular tricks to get Customers on their side. The independent audit is never going to be an independent audit it's only to our view but maybe also part of the crew. What we all know is that their is no convincing fact other than for one to be self custodian of his or her wallet.

hd49728

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Quote from: NeuroticFish on May 04, 2024, 12:49:02 PM

Proof of reserves is a powerful advertising trick, and not much more. The independent audit may or may not exist, or not be independent at all. The funds everybody can see can be easily used to back other parts or loans on behalf of the business and when the things go wrong the users will probably find out that they are the last ones in queue for getting a "breadcrumb" of the same funds as - way too many others....

It is attractive and convincing in advertising trick for transparency of that exchange and how they manage treasury with fund from customers. I agree with you that it is transparent but not enough because we know Bitcoin and cryptocurrency transactions can be done quickly and exchange team can do anything they want with funds in their exchange treasury.

Customers can not do anything to prevent it and they are human, not bots to sleepless watch an exchange treasury and react accordingly with fund in their account. Sleep, wake up and see a black swan event, it is possible future with any centralized exchange and customer fund.

hugeblack

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At some point, Bitcoin may move from being bought and sold on these platforms to banks, and then we can say that your money will be insured according to a certain ceiling, but other than that, the auditor understood it well, and the data was published publicly and updated. It is still possible for you to lose your money because of hackers or for it to be hacked. Selling all the assets they have to avoid liquidity problems.
The best thing that could happen is to create funds to compensate users for any loss, but the compensation will be a percentage of your assets.

Aanuoluwatofunmi

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If you like make research more enough on their proof of reserve and discover that they have enough funds as an exchange to make it keep running operations, that doesn't change anything about them being an exchange or the risk they have on their users, they will always be a bad idea when it comes to recommendation for privacy and hack, these are the two bad actors they are prone to, and they make no difference from the commercial banks.

Coyster

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Quote from: Cryptoababe on May 04, 2024, 12:32:31 PM

Do you think it should be a mandatory requirement for all exchanges to undergo regular third-party audits and provide publicly verifiable proof of their reserves?

I don't care, i do not keep my assets on any centralized exchange and you also shouldn't.

Proof of reserves can be manipulated, and mind you that poof of reserves makes no sense when you don't actually know how much the exchange owes in liabilities and they are not going to give you the information on the amount of customers assets that they hodl. Don't trust any centralized exchange, no matter how they try to prove that your money is safe with them, use your non-custodial wallet and control your assets.

stompix

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Quote from: Cryptoababe on May 04, 2024, 12:32:31 PM

While this happens to some, others like this are thriving and proving they have more than enough funds.

I wouldn't trust a word that comes from somebody who is actively spamming for Bitget here nor would I trust an exchange that fakes user activity with these posts! Seriously quit this bullshit, if you want to run a promotion do it openly like the others!

Quote from: NeuroticFish on May 04, 2024, 12:49:02 PM

The independent audit may or may not exist, or not be independent at all.

Or like in the case of Binance, be one with a reputation that immediately quit when they took a look at their finances and removed every previous statement. All these proof of reserve, insured accounts, reserve funds, SAFU are just cheap marketing tricks.

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I think you should not have your coins on an exchange at all. Whatever proof you get will still mean you're trusting that the auditors are legitimate and that the exchange will still not use the funds for other activities.

You do not need a third party to provide proof that someone else is holding your funds when you can just hold the coins yourself and keep them as safe as you will like them to be.

NeuroticFish

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Quote from: Cryptoababe on May 04, 2024, 12:32:31 PM

This is where "proof of reserves" comes in. An exchange hires an independent auditor to check their wallets and make sure there's enough money to pay back all customers. The auditor provides cryptographic proof, which anyone can publicly verify.

Proof of reserves is a powerful advertising trick, and not much more. The independent audit may or may not exist, or not be independent at all. The funds everybody can see can be easily used to back other parts or loans on behalf of the business and when the things go wrong the users will probably find out that they are the last ones in queue for getting a "breadcrumb" of the same funds as - way too many others....

Oshosondy

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Exchanges can manipulate proof of reserve. Do not leave your coins on exchanges. You private keys your coins. Exchanges like Coinbase that is old and has good reputation but having no proof of reserve is not different from those that have proof of reserve. If my coins are still with any exchanges, I will have concerns that anything terrible can happen to the exchange that can let me lose my money.

Cryptoababe

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Cryptocurrency exchanges hold lots of digital money belonging to customers. However, some exchanges have gone bankrupt or been hacked, causing huge customer losses. While this happens to some, others like this are thriving and proving they have more than enough funds.

How do this happen?
This is where "proof of reserves" comes in. An exchange hires an independent auditor to check their wallets and make sure there's enough money to pay back all customers. The auditor provides cryptographic proof, which anyone can publicly verify.

Importance
Regular audits and proof of reserves build trust by showing the exchange is being honest about having sufficient funds. It makes the exchange more accountable and transparent while it helps make crypto trading safer and more stable overall.
Also, Exchanges providing this proof like the one I stated above are fostering a more secure environment.

Do you think it should be a mandatory requirement for all exchanges to undergo regular third-party audits and provide publicly verifiable proof of their reserves?

Topic: The Role of Proof of Reserves in Crypto Exchange Transparency (Read 127 times)