Binance’s evidence of reserves is useless in the absence of liabilities said Kraken CEO
According to Powell, a comprehensive proof-of-reserve audit must contain the total amount of client liabilities, user-verifiable cryptographic evidence that each account was included in the total, and signatures demonstrating the custodian’s authority over the wallets.
The failure of the cryptocurrency exchange FTX demonstrated the significance of proof of reserves in preventing the theft of customer cash. While exchanges have begun disclosing wallet addresses to show the presence of customers’ assets, a number of entrepreneurs, including Kraken CEO and co-founder Jesse Powell, have deemed the practice “useless” due to the absence of liabilities.
According to Powell, a comprehensive proof-of-reserve audit must contain the total amount of client liabilities, user-verifiable cryptographic evidence that each account was included in the total, and signatures demonstrating the custodian’s authority over the wallets.
While Kraken’s proof of reserve does for verification of the company’s assets versus its obligations, Powell continues to call out competitors who have neglected to include accounts with negative balances.
“I apologize, but no. This does not correspond to PoR. This is either the result of ignorance or deliberate misrepresentation.”
In the past, Powell criticised CoinMarketCap for giving insufficient evidence of reserves, since it lacked “cryptographic evidence of customer balances and wallet management.” He emphasized that reserves are not a list of wallets but the difference between assets and liabilities.
The freshly introduced proof-of-reserves mechanism on Binance enables customers to validate their assets using a Merkle tree.
In addition, he urged the media and journalists not to “oversell it and mislead customers.” Instead, he suggested that people take the time to comprehend the purpose of proof of reserves.
Conversely, few community members contested Powell’s need for a reliable auditor. In response to the claim, Binance CEO Changpeng “CZ” Zhao rejected it by revealing that the exchange’s proof-of-reserve findings would be audited by third-party auditors.
Also Read: IOG And The University Of Edinburgh Have Begun A Study On Blockchain Decentralization
Wallets