Proof of Reserves is an auditing method demonstrating that a custodian holds the digital assets it claims on behalf of its users. This process typically involves cryptographic verification to confirm that a company’s publicly stated asset holdings match its actual on-chain balances. It often combines a Merkle tree audit for user liabilities with direct verification of wallet addresses. The objective is to provide transparency and reassure users about the solvency of centralized platforms.
Context
Following recent industry events, Proof of Reserves has gained significant traction, with many centralized exchanges now publishing regular audits. News reports frequently scrutinize the methodology and comprehensiveness of these attestations, as not all implementations provide full transparency. The debate continues regarding the effectiveness of current Proof of Reserves methods in fully mitigating custodial risks.
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