Some Crypto Problems And Exchanges Revealing Their Proof Of Reserve

The founder and former executive of the exchange kraken Jessie Powell in an interview highlighted some issues which he feels that the problem affecting the crypto sector, which he also weighed in on the fact that some exchanges are moving towards revealing their reserves as proof of trust towards their client.

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He continued saying that the proof of reserve is needed to increase transparency but if it can be able to reveal the client balances and it’s wallet control.

“I said I was going to be more assertive with calling out problems. This is one of them.

‘Reserves’ = assets minus liabilities. ‘Reserves’ = list of wallets…

Proof of reserves audit must have:

1. sum of client liabilities (auditor must exclude negative balances)
2. user-verifiable cryptographic proof that each account was included in the sum
3. signatures proving that the custodian has control of the wallets.”

On he’s opinion on the Merkel Tree which the Ethereum co-founder and contributor says it’s ideal for it to be used for client to be able see the amount of crypto they own on an exchange. The Powell says it’s pointless has it won’t be able to reveal the exchange liabilities especially when the exchange is centralized.

“The Merkle Tree is just hand wavey bust without an auditor to make sure you didn’t include accounts with negative balances. The statement of assets is pointless without liabilities.

This is simply, ‘Here’s a hash of your record in the BTC spreadsheet.’ Ok… but what’s the point? The whole point of this is to understand whether an exchange has more crypto in its custody than it owes to clients. Putting a hash on a row ID is worthless without everything else.”

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