Crypto Exchanges Need Proof of Reserves – Bitcoin Magazine
The Bitcoin Policy Institute (BPI), a non-profit dedicated to promoting government Bitcoin adoption, has released a new report discussing proof-of-reserves (PoR) in the bitcoin and cryptocurrency ecosystem following the FTX collapse, according to to a release sent to Bitcoin Magasin.
“Proof of Reserves: a Report on Mitigating Crypto Custody Risk” discusses the fallout from FTX’s bankruptcy. This pervasive event has led to several exchanges pledging to provide a form of PoR, where companies provide a transparent view of available assets as a way to provide consumer protection against insolvency.
BPI’s report argues that the adoption of the PoR will provide information on counterparty risk, reduce the chance of systemic default contagion and improve users’ confidence in their custody relationship.
“Now is the time for market participants to identify private, voluntary solutions to improve transparency and instantiate related best practices,” the report said.
BPI goes on to explain that recent system failures in the industry have attracted the eyes of lawmakers, which was seen with the fall of FTX when the CFTC and SEC both announced they were investigating the company.
Therefore, as lack of transparency led to the downfall of many companies over the past year, BPI believes that the only logical way forward is for the industry to adopt a PoR-based approach that will provide certainty to consumers.
Sam Abassi, CEO of Hoseki, the first proof-of-assets service provider for bitcoin institutions, explained why this step is necessary for the industry to continue to grow.
“We are ecstatic about the continued industry-wide education being conducted by organizations like BPI to further develop transparency-related initiatives such as Proof of Reserves,” Abbassi said. “This work is critical to creating a healthier, safer, self-regulated and more resilient digital asset industry.”
As of November 9, eight exchanges have reportedly followed Binance in announcing their intentions towards increased transparency in the ecosystem. David Zell, co-founder of BPI, also commented on the dynamic shift in the industry.
“FTX’s bankruptcy should remind us all that the only way to hold digital assets without counterparty risk is to hold them ourselves,” Zell said. “However, when customers deposit their assets with a third party, firms need to be as transparent as possible about the state of these funds. Solutions such as proof of reserves can play an important role against this.”
