Cryptocurrency

FTX Implosion Ushers in New Proof of Reserve Systems

With CoinMarketCap being among the latest to implement these tools on its site.

Cryptocurrency

FTX Implosion Ushers in New Proof of Reserve Systems

With CoinMarketCap being among the latest to implement these tools on its site.

While the collapse of FTX and its continued contagion have been extremely harmful to the crypto industry, there have been a few silver linings that have begun to emerge as a result.

One of these is an increased call for transparency among major Centralized Exchanges (CEXs), particularly in the area of their crypto reserves. This has ushered in the demand for what’s being called Proof of Reserve (PoR).

The latest to integrate a PoR system on its platform is the crypto price tracking site CoinMarketCap (CMC).

Proof of Reserve

CMC’s PoR system utilizes verifiable auditing that is updated every five minutes, allowing users to view an exchange’s total assets, public wallet address ownership, and the balance, price, and value of said wallets.

While it is a step in the right direction, CMC admitted that the first release of PoR did inaccurately reflect data in the case of Binance wallets but that it was able to clear up the situation within 20 minutes through direct communication with the exchange.

Proof of Excel

After reading what is now said to be incomplete reporting on Coinbase reserves, the CEO of Binance, Changpeng Zhao (CZ) put out a since-deleted tweet questioning the exchange’s Bitcoin holdings.

Coinbase CEO Brian Armstrong was quick to issue tweets of his own, stating that users should be wary of misinformation and FUD. In the same tweet, he included screenshots of spreadsheet data from the company’s publicly available Q3 shareholders letter.

However, these screenshots and the letter itself contain no links to verifiable cryptographic proof of reserves — which essentially means the public would need to take Armstrong and Coinbase’s word for it, something FTX has shown us is not enough.

Later in the day, CZ shared that he had spoken with Armstrong and said that he’d like to work together to improve transparency in the industry.

Work in Progress

Also sharing his thoughts and critiques on PoR was Kraken Founder Jesse Powell.

Powell shared that “Reserves” should be defined as assets minus liabilities, not just a list of wallets, and that there needs to be cryptographic proof of client balances and wallet control.

He went on to share that PoR audits must contain the sum of client liabilities, user-verifiable cryptographic proof that each account was included in the sum, and signatures proving that the custodian has control of the wallets.


As CZ shared in another quote, setbacks do happen and this is a major one for the crypto industry. However, this collapse may help to build the industry into something much stronger and more secure than ever before.

As systems like PoR continue to be developed and are eventually backed by verifiable cryptographic information, the need for blind trust will soon be eradicated from even the most centralized exchanges.

In other news, see how the increased call for regulation due to FTX could also be a silver lining.

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