Proof of Reserves (PoR)

Proof of Reserves (PoR) is a transparency system that cryptocurrency exchanges use to openly verify that they maintain enough funds to offset all customer balances. It cryptographically ensures that an exchange’s reserves are equal to or greater than the total balance owed to its users. PoR was created to establish trust, accountability, and financial security in crypto.

In a way, PoR allows us to ascertain that an exchange isn't too over-leveraged or engaging in some form of fractional reserve, where they are promising users more assets than they currently have. This way, users can verify their funds are safe and the exchange is not operating in an insolvent state.

Benefits of Proof of Reserves

1. Increased transparency: PoR provides users with clear evidence that their funds are fully backed, fostering trust between the exchange and its customers.
2. Fraud prevention: PoR mitigates the risk of exchanges behaving in a fraudulent or risky manner (e.g., lending out customer deposits without customer consent).
3. Regulatory compliance: In places with increasing regulation, PoR can be a preventative measure to satisfy transparency standards and head off regulatory confrontation.
4. Reputation management: Since high-profile exchange blow-ups – such as FTX – introducing PoR has been a way for exchanges to differentiate themselves and maintain good faith with users.

 

Crypto Exchanges Supporting Proof of Reserves (PoR)

• Kucoin (Popular exchange, operating since 2017. In our opinion, Kucoin is the crypto exchange with the most user-friendly interface we have ever seen.).

• Bitmart (Founded in 2017, BitMart has grown to become a prominent global cryptocurrency exchange, offering services to more than 9 million users across over 180 countries.).

Proof of Reserves (PoR) is an important step towards trust and transparency in this unpredictable world of digital currencies we've found ourselves in. PoR comes in response to the request of users who want more transparency regarding the solvency and safety of their funds. Although not without challenges, such as incomplete liabilities disclosure, PoR has effectively become a lifeline for exchanges striving to maintain credibility and appeal to users.