Sure everyone can verify how much they have on-chain but it's impossible to verify how much bitcoin users claim and if they are running a fractional reserve or not.
It's all smokes and mirrors to make normies and gambling addicts feel safe.
you put everyone's account balances in a merkle tree. publish the merkle root somewhere public. you can give each user a merkle proof that they can use to verify that they account balances are included in the merkle root that's been published.
TIL. I have to admit that is an ingenious solution and much better than nothing.
Still, it only works if everyone verifies which is unlikely. In the end, it's the same principle as a bank run, everything is fine as long as no one verifies they can withdraw their money at the same time.
The link for this post uses a read-only front-end for Twitter, which can be easier to read for viewing a full Twitter thread. The Tweet that kicked off the thread is:
All crypto exchanges should do merkle-tree proof-of-reserves. Banks run on fractional reserves. Crypto exchanges should not.
@Binance will start to do proof-of-reserves soon. Full transparency.
Only know that Kraken already does this. Any other exchanges?
Consider this to be a google bounty question, lol
ledn - https://ledn.io/proof-of-reserves
What does proof of reserves really prove?
Sure everyone can verify how much they have on-chain but it's impossible to verify how much bitcoin users claim and if they are running a fractional reserve or not.
It's all smokes and mirrors to make normies and gambling addicts feel safe.
you put everyone's account balances in a merkle tree. publish the merkle root somewhere public. you can give each user a merkle proof that they can use to verify that they account balances are included in the merkle root that's been published.
check out kraken's docs: https://www.kraken.com/proof-of-reserves
or this blog post from peter todd for a slightly more general mechanism: https://petertodd.org/2016/commitments-and-single-use-seals
TIL. I have to admit that is an ingenious solution and much better than nothing.
Still, it only works if everyone verifies which is unlikely. In the end, it's the same principle as a bank run, everything is fine as long as no one verifies they can withdraw their money at the same time.
Yes much needed
Update
Exchanges Scramble to Compile 'Proof-of-Reserves' as FTX Contagion Grips Markets*
#91493
https://www.coindesk.com/business/2022/11/09/crypto-exchanges-scramble-to-compile-proof-of-reserves-as-ftx-contagion-grips-markets [Archive]
The link for this post uses a read-only front-end for Twitter, which can be easier to read for viewing a full Twitter thread. The Tweet that kicked off the thread is:
view on twitter.comChairman of Kraken responds:
https://twitter.com/jespow/status/1590062051090919425 [Nitter]