The crypto space is constantly growing and evolving, introducing new things such as Proof of Reserves (PoR). This year has taken a toll on the crypto space as the market has been stuck in a bearish trend most of the time.
Apart from the price fluctuations noted for the digital currencies the crypto space has also seen the shocking and unexpected collapse of FTX, which was one of the biggest exchanges in the world.
Due to this unanticipated event, a lot of people not only lost their funds but many others also started doubting the security offered by the exchanges and their funds.
This is when the Proof of Reserves (PoR) crypto was introduced, which immediately got the attention of a vast audience.
PoR is anticipated to be the best thing that can solidify the exchange-user dynamic and more. However, this is a newly introduced concept and therefore requires the crypto enthusiasts to be familiar with the details first.
Therefore, if you are interested in the crypto space then you need to know the details mentioned below regarding PoR.
What is Meant by Proof of Reserves (PoR)?
Proof of Reserves is like a background check or an independent audit of a crypto exchange. The purpose of this feature is to validate that a crypto exchange has the required assets or has the financial stability that can indicate it is a secure and stable exchange to use.
This independent audit is conducted by a third party auditor to ensure it is financially stable enough to operate. As per the audit, a crypto exchange needs to have a total balance that is either equal to or goes beyond the total amount of what the clients own.
This verification system or process is helpful and crucial as it results in two things:
- The financial status and stability of an exchange is validated.
- The transparency and security of an exchange is also validated.
Basic Working of the PoR
Proof of Reserves is a good way for people to know that the funds they store on an exchange are supported by real assets. This is a good way to strengthen the trust between the users and the crypto exchanges.
This auditing system is basically an advanced cryptographic accounting procedure. PoR uses Merkle Tree, which is the structure used to conduct the audit of an exchange.
The basic idea of this auditing process is to deconstruct the bigger pieces of information or data into smaller pieces, which are significantly easier to process and analyze.
This process is anticipated to improve the transparency of the exchange and also offers some benefits that are discussed below.
Is PoR Useful to the Crypto Space?
Proof of Reserves crypto can benefit the crypto space quite significantly. The recent scenarios playing out in the crypto space are likely to make the implementation of PoR mandatory. However, there is still a lot that needs to be explored about the concept.
PoR is like an additional layer of security, which enhances the transparency and security of the crypto exchange. Therefore, it can benefit the users in determining which of the exchanges is the best one for them to use.
This technique has the potential to become mandatory because it benefits both users and exchanges. If an independent audit is conducted, the reputation of an exchange is verified and it helps the platform in gaining trust of the users. On the other hand, the users can get an idea of the reserves of the crypto exchange.
Another benefit or use of the Proof of Reserves is that it is a useful tool for regulators as well. This self-regulating measure is in accordance with the vision the regulators have for the overall crypto space.
Have Exchanges Started Using PoR?
To put it simply, the Proof of Reserves is such a process that is an all-rounder. This means that it not only satisfies the crypto investors but also works in the interest of crypto exchanges, governments and all other involved parties.
In terms of speaking about the cryptocurrency exchanges, many have already committed to the PoR system. This has given the platforms an opportunity to show how valid they are and get the attention of more and more investors and traders.
Some of the top cryptocurrency exchanges that have committed to PoR include the following:
- Bybit
- Kraken
- Bitfinex
- Coinbase
- Houbi
Final Takeaways!
Crypto enthusiasts should properly explore the crypto space and stay up-to-date with the introduction of new concepts such as Proof of Reserves. Knowing what the crypto space has to offer can make quite the difference as you can be well-prepared for what the crypto space offers and form an investing or trading plan accordingly. As a beginner, you should know the details mentioned above.
