Proof of Reserves
Proof of Reserves is a method used by some custodians to demonstrate that specified customer balances are backed by assets held at a particular point in time.
✦ Key Insight
PoR can improve transparency, but it does not automatically show every liability, operational risk, debt obligation or asset held outside the review scope.
✕ Common Misconceptions
Proof of Reserves is not automatically equivalent to a full financial-statement audit, and methodologies differ.
Detailed Explanation
In Practice
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Exchange
A crypto exchange is a platform that facilitates buying, selling, converting, or trading digital assets.
Cold Storage
Cold storage keeps cryptocurrency private keys offline to reduce exposure to internet-based attacks.
Custodian
A custodian is a person or organization responsible for safeguarding assets or the keys and systems used to control them.
Merkle Tree
A Merkle tree is a hash-based data structure that efficiently commits to and verifies large sets of data.