There is little reason to be excited about recent cryptocurrency developments. Binance will not acquire FTX after all – a sensible decision, in fairness – and the market meltdown continues. However, there is a positive in all this, as proof of reserves will become the new norm.
From The Ashes Comes Proof Of Reserves
There is tremendous fallout and uneasiness regarding the FTX debacle. Once a leading exchange, the platform is now at an $8 billion deficit. That won’t be overcome easily, putting many customer assets at risk of liquidation. Moreover, Binance will not bail out the exchange after all, as it isn’t something the team can handle comfortably.
While there seems to be no future for FTX and FTT holders, the debacle has a positive side. Virtually all reputable exchanges will commit to providing proof of reserves. That new term indicates the companies’ commitment to ensuring they have sufficient reserves to honor all customer withdrawals at all times. More importantly, those records will be public to avoid any confusion.
Committing to proof of reserves should have been the norm for years. Ever since Mt. Gox collapsed, KOLs should have learned lessons. Jeeping everything under wraps only benefits some and often leads to financial gaps, mismanagement, and bearish markets. Even FTX, an exchange raising hundreds of millions of dollars, fell victim to its lack of transparency.
For #OKX, transparency, risk management, & consumer protection come first.
We're hiring Armanino for auditing & will publish an auditable Merkle POF asap.
Here are 23 BTC addresses (~69K BTC) & 13 ERC20 addresses (~ $2+ BN) as a 𝗽𝗮𝗿𝘁 of our reserves for users to verify.
— OKX (@okx) November 9, 2022
So far, OKX, KuCoin, Kraken, Bitmex, Gate.io, and other exchanges have committed to proof of reserves. Several platforms already have a similar system in place, known as Proof of Funds. However, OKX and KuCoin will join the list in the coming month or month and a half. OKX has confirmed they will work with Armanino to audit their reserves. Moreover, it publicly listed BTC and ETH addresses representing part of its reserves.
Keep Building A Better Future
The crypto industry has had dozens of setbacks due to centralized infrastructure. Whether it is an exchange, trading platform, wallet, or another service, it is custodial and best avoided. More specifically, users should never keep their funds in such platforms unless for taking action immediately. These are not long-term wallets or storage options, as you don’t control your money.
While proof of reserves is a step forward, more is needed to solve the underlying issue. Centralized infrastructure and companies are always a security risk. Although some argue they are necessary to get more people into crypto, there should be a manageable trade-off. It will be interesting to see what happens in the coming years and whether people will find other – and decentralized ways – of getting the mainstream into crypto on a large scale.
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