Binance proof of reserves is pointless without liabilities: Kraken CEO
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According to Powell, a complete proof-of-reserve audit must include the sum of client liabilities, user-verifiable cryptographic proof that each account was included in the sum and signatures proving the custodians control over the wallets. 10847 Total views 123 Total shares Listen to article 0:00 News Disclaimer: The article has been updated to reflect Binance CEO CZ’s response to the concerns raised byKraken CEOJesse Powell.
The collapse of the crypto exchange FTX revealed the importance of proof of reserves in avoiding situations involving the misappropriation of users funds. While exchanges have proactively started sharing wallet addresses to prove the existence of users funds, several entrepreneurs, including Kraken CEO and co-founder Jesse Powell, called the practice pointless as exchanges fail to include liabilities.
According to Powell, a complete proof-of-reserve audit must include the sum of client liabilities, user-verifiable cryptographic proof that each account was included in the sum and signatures proving the custodians control over the wallets. While Krakens proof of reserve does allow verification of assets against the companys liabilities, Powell continues to call out other players that have missed out on including accounts with negative balances.
I’m sorry but no. This is not PoR. This is either ignorance or intentional misrepresentation.
The merkle tree is just hand wavey bullshit without an auditor to make sure you didn’t include accounts with negative balances. The statement of assets is pointless without liabilities. https://t.co/b5KSr2XKLB Jesse Powell (@jespow) November 25, 2022
Powell called out CoinMarketCap in the past for sharing incomplete proof of reserves, as it lacked cryptographic proof of client balances and wallet control. He reiterated that reserves are not the list of wallets but assets minus liabilities.
Binances recently released proof-of-reserves system allows users to verify their assets using a Merkle tree. However, Powell shared his displeasure as the system failed to include accounts with negative balances, stating that:The whole point of this is to understand whether an exchange has more crypto in its custody than it owes to clients. Putting a hash on a row ID is worthless without everything else.
Moreover, he asked the media and journalists to refrain from overselling it and misleading consumers. Instead, he recommended they take the time to understand the motive behind proof of reserves.
On the other hand, few community members refuted Powells need for a trusted auditor. Following up on the accusation,Binance CEO Changpeng CZ Zhaorefuted by sharing Binances upcoming plans that involve third-party auditors to audit the exchange’s proof-of-reserve results.
The response from CZ to the concerns raised by Kraken CEO received positive support from the community. However, some members pointed out the hypocrisy that CZ disabled public commentary on the post that welcomed questions and checks.
Related: Crypto exchange Kraken freezes accounts related to FTX and Alameda
On Nov. 19, CZ confirmed to have started working on building a safe centralized exchange (CEX), an idea put forth by Ethereum co-founder Vitalik Buterin.
In this instance, the best-case scenario would be building a system that does not allow crypto exchanges to withdraw a depositors funds without consent. #Blockchain #Kraken #Business #Changpeng Zhao #Jesse Powell #Binance Related News What is impermanent loss and how to avoid it? Sustainability: What do DAOs need to succeed in the long run? Binance Proof-of-Reserve pledge gains support following FTX crisis CZ and Saylor urge for crypto self-custody amid increasing uncertainty Binance CEO urges crypto buyers to hold amid unpredictableness
