Will These 5 Exchanges’ Proof-of-Reserves Meet the Call for Transparency?
Many bitcoin exchanges have recently been rumored to be under-capitalized. Thus, could go bankrupt at any point, taking their users’ bitcoins with them. Even worse, many of these companies are potentially insolvent without the knowledge of their customers. Although it has been speculated that transparency about each exchange’s current level of bitcoins in reserve would help alleviate these fears. Up until now none of the major bitcoin exchanges have released such information to their customers or to the public.
However, five major bitcoin exchanges have announced they will soon start publishing proof-of-reserve audits on a regular basis. This could start as early as next week! Lookingto know more information about Bitcoin? Understand the Bitcoin smart contracts and why they matter.
What is a proof-of-reserve?
A proof-of-reserve is a way to prove that you have some coins and that they are in your possession. A lot of people do not even know what a proof-of-reserve is. But, it is an important concept in the cryptocurrency world. The most popular kind of proof of reserve is called a cold storage transaction. This is when you store money offline then you prove that it has been stored in your wallet. As there will be a record of where those funds are being stored on the blockchain. There are many different ways to prove reserves. They all have their advantages and disadvantages depending on how much privacy you want to keep between yourself and others.
Why is there a call for transparency?
The recent Proof of Reserves Checklist published by Blockchain Transparency Institute led to a new debate on whether all of the information should be made public. There are many more questions than answers. But, what is clear is that there are still gaps in our understanding of how exchanges operate.
The demand for greater transparency at cryptocurrency exchanges is not new and has been one of the most hotly debated topics since Mt. Gox collapsed in 2014. In response to this, some big players have stepped up to take responsibility and disclose their internal workings, while others have taken a wait-and-see approach, maintaining that they should only release information if regulators start demanding it from them.
What are the 5 exchanges?
The five exchanges are Binance, Coinbase, Kraken, Bitfinex and Shapeshift. These five have varying levels of proof-of-reserve requirements and regulations. Binance is currently the most transparent cryptocurrency exchange with a 0% reserve requirement. In contrast, Bitfinex has a 100% reserve requirement but they also offer an onsite audit that can be requested at any time by a customer or outside party. Coinbase, Kraken and Shapeshift do not provide any information about their reserves in their current policies.
What do the 5 exchanges offer?
- Mcxnow, an exchange that offers a number of different cryptocurrency pairs and has been in business since 2013. It is one of the more established providers. The company provides a user-friendly interface, a high level of liquidity, and low fees. It also publishes on its website all balances and transactions that are done on its platform.
- Another less established provider is Coingather. This offers some 100 cryptocurrencies to buy or sell on its platform. Including Litecoin (LTC), Ethereum (ETH) and Ripple (XRP). Coingather’s customer support team is available 24/7 to answer any inquiries users may have about how to use their platform.
What do experts say about the 5 exchanges?
Although there is still a lot of debate over whether it’s necessary to release proof of reserves, some experts do believe that it will help bring more transparency. The real issue is that we need to know who owns a particular coin and what their intentions are, said Emin Gün Sirer, associate professor at Cornell University. It’s very hard to know this sort of thing today.
Some analysts also feel that an exchange releasing information about its holdings could be a sign of good faith. If you’re interested in investing in something, you want to know if they have skin in the game, said Vlad Zamfir, lead researcher at Ethereum Foundation.
Conclusion
Each of the five exchanges that have so far announced their intentions to release a proof-of-reserve will most likely be releasing information in a different format. However, all five seem to be taking different approaches that are not necessarily transparent.
For example, Bitfinex has said they will release an annual audit and a daily verification of its cold storage. However, it is unclear how much information will be released on other aspects. For example, its margin trading or fiat deposits and withdrawals. The same goes for Bitstamp’s proof of solvency. This does not mention any specific metrics or details about what evidence it will show. Gemini, on the other hand, may provide more information in regard to margin trading. It also does not mention fiat deposits or withdrawals.
