Should we care about the Proof of Reserves of the Exchanges?

[Learn Bitcoin]

Today I read about which exchanges provide proof of reserves and which don't. If some of them provide proof of reserves, how do they do it? More importantly, how transparent is that? Some exchanges transfer their funds to somewhere else after the audit ends and take snapshots of their reserves.

Here is the case from Crypto.com

While the practice of PoR is becoming accepted by centralized exchanges with many starting to release PoR audit data, there is still the issue of crypto platforms moving their funds right after the snapshot for the audit was taken.

Crypto.com recently transferred 280,000 Ether To Gate.io address after it released its PoR audit, fueling rumors about crypto exchanges potentially faking their reserve audits. Many in the crypto community claimed exchanges were borrowing assets to show a healthy financial book, only to return them back right after the snapshot.

Crypto.com CEO Kris Marszalek came out to clarify that the $400 million ETH transfer was a mistake and was meant to be sent to another cold wallet, raising even more suspicion.

And, while some exchanges give detailed breakdowns of their reserves during a PoR, other firms simply provide quick responses claiming they are in the black. Nexo has simply come up with a one-page snapshot that says they have more assets than customer deposits of around $3.2 billion.

Even after the audit, you cannot trust an exchange that they won't transfer its funds to somewhere else, just like Crypto.com did.

What is the solution?

Don't trust, Verify!
Only use exchanges that provide proof of reserves with complete transparency. Some exchanges share the wallet address of their reserves, and you can always check those wallets on the blockchain.

Here are the top 10 exchanges and their stats

SL	Exchange Name	Provide PoR?	Reserve Data Link
1	Binance	Yes	https://coinmarketcap.com/exchanges/binance/#reserve
2	Coinbase Exchange	No	No data
3	Kraken	No	No data
5	Kucoin	Yes	https://coinmarketcap.com/exchanges/kucoin/#reserve
5	ByBit	Yes	https://coinmarketcap.com/exchanges/bybit/#reserve
6	OKX	Yes	https://coinmarketcap.com/exchanges/okx/#reserve
7	Bitstamp	No	No data
8	Bitfinex	Yes	https://coinmarketcap.com/exchanges/bitfinex/#reserve
9	Gate.io	Yes	https://coinmarketcap.com/exchanges/gate-io/#reserve
10	Gemini	Yes	https://coinmarketcap.com/exchanges/gemini/#reserve

You can verify those exchanges' Proof of reserves from the internet. You should avoid exchanges that don't provide Proof of reserves or even if they claim that they provide, but it's not transparent.

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[Oshosondy]

But the proof of reserve is not proof of hack or hack proof. People should know that proof of reserve does not means an exchange that provides proof of reserve can not be hacked.

I still wonder that exchanges like Coinbase do not have proof of reserve yet but many people trust the exchange. Kraken and Bitstamp too are not small exchanges and they do not have it yet.

To know the exchanges with proof of reserve, check: https://www.coingecko.com/en/exchanges

[Learn Bitcoin]

But the proof of reserve is not proof of hack or hack proof. People should know that proof of reserve does not means an exchange that provides proof of reserve can not be hacked.

We are not talking about hacking here. No platforms can give that proof that their platform won't be hacked. Still, we use online services. Do you think Bitcointalk cannot be hacked? Bitcointalk was hacked before, and its old database is still available on the black market. Do you see some sold accounts pop up every few days? Those are basically hacked accounts. The situation is you have to choose one worst platform from the ten worst platforms. 

I still wonder that exchanges like Coinbase do not have proof of reserve yet but many people trust the exchange. Kraken and Bitstamp too are not small exchanges and they do not have it yet.

You should avoid using those platforms. Of course, they are doing some shady things behind them. Otherwise, there is no reason to hide the proof of reserves.

[Oshosondy]

We are not talking about hacking here. No platforms can give that proof that their platform won't be hacked. Still, we use online services. Do you think Bitcointalk cannot be hacked? Bitcointalk was hacked before, and its old database is still available on the black market. Do you see some sold accounts pop up every few days? Those are basically hacked accounts. The situation is you have to choose one worst platform from the ten worst platforms.

You are not getting what I am saying, that people should not think proof of reserve can save an exchange from hack, that they should not still leave their coins on an exchange even if the exchange has proof of reserve. If they are traders, they should trade and after the trade, they should move their coins out of the exchange. If they want to invest, they should use a noncustodial wallet instead.

[Learn Bitcoin]

We are not talking about hacking here. No platforms can give that proof that their platform won't be hacked. Still, we use online services. Do you think Bitcointalk cannot be hacked? Bitcointalk was hacked before, and its old database is still available on the black market. Do you see some sold accounts pop up every few days? Those are basically hacked accounts. The situation is you have to choose one worst platform from the ten worst platforms.

You are not getting what I am saying, that people should not think proof of reserve can save an exchange from hack, that they should not still leave their coins on an exchange even if the exchange has proof of reserve. If they are traders, they should trade and after the trade, they should move their coins out of the exchange. If they want to invest, they should use a noncustodial wallet instead.

Yeah, sorry for the misunderstanding. You are right, indeed. No matter how trusted an exchange can be. No one should use an exchange account to hold their funds in it. Either use a hardware wallet or software wallet like Electrum. I guess you will agree with me regarding choosing the exchange platform. I do not suggest anyone use exchange unless it's necessary to use. But, if someone wants to use an exchange, they should avoid exchanges that do not give their proof of reserves. The purpose of this thread is to let forum people know which exchanges don't provide proof of reserves. Also, it's possible to verify the proof of reserves these days.

[malcovi2]

CEO had a shady past
https://www.thedailybeast.com/cryptocom-ceo-kris-marszalek-had-messy-past-before-staples-center-renaming

After getting caught of moving the funds and still has the audacity to lie that it was just a big mistake, I wouldn't trust this crypto exchange. I guess he has still the same person he was in the past scummy person that won't do honest work.

I kinda remember back when it was still known as Monaco that people didn't receive their Visa cards and it went downhill from there on and I think that even the rebranding was a fail hodlers receive lesser value exchange for their tokens.

--
After all the fiasco Proof of Reserves mean nothing, crypto exchangers need regulations rather than posting a wallet address.

[hugeblack]

It depends on the regulatory body that monitors that platform. If the platform obtained a license in a country and that country is good at monitoring assets, then the level of transparency will be higher than another country that does not have a license, and so on. It all depends on the regulatory regulations more than what those platforms announce.


Therefore, Proof of Reserves is good for platforms that have obtained licenses from a country with legislative laws related to crypto, otherwise you, as a regular user, will not be able to verify the accuracy of this information.

[noorman0]

Audits should be carried out regularly to prevent transfers of exchange funds that are not part of the agreement procedure, unless the audit itself is only a formality due to the demands of users and authorities but in practice it is not carried out strictly.

However, as long as we cannot measure exchange-class playing patterns, proof of reserves is not at all a conclusive claim to make us blindly believe in saving money.

[Learn Bitcoin]

Therefore, Proof of Reserves is good for platforms that have obtained licenses from a country with legislative laws related to crypto, otherwise you, as a regular user, will not be able to verify the accuracy of this information.

If exchanges reveal their reserves wallet data, there is nothing that can be more transparent than this. We don't have to believe auditors as well. Some exchanges already shared their wallet address, and you can verify it from blockchain data. For example, Check Kucoin reserves data from coinmarketcap. https://coinmarketcap.com/exchanges/kucoin/ Visit this link and scroll down to the financial reserves section to check their reserves. The wallet address, chain and balance info are already shared on Coinmarketcap. I am pretty sure most of the people didn't know about this.

Edit: OP updated with the reserve data link

[Potato Chips]

Next to nothing, proof of reserves is surely better but as a whole, I wouldn't hold any significance on it.

One big reason is there is no proof of liabilities so we don't know if these "reserves" would be able to cover everything they owe from their users.

[Darker45]

I still wonder that exchanges like Coinbase do not have proof of reserve yet but many people trust the exchange. Kraken and Bitstamp too are not small exchanges and they do not have it yet.

Probably because proof of reserve isn't the primary consideration when users choose which centralized exchange to trust. And rightly in a way, because these proofs, popularized by Binance if I'm not mistaken, don't really prove much. Kraken, for example, didn't submit theirs because they see no point in this financial reserves thing shown in Coinmarketcap.

If I were an exchange and I provide an address that has $1 billion in Bitcoin in it, what does it actually say? It can be verified by anybody, yes, so what? Does everybody know as well that my liabilities actually total $2 billion? But supposing I'm also providing a breakdown of my liabilities and it totals $800 million, would that be enough? Still not. How would you know that I included all the deposits? Even supposing I included everything, how can you be sure that such an amount is really owned by me, or that it's not offered as a collateral or something like that, or, in short, that it isn't encumbered in one way or another?

All I'm saying is that this proof of reserve thing is not really the "Don't trust, Verify!" kind of thing.

[Yamane_Keto]

For example, Check Kucoin reserves data from coinmarketcap. https://coinmarketcap.com/exchanges/kucoin/ Visit this link and scroll down to the financial reserves section to check their reserves. The wallet address, chain and balance info are already shared on Coinmarketcap. I am pretty sure most of the people didn't know about this.

Proof of Reserves is an indication of the expected growth of this platform compared to the deposits and accounts created. If the platform was sharing its reserves and 60% or more of these reserves were in the form of stablecoin/exchnage tokens/bitcoin, this might be a sign that if a problem occurred with those currencies, it is an early warning to stop using the platform.

This is a simple practical application for my speech

Exchange Name: MEXC assets link https://defillama.com/cex/mexc

Total Assets is $1.06b and Assets by chain is Ethereum $895.83m Bitcoin $73.68m

• If the price of Ethereum changes sharply, this platform may not be able to fulfill customer withdrawal requests in exchange for changes in the price of Bitcoin.
• If this platform keeps more than 50% of its deposits in the form of BSC, which is currently equal to $33.1m, then if BSC halt that means the liquidity of this platform is exposed.
• Deposit growth is another indicator.

[corel]

Tell me please which exchanges are the most reliable? So that they have full disclosure of ownership information. And so that exchange employees do not launder funds

[Yamane_Keto]

Tell me please which exchanges are the most reliable? So that they have full disclosure of ownership information. And so that exchange employees do not launder funds

What is your country and payment method you would use. Coinbase Exchange may be better if you want to transfer medium amounts and want good fees, and OKX or Binance if Coinbase is not available in your country. P2P DEX if you want to avoid KYC.

[CRAIC]

Tell me please which exchanges are the most reliable? So that they have full disclosure of ownership information. And so that exchange employees do not launder funds

I recommend exchanges with BitLicense:
itBit, Gemini, CoinBase, bitFlyer, RobinHood, Bitstamp, Sofi

[Z-tight]

Tell me please which exchanges are the most reliable? So that they have full disclosure of ownership information. And so that exchange employees do not launder funds

It depends on what you explicitly mean by reliable, if you meant reliable in storing your funds, then there is no centralized exchange that is reliable for that, you should use a self custodial wallet like Electrum to store your funds. Centralized exchanges engage in fractional reserve scam and so many of them are into shady businesses even if they try so hard to cover it. Do not also believe in their proof of reserves, because you cannot know if an exchange is solvent when you don't know exactly what their liabilities sum up to, and they can easily manipulate all of this, so to believe anything they say, you have to 'trust' the exchange, which is something that isn't recommended to do.

For 'reliable' p2p exchanges look here: https://kycnot.me/?type=exchange

[joniboini]

Tell me please which exchanges are the most reliable? So that they have full disclosure of ownership information. And so that exchange employees do not launder funds

Is this still related to the topic or are you looking for a good exchange in general? As far as I can tell proof of reserve doesn't include any ownership information, at least not in detail. You can start a new topic if you want to discuss who owns what exchange or which exchange is related to another exchange/business.

You're probably better off looking at the registration information, although it doesn't guarantee that they will publish their company structure in detail. Even if they did, there is still no way to make sure nobody is playing a money laundering game. Most of them is probably done behind the scene and no exchange would publicly tell you that.