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 custodian’s
control over the wallets.
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 custodian’s
control over the wallets. While Kraken’s proof-of-reserve does allow
verification of assets against the company’s 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.
— Jesse Powell (@jespow) November 25, 2022
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
Powell called out CoinMarketCap in the past for sharing an 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.
Binance’s 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 Powell’s need for a trusted auditor.
Related: Crypto exchange Kraken freezes accounts related to FTX and Alameda
On Nov. 19, Binance CEO Changpeng Zhao confirmed to have started working on building a safe centralized exchange (CEX), 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 depositor’s funds without
consent.
source link : https://cointelegraph.com/news/binance-proof-of-reserves-is-pointless-without-liabilities-kraken-ceo
