Bitcoin Magazine: Crypto Exchanges Need Reserves

According to a release that was sent to Bitcoin Magazine, the Bitcoin Policy Institute (BPI), which is a non-profit organization whose mission is to encourage governments to adopt bitcoin, has published a new report in which it discusses proof-of-reserves (PoR) in the bitcoin and cryptocur


The repercussions of FTX filing for bankruptcy are discussed in "Proof of Reserves: a Report on Mitigating Crypto Custody Risk." This chain reaction has resulted in multiple exchanges making commitments to provide some form of proof of reserve (PoR). PoR is a practice in which businesses give customers an open and honest view of the assets they currently possess in order to protect customers from going bankrupt.

According to the BPI report, the implementation of PoR will improve user trust in their custodial relationships, reduce the likelihood of systemic default contagion, and provide information on counterparty risk.

According to the findings of the report, "now is the time for market participants to identify private, voluntary solutions to improve transparency and instantiate related best practices."

BPI continues to explain that recent systemic failures in the industry have drawn the attention of lawmakers, as was seen with the fall of FTX when the CFTC and SEC both announced that they were investigating the company. BPI cites this instance as evidence that lawmakers are paying attention to recent systemic failures in the industry.

In light of the fact that a lack of transparency was a primary factor in the failure of numerous businesses over the course of the course of the previous year, the BPI is of the opinion that the only reasonable way to move forward is for the industry to adopt a PoR-based approach that will provide security to customers.

Sam Abassi, CEO of Hoseki, the first company to offer proof-of-assets services to bitcoin institutions, recently provided an explanation as to why this step is essential for the continued expansion of the industry.

According to Abbassi, "We are overjoyed at the continued industry-wide education that is being conducted by organizations like the BPI to further transparency related measures, such as Proof of Reserves." This work is absolutely necessary in order to establish a digital asset industry that is not just healthier but also safer, more self-regulated, and more robust.

As of November 9, it has been reported that eight other exchanges have followed in Binance's footsteps by announcing their intentions towards increased transparency within the ecosystem. David Zell, who was one of the co-founders of BPI, offered his thoughts on the dynamic shift taking place in the sector.

Zell stated that the only way to hold digital assets without the risk of counterparty risk is to take custody of them yourself, and the bankruptcy of FTX should serve as a reminder to all of us of this fact. But when clients deposit their assets with a third party, businesses have a responsibility to be as open and honest as possible about the status of those monies. Solutions such as proof of reserves have the potential to play a significant role in achieving this goal.

Ojike Stella

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