Users often rely on centralized service providers, such as exchanges and custodians, to hold and store their digital assets. However, retail and enterprise owners of digital assets are not afforded the same levels of trust and transparency regarding the solvency of “bitcoin banks” (digital asset service providers) as they are when dealing with traditional financial institutions. The industry currently lacks the standards necessary to ensure digital asset service providers hold enough digital assets to cover customer deposits. Trust and transparency gaps result in lower rates of adoption, higher counterparty risks and a lack of maturation in the digital assets industry.
Early bitcoin pioneers theorized the use of cryptographic proofs to enable exchanges and custodians to demonstrate to their customers that “their bitcoin is really there.” We have extended those theories, added additional methods and procedures, and brought proof of reserves to reality. By engaging a third-party crypto auditor to perform a proof of reserves review, exchanges and service providers can now offer assurance to users that the exchange has sufficient digital assets in custody to meet users’ liabilities, and also enable users to validate that their account data was included in the review.