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The failure of the cryptocurrency exchange FTX made it clear how crucial proof of reserves is for preventing scenarios where customers’ money is misappropriated. Even though exchanges have started disclosing wallet addresses to demonstrate the presence of users’ assets, several business leaders, including Kraken CEO and co-founder Jesse Powell, have called the move “pointless” because exchanges do not account for liabilities.
According to Powell, a proof-of-reserve audit must include the total of client responsibilities, user-verifiable cryptographic proof that each client made up the amount, and signatures proving the custodian’s control over the wallets in order to be considered thorough. Even though Kraken’s proof of reserve makes it possible to compare the company’s assets to its obligations, Powell still criticizes other participants for failing to include clients with negative balances.
Powell previously criticised CoinMarketCap for disclosing a “cryptographic confirmation of client balances as well as wallet management” that was insufficient. He emphasized that reserves are assets with fewer obligations, not a wallet list.
What Jesse Powell had to say
A Merkle tree may be used by users to validate their assets using Binance’s recently introduced proof-of-reserves technology. Powell expressed his disappointment that the system did not take into consideration accounts with negative balances, adding that: The goal of the whole thing is to determine if an exchange seems to have more cryptocurrency in its possession than it pays to customers. A row ID’s hash is useless without the rest of the row ID.
I'm sorry but no. This is not PoR. This is either ignorance or intentional misrepresentation.
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
— Jesse Powell (@jespow) November 25, 2022
Additionally, he urged journalists and the media to avoid “overselling it and deceiving customers.” He advised them to spend time learning the rationale behind the evidence of reserves. Few, though, in the neighbourhood disagreed with Powell’s assertion that a reliable auditor was necessary. In response to the charge, Binance CEO Changpeng “CZ” Zhao rejected it by revealing plans for Binance that call for external auditors to examine the exchange’s proof-of-reserve data.
The community responded favourably to CZ’s reaction to the CEO of Kraken’s worries. Some members, however, criticised CZ for being hypocritical in preventing public comments on the article that invited “questions and checks.” On Nov. 19, CZ announced that it has begun developing a secure central exchange (CEX), a proposal proposed by Vitalik Buterin, the co-founder of Ethereum.
The best-case scenario in this situation would be to create a mechanism that forbids crypto exchanges from withdrawing a depositor’s money without authorization.
What is Binance?
Binance bills itself as the world’s top blockchain ecosystem as well as crypto-asset infrastructure provider, with a financial asset package that includes the world’s largest digital asset exchange in terms of volume. The Binance platform strives to promote users’ financial independence by delivering a diverse portfolio of crypto-asset goods and services such as trading & finance, learning, information, and research, social benefit, investment & incubation, decentralization, and infrastructure solutions.
Like many other crypto exchanges, Binance offers services for trading, indexing, funding, de-listing, and withdrawal of cryptocurrencies. Binance is a cryptocurrency exchange that allows cryptocurrency enthusiasts to raise cash through initial coin offerings (ICOs). Many investors and players use Binance to swap and invest in different cryptocurrencies.
Before users can start trading, they must first complete the necessary KYC requirements. Customers can start trading by putting cryptocurrency assets into the public wallet address supplied by Binance after successfully opening a trading account.
About Kraken
In 2011, Kraken, a trading platform and bank with headquarters in the US was founded. This is a digital platform that aims to serve as the go-to exchange for traders of all levels of crypto understanding. Kraken is among the earliest Bitcoin exchanges, offering over 120 different currencies for purchase, sale, and trading at reasonable exchange rates.
While Kraken was founded in 2011, it formally began operating as a trading platform in 2013. It is run by CEO and co-founder Jesse Powell and is sponsored by Payward Inc. It enables simple money transfers to and from the individual’s linked bank accounts as well as the transfer of cryptocurrency from and to the individual’s digital wallets via trading accounts connected to Kraken.
Kraken CEO Slams Binance
Jesse Powell, CEO as well as Co-Founder of Kraken, questioned the authenticity and veracity of Binance’s latest revelation of its Proof of Reserves in a series of venomous tweets on November 25. Binance published its proof of reserve the day before to increase openness. Powell, on the other hand, did not mince words in his scathing criticism of the “hand-waving nonsense” he sees from Binance, the world’s largest exchange.
Powell went on to say how Proof of Reserves must be issued by exchanges to determine “if an exchange has much more cryptocurrency in its possession than what it owes to clients.” Binance’s absence of liabilities—or accounts with such a negative return, as Powell also points out—only serves to deceive users as well as the crypto community.
The Kraken Co-Founder didn’t stop there, accusing journalists of promoting something they did not comprehend. It ought to be mentioned that the author remarked in a Nov. 22 post on Binance’s public display of Bitcoin reserves that Binance should reveal proof of liabilities.
Since FTX’s demise, the CEOs of large, centrally-controlled cryptocurrency exchanges have indeed been publicly chastised. Binance CEO Changpeng Zhao (CZ) publicly criticized Coinbase’s reserves, prompting CEO Brian Armstrong to respond forcefully. Duelling AMAs were also held by CZ and Crypto.com’s CEO, Kris Marszalek.
A Twitter thread from Binance’s CZ also sparked the latest bank run on FTX.
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