Dear Steemit Community
The authenticity of the digital money industry has been addressed because of the deficiency of billions of dollars and the breakdown of one of the biggest digital money trades on the planet, FTX.
It is guessed that crypto trades and other specialist organizations will increment public certainty by distributing evidence of stores.
Digital money trades and other specialist organizations are advancing the standard distribution of proof of stores as one methodology for expanding public trust and expanding transparency.It is guessed that this will show that these trades really have the crypto resources that they guarantee freely.
Insisting that a cryptographic cash exchange or wallet has the stores it claims is possible by using the affirmation of-saves technique.This is huge in light of the fact that it safeguards client reserves and forestalls fraud.There are at least a couple ways of showing holds, yet the most well-known is for a trade or wallet to give a cryptographic statement that the cash it says it has exists.This confirmation can be checked by anybody to ensure the trade or wallet isn't simply making up numbers.
The arrangement isn't so simple.An trade could hypothetically have the option to get cash as their own verification of stores, however at last, it would require its own stores to survive.Blockchain examination will ultimately uncover reality, however adulterating confirmation of reserves is conceivable.
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Proof of reserve is very important when, especially the centralized exchanges. I would be glad to see any movement that pushes these central CEXs to publicly display their POR.
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Hi @adityajainxds
I understand that FTX collapse made many people wonder how to avoid similar situation in the future. And to tell you the truth - I'm not sure if it is even possible to ensure that similar situations will not repeat.
Let's start with first problem I see: the fact that reserves are not only hold in USD, but often in other major tokens (BTC, ETH and maybe other ones). And since price of those tokens is changing, then value of reserves would also change.
So we could witness situation in which reserves can show one number today and will show very different number if some crash in crypto space would take place.
How to address this problem?
Other issue, even more important: I don't see a way to avoid 'bank-runs' without intervention of 3rd parties like Central Bank. There is never enough liquidity to cover needs of all depositors. And even in traditional banking system we would witness bank collapse if panic withdrawals would start. If that happens, then banks may always help each other (repo market) or may receive help from Central Bank. Which simily "prints" more money out of thin air.
In world of crypto we do not have any entity, which would print Bitcoin whenever it is necessary to 'bail out' collapsing businesses. And that is a MAJOR difference. Wouldn't you agree?
Of course some transparency and regulations are necessary, but I still don't know how could any exchange may protect themselfs from 'bank runs'. I don't think that even Binance has enough liquidity to survive such a scenario. If some day huge panic wave of withdrawal would take place, then even Binance could suffer greatly. And because of lack of entity similar to Central Banks, there would simply be noone to help if such a scenario would take place.
So, I'm not sure if "proof of reserve" would be THE ANSWER FOR CRYPTO we're looking for ....
Cheers, Piotr
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