Proof of Reserves (PoR)
Proof of Reserves, often called PoR, is a way for a crypto service to show what crypto it holds. It provides a snapshot of the reserves the service manages.
What is Proof of Reserves?
PoR is mainly intended for a crypto exchange or another service that holds crypto for customers. Customers usually can’t see for themselves what happens to their funds.
A service can make wallet addresses public. A wallet address is a visible address associated with crypto. The balances can be checked on the blockchain. The service can also prove that it controls those wallets.
Some reviews compare not only the reserves, but also the customer funds the service owes. This provides more information. The results still depend on exactly which data was included.
An example of Proof of Reserves
Suppose a crypto exchange owes customers a total of 100 bitcoin. The exchange shows that it controls wallets containing 105 bitcoin.
This suggests that, at the time of the measurement, there was enough bitcoin to cover the customer funds included in the review. However, it doesn’t prove that all liabilities were included or that the bitcoin is freely available.
Why is Proof of Reserves important in crypto?
PoR comes up in crypto news about transparency at crypto exchanges, the custody of customers’ crypto, and possible shortfalls. It can give customers extra information beyond what a crypto company says about itself.
Pay close attention to what a report actually checks. PoR isn’t a fixed, standardized review. The method, the crypto examined, the customer funds included, and the time of the measurement can vary from one report to another.
PoR isn’t complete proof that a company is financially healthy. It also isn’t a guarantee against hacks, poor management, or withdrawal problems. Reserves may have been borrowed temporarily, and a snapshot says nothing about what was available before or after it was taken.
