bitcoin development company Blockstream has open sourced development of a tool which allows cryptocurrency exchanges to prove their liquidity.
Exchanges Have ‘Room For Improvement’
Dubbed ‘Proof of Reserves,’ the tool originated as a feature geared to Blockstream’s Liquid Network, developers subsequently opting to release it for market participants throughout the ₿itcoin network.
This, it said in an accompanying , was due to the inadequate and patchwork nature of proof schemes currently available.
“We originally set off to build a solution for Liquid functionaries to prove their Liquid ₿itcoin (L-BTC) reserves to third-party auditors. But as we researched the project, we quickly realised that existing approaches by exchanges for regular ₿itcoin reserves had room for improvement, and that our software had wider applications outside of the Liquid Network,” the post reads.
At present, entities needing to demonstrate they have the ₿itcoin reserves they claim to own tend to use bespoke solutions. As each is different, it becomes difficult for outside observers to verify for themselves.
By creating a more user-friendly standard, Blockstream hopes to remove this hurdle to transparency.
“Blockstream’s Proof of Reserves tool iterates upon tried-and-tested methods already used within the industry, rather than attempt to build a brand new, ‘fancy’ solution from scratch,” officials continue.
Put in as simple terms as possible, Proof of Reserves allows an exchange to prove how many ₿itcoin they could spend, without needing to generate a ‘live’ transaction or exposing themselves to the risks of moving funds.
Timely Advocacy
bitcoin security, especially among trusted third parties like custodial exchanges, remains a hot topic in the wake of repeated compromises.
This month, it is Canadian exchange QuadrigaCX which is , with claims it lost access to its wallets – leaving customers $190 million out of pocket – already being disputed by .
Critics have also claimed the exchange never owned the amount of cryptocurrency it said it did following the death of its CEO in December last year.
Prior to that, Bitfinex a strongly-worded denial of accusations it had secretly become insolvent.
What do you think about Proof of Reserves? Let us know in the comments below!
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Published at Tue, 05 Feb 2019 12:00:55 +0000
