What is Proof of Reserves?. Proof of Reserves is a method for custodians to attest cryptographically that client assets are fully backed by on‑chain or audited reserves.
How it works
Auditors or protocols compare liabilities (hashed account balances) to verifiable reserves and publish evidence.
Why it matters
Transparent reserves build trust and reduce counterparty risk.
Common pitfalls
- Accepting claims without independent verification
- Ignoring liabilities and only checking assets
- Assuming real‑time coverage when attestations are periodic
Quick example
An exchange publishes a Merkle‑tree proof so customers can verify inclusion of their balances.
See also
- Audit
- Custody
- Regulation
TL;DR: What is Proof of Reserves? defined in plain English with practical next steps.
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