Blockstream Proof-of-Reserves Tool for Authenticating Exchanges’ Liquidity

Blockstream Proof-of-Reserves Tool for Authenticating Exchanges’ Liquidity

Blockchain tech company Blockstream introduces an open-source tool, granting cryptocurrency exchanges a more efficient way to prove to auditors they have adequate liquidity

Called ‘Proof-of-Reserves’, the Blockstream tool lets exchanges demonstrate the number of bitcoins they can afford to spend, minus the need to prompt a ‘live’ transaction or go through the risks associated with the shifting of funds. It aims to improve transparency by creating proof of reserves for auditor verification, as stated on the company’s blog post.

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.

Blockstream, Standardizing Bitcoin Proof of Reserves

Incipiently, the tool was tailored to outfit Blockstream’s own Liquid Network. But as developers continued to research the project, they found that current methods ‘for Bitcoin reserves’ used by various exchanges ‘had room for improvement.’ Furthermore, the software can potentially be applied on a broader scope, far and wide the bitcoin network, beyond Liquid.

Doubts on the Liquidity of Exchange Platforms Streaming the Crypto Sector

The most recent exchange questioned about its liquidity is QuadrigaCX. The Canadian exchange applied for creditor protection due to losing access to its digital wallet. Some critics challenge this, alleging QuadrigaCX does not have the funds which they claim are inaccessible.

On November 2018, crypto exchange platform Bitfinex also encountered doubts on its liquidity.

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