The proof-of-reserve mechanism is being promoted by Chainlink to bring about the transparency that the cryptocurrency sector so urgently needs right now.
This year’s crypto epidemic has persisted, and FTX’s performance this week has made problems worse. Transparency has become more prominent as a result, particularly for centralized crypto exchanges.
Chainlink, a provider of data oracles, has been marketing its proof-of-reserve solutions, which could address the industry’s present transparency problems.
The Chainlink team questioned whether the cryptocurrency sector would continue to make the same mistakes as the established black-box finance sector in a tweet on November 11.
#Crypto is at a crossroads.
Will crypto continue to repeat the mistakes of the traditional black-box financial industry? Or will a better system emerge?
A better system is possible, & Proof of Reserve is one way #Chainlink is providing the transparency that users demand.
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— Chainlink (@chainlink) November 10, 2022
Another name for proof-of-reserve is cash-in-hand, reserve, or treasury backing up tokens or assets. Organizations can use them to confirm that there are adequate reserves that have been independently audited. Customers will have higher faith in the resource or business as a result. Chainlink gave a few instances.
“PoR is also useful for verifying centralized exchange asset reserves, off-chain bank account balances, cross-chain collateral, real-world asset reserves, and much more.”
Its proof-of-reserve tools were initially released in 2020, but after this week’s FTX crash, they have come to light once more.
According to the website, Chainlink PoR obtains and verifies reserve data using the “largest decentralized collection of security-reviewed and Sybil-resistant node operators in the industry”
The PoR contracts can perform a variety of tasks, including planning routine automatic audits. Auditing the reserves of tokens used as collateral can also shield DeFi applications from bankruptcy. Chainlink introduced its SCALE initiative for sustainable access for layer 1 and layer 2 enablement in September.
On November 9, Changpeng Zhao, CEO of Binance, urged all cryptocurrency exchanges to use Merkle-tree proof-of-reserves. Banks rely on small amounts of reserves. Bitcoin exchanges shouldn’t, he continued.
On Nov. 10, BINANCE published the cold wallet addresses and balances for six of its 600 coins, further demonstrating its dedication to openness. It was also stated that a PoR system would be followed by the remainder.
This week, markets fell to a new low for the bear cycle as a result of the FTX “bank run.” However, as the weekend draws near, they have begun to recover a little.
