According to a recent report, Blockstream, a leading blockchain technology company has recently launched a ‘Proof of Reserves,’ tool to help prove if a crypto exchange truly has liquidity or it is faking it. Using the Proof of Reserves tool, a crypto exchange will be able to prove how many bitcoin they could spend, without needing to generate a ‘live’ transaction or exposing themselves to the risks of moving funds.
The Blockstream Liquid Network
The tool which is an inherent feature of the Blockstream’s Liquid Network, was developed due to “the inadequate and patchwork nature of proof schemes currently available.”
According to a recent post from Blockstream, the team was originally working on a different path before realising that the solution they were built then can be of use outside the Liquid Network.
Excerpt from the blog post reads that:
“We originally set off to build a solution for Liquid functionaries to prove their Liquid bitcoin (L-BTC) reserves to third-party auditors. But as we researched the project, we quickly realised that existing approaches by exchanges for regular Bitcoin reserves had room for improvement and that our software had wider applications outside of the Liquid Network, ”
Few Ways to Confirm Proof of Reserve
Currently, there are few ways to confirm if an entity truly has the number of bitcoins it proclaims to have in its reserve. Majority of these methods are designed in such a way that only professional who might as well have been paid by the entity, can view and interpret the numbers. It is as a result of this that Blockstream has decided to pursue the development of the tool. The development of this tool is going to help significantly, toward providing a more transparent way to go about confirming reserves.
The blog post explained this here:
“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,”