Exchanges could do more for user asset security and transparency
In the wake of this year’s market downturn, several crypto companies whose names begin with a V and C, have all but crumbled. While everyone points the finger and throws accusations of mismanagement and Ponzi schemes, the affected crypto users remain in limbo, unable to access their assets.
The V exchange is unsure if users’ crypto can be returned entirely. Even worse, part of a recent proposal includes offering company stock– Yes. Publicly traded company shares. Not crypto– as a reimbursement.
You’d expect major exchanges to have the ability to manage long-term risks in times of volatility and, above all, ensure the accessibility and validity of user assets. After all, they are the lifeline for a vast portion of global crypto investors, with trillions of dollars in crypto traded every year.
Exchanges shouldn’t be a crypto black hole
With all this said, you should care about your cryptocurrency’s status on exchanges. Currently, most exchanges don’t provide users with a method to verify that their crypto assets are held and readily available. Furthermore, when you combine insufficient proof of user asset reserves with poor business risk assessment, it’s another Voyager waiting to happen.
Proof-of-reserves (PoR) is a process where an exchange will provide proof that all of its user’s cryptocurrency is genuinely held by the exchange. For the few exchanges that perform proof-of-reserves, each varies in methodology and validity. Some choose not to offer proof, while others conduct internal self-audits or lack user-verification capabilities. However, one platform stands out as a shining example.
Proof-of-reserves done right
Gate.io, a leading cryptocurrency exchange, is in the process of conducting its second external proof-of-reserves audit. The exchange sets itself apart from others, being the only one to perform PoR that is both user-verifiable and audited by a certified external firm. On gate.io, users can verify their assets by inputting their user IDs into a Merkle tree generated by the leading third-party accounting firm Armanino LLP.
Merkle trees are a core component of blockchain technology that enables transparency and verifiability. In the case of PoR audits, they allow users to verify the existence of their own assets cryptographically. In short, users on Gate.io don’t need to take someone else’s word for it, whether it be the exchange’s or a third party firm’s, because reserves can be verified independently by each user.
Gate.io is one of the largest exchanges by trading volume, with millions of global users that depend on it. With the upcoming PoR audit, its commitment to user asset security is on full display. In addition, Gate.io also shines in its uncompromised nine-year history, flourishing through several crypto winters with no user asset breaches. As many companies have come and gone, whether due to hacks or insolvencies, Gate.io has strived, and it’s likely due in part to putting user asset security at its core.
Exchanges have an immense responsibility
The crypto market can be very volatile, we all know it, and the mere fact that some companies are gambling user assets on high-risk business endeavours is a cause for concern. Exchanges should be held to higher expectations and shouldn’t take on unnecessary risks that put user assets at stake. User asset security should be at the heart of every crypto company’s operations. And in terms of reserves, they should take steps to convey the transparent and verifiable nature of the very technology that defines the industry, not cloud it.