Proof of Exchange Reserves

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Era of standardisation begins

As a technology matures and becomes more widely used, some form of standardisation is inevitable. There are two kinds of standards: Quality standards, such as verified exchange reserves, and interoperability standards. The Bitcoin exchange community has learned from the MtGox fiasco. Quality standards are vital if a technology is to expand beyond the glue-sniffers. General punters need to feel safe before adopting a new technology. However, there still remain the twin problems of speculation and panic creating volatility and potential losses where the benefits of standards cannot reach.

The questions still remains: Is Bitcoin primarily a means of speculation, or a medium of exchange? Until that question is answered, it is Bitcoin is unlikely to gain mass acceptance.

Citation:

OKCoin, along with many other industry-leading Bitcoin exchanges around the world, all now believe �that providing Proof of Reserves is a new industry standard following the ongoing Mt Gox disaster. Previous audits by Stefan Thomas revealed ~100.5% Bitcoin reserves at Kraken and 102.82% Bitcoin reserves.

The process of establishing a Bitcoin Exchange’s proof of reserves�requires two steps to verify two separate claims. �The first claim that must be verified is that (1) the Bitcoin exchange�controls a certain amount of Bitcoin. �To verify this claim, the Bitcoin exchange�provides a JSON file with a list of all their Bitcoin addresses and balances, which is then compared to the blockchain. �The comparison is made using the ‘cryptoshi audit’ command in libcoin.

The second claim that must be verified is�that (2) the amount from claim 1 is greater than the amount contained in all of the Bitcoin exchange’s�user balances. �To prove this, the Bitcoin exchange�provides a JSON file containing a set of anonymized user balances.

http://www.cryptocoinsnews.com/news/okcoin-passes-bitcoin-proof-of-reserves-audit/2014/08/22