Proof of Reserves
Proof of reserves in crypto refers to the process of proving that a cryptocurrency exchange has the funds it claims to have on hand to back the assets that it holds. This is typically done by publishing a cryptographic proof on the blockchain, which can be independently verified by anyone.
The proof of reserves process involves creating a cryptographic commitment to the funds held by the exchange or institution, and then publishing the commitment on the blockchain. This commitment can then be verified by anyone by checking that the funds are indeed locked in the specified address.
Proof of reserves is important to ensure that an exchange or institution is financially solvent and that customer funds are safe, and it also helps to prevent fraud.