Crypto

Exchange Bitso criticizes rivals and promises to disclose reserves with audit

Amidst the sharp crisis of confidence that has gripped the crypto market after the FTX collapse, exchanges have started to publish proof of funds and reserves (diagrams with information about wallets and balances) to show that customers’ cryptocurrencies are safe.

On Thursday (24), however, the Mexican brokerage Bitso, which had already committed to disclosing a balance sheet including liabilities, criticized the measure saying that the practice does not guarantee anything – and announced that it is launching a supposedly improved version of attestation of funds called “proof that matters”.

“The company states that some of the proof of funds or proof of reservations are only a list of wallets and, although it has become a practice across the market, it raises some concerns for two main reasons: it does not prove ownership of the keys needed to moving coins from exchange wallets and there is no guarantee that the coins in these wallets will be sufficient to cover all liabilities of the exchange,” Bitso said in a note.

In practice, the solution adopted by Bitso, says the brokerage, will have a Merkle Tree, a type of data structure with information that can be securely verified, combined with a solvency report. These two documents should be released in less than a month.

In addition, the exchange said that the attestation of funds will also include an audit carried out by a third party (the brokerage is still looking for someone to do it) and proof of ‘Zero Knowledge’, an encryption technology that allows to prove that the information of the balance is true without disclosing any personal data of the customer. The company did not set a deadline for the inclusion of these materials.

Last week, Bank of America (BofA) also said in a report that brokers’ proofs of reserve have “deficiencies to inspire confidence”. According to the bank, the crypto assets in the diagrams are shown at a fixed point in time, and this is subject to manipulation.

Exchanges and booking proofs

Exchanges such as Binance, Kraken, Foxbit, Bitfinex, Bybit, Crypto.com and others have already published or promised to publish their proofs of reserve soon.

Mercado Bitcoin, the largest crypto exchange in Brazil, on the other hand, is against the initiative in isolation. Last week, the exchange told the report of the InfoMoney that the proof of reservation is limited, “as it does not demonstrate that the assets correspond to the balance of customers on a platform”.

According to Mercado Bitcoin, the best way to attest to the security of investors’ assets is through asset segregation between the broker’s resources and the clients’ cryptocurrencies.

In Brazil, the issue of segregation was on the agenda in the discussions of the PL for cryptocurrencies, which will be voted on next week in the Chamber of Deputies. The project’s rapporteur, Deputy Expedito Netto (PSD), however, said Wednesday (23) that segregation will not be included in the final text of the proposal.

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