Kraken customers can now independently verify that the bitcoin funds they hold on the cryptocurrency exchange are backed by actual assets after the firm launched its Proof of Reserves feature, enabling a new level of transparency and accountability to emerge in the industry.
The feature is the product of an independent, cryptographic audit of Kraken’s funds performed by accounting firm Armanino LLP, which verified the amount of bitcoin the exchange holds on behalf of its clients with the help of Merkle Trees.
“Indeed, in this audit, completed on December 31, our auditor determined Kraken controlled all of the bitcoin…belonging to clients on our exchange, as well as all the bitcoin…held in our industry-leading on-chain and off-chain staking services,” the company said in a Thursday statement.
Users interested in verifying that Kraken holds the amount of bitcoin that the company claims to hold on their behalf can do so by accessing the independent Proof of Reserves website by Armanino. But first, they should head over to Kraken’s website to gather the necessary information, a unique identification number for their account, for accessing the records.
“An advanced cryptographic accounting procedure conducted semi-annually by trusted auditors, Proof of Reserves lets you verify that Kraken is meeting rigorous standards for accountability and exceeding the transparency offered by legacy financial firms,” per Kraken’s website.
Proof of Reserves enables greater transparency by providing customers with the ability to check if the custodian of their bitcoin is truthful. The feature isn’t completely trustless, however, as strictly speaking, the user still needs to trust the third-party company that performed the audit.
But the initiative is still positive, as it prevents the cryptocurrency exchange from embarking on fractional reserves, and it is also a better deal than what is offered by traditional banks, who not only do fractional reserves but involve full trust.