Jesse Powell, the founder of one of the oldest cryptocurrency exchanges in the world, U.S.-based Kraken, took to Twitter to voice his thoughts on the rise of the Proof-Of-Reserves trend.
Here is his initial two-part Twitter thread on November 22 highlights what a Proof-Of-Reserves audit must have:
2/2 #ProofOfReserves audit must have:
1. sum of client liabilities (auditor must exclude negative balances)
2. user-verifiable cryptographic proof that each account was included in the sum
3. signatures proving that the custodian has control of the walletshttps://t.co/QEZo0DzJfw
— Jesse Powell (@jespow) November 22, 2022
Then it got interesting. Powell responded to a November 25 breaking news Tweet from Tree of Alpha that stated: BREAKING: Binance Releases Proof Of Reserves System.
What was Powell’s response? A yuge burn on Binance.
I'm sorry but no. This is not PoR. This is either ignorance or intentional misrepresentation.
The merkle tree is just hand wavey bullshit without an auditor to make sure you didn't include accounts with negative balances. The statement of assets is pointless without liabilities. https://t.co/b5KSr2XKLB
— Jesse Powell (@jespow) November 25, 2022
He continued, tweeting: “This is simply “here’s a hash of your record in the BTC spreadsheet.” ok… but what’s the point? The whole point of this is to understand whether an exchange has more crypto in its custody than it owes to clients. Putting a hash on a row ID is worthless without everything else.”
Powell still wasn’t done. In a big warning to the entire industry, he criticized a fortune.com article praising Binance for its Proof-Of-Reserves announcement.
Odd that the article fails to mention the exchanges that have been performing PoR and calling for others to follow before the FTX blowup. I hope that other exchanges will do a PoR but, in the past week, we have only seen attempts to redefine what PoR means and confuse people.
— Jesse Powell (@jespow) November 26, 2022
We’ll keep you updated as this story progresses. 💩