- Summary:
- Many crypto exchanges have been releasing their "Proof of Reserves" to assure their users of stability following a spate of bankruptcies.
In the wake of recent massive crashes in the cryptocurrency market, transparency has been crucial to regaining investor confidence. Bybit is one of the digital asset exchanges that has been at the forefront of implementing the proof of reserves strategy for increasing industry-wide transparency. The company says its mission as a Centralised Exchange (CEX) is to facilitate people’s smooth transition into the Web3 ecosystem.
This week, Bybit was one of the key contributors during the Blockchain Life 2023 event that took place in Dubai on Monday, February 27th. Bybit CEO Ben Zhou stated that crypto exchanges are more transparent than traditional financial institutions since they provide instant, auditable proof of reserves.
Proof of Reserve and the pursuit of transparency
Zhou claims that credible cryptocurrency exchanges have what it takes to outperform traditional financial institutions in terms of transparency and that technological innovation will lead the way in rebuilding faith in crypto assets. Bybit uses a custom-built Merkle Tree to show its reserves in real-time. By using the Merkle Tree code, investors on the exchange can verify that all of their assets have been properly accounted for in their Bybit on-chain wallets.
Proof of Reserves, the new transparency standard in the sector, can give customers extra confidence in and insight into exchanges’ financial standing. This will likely trigger a shift in the traditional balance of power between consumers on one hand and banks and other financial institutions on the other hand in the near future. Financial institutions that store user assets might expect increased demands for disclosure from their customers. Moreover, this isn’t limited to the cryptocurrency industry but rather stands to affect the broader financial sector as a whole.
Notwithstanding the difficulties it has encountered this past year, the cryptocurrency industry has demonstrated that it is capable of self-regulation with greater transparency than TradFi has managed in its hundreds of years of existence. Additionally, Bybit CEO Zhou believes that the primary reasons why many traders still favour CEXs are their deep liquidity and robust infrastructure with millisecond transaction precision. However, Zhou recommends decentralised exchanges (DEXs) for people looking to deal in long-term trading.