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Bitcoin-Product-Community / proposals

The purpose of this repository is to capture community proposals and project ideas.
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Help exchanges implement proof of reserves. #3

Open iglesiasbrandon opened 1 year ago

iglesiasbrandon commented 1 year ago

Description

  1. Interview exchanges to see what their motivations are, what they would need to implement it, and what specific deliverable would be helpful for them. (Do they want a white paper? Code? Tool recommendations? etc.)
  2. Consult with technical subject matter experts to see how to implement it.
  3. Execute and market the solution.
  4. I imagine this project would take a while but would definitely be high impact

Resources:

Include links to resources that will help the community understand your project idea.

NOTE: Issue originally submitted by Bitcoin Product Contributor on hellonext

iglesiasbrandon commented 1 year ago

Comment from JeanChristophe on hellonext. 

PoR is a vast subject. Already by the definition of what is a Proof of Reserves? It's a very subjective notion: Kraken, Bitmex, Binance do it and they are doing three different PoR. Some of them are serious, others are pure marketing and don't prove anything. A standard must really emerge.

Here is some documentation:

- [Proof Of Reserve : how to prevent fractional reserve - Pierre Rochard at Surfin Bitcoin](https://www.youtube.com/watch?v=VtbhzW84BlY)
- [Nick Carter’s Proof of Reserves](https://niccarter.info/proof-of-reserves/)
- [Standardizing Bitcoin Proof of Reserves - Steven Roose for Blockstream](https://blog.blockstream.com/en-standardizing-bitcoin-proof-of-reserves/)

I have implemented it at StackinSat if you need more information. We opted for a different solution than the one presented by Nick:

- an address segregated by each user that was communicated to him. So the user can see 24/7 the amount via the mempool ;
- at a given frequency, we made a proof of key by publishing a RaW signature. Thus proving that we had the keys to each of the addresses without moving the funds.

However, this does not prove that the company has debt. If a company realizes custody, it must create a separated custody company from the exchange/brooker. This way, no debt will be associated with it, even in case of bankruptcy of the exchange (according to the local regulations of my country).
iglesiasbrandon commented 1 year ago

Comment from ecurrencyhodler on hellonext.

Hey Jean. That is super helpful. I think this is probably one of the reasons why there isn’t an industry standard yet. Different exchanges have different incentives/challenges with implementing it. Some may be willing to include debt, others not.

I think that’s why it’d be important to interview key stakeholders in exchanges to get their feedback. This allows us to also feel out and create buy-in for the industry standard. One of the advantages of having a neutral third-party like us step in too is that conflict of interest can also be avoided.

You would definitely be someone also to be interviewed as your expertise and insight would help a lot.
iglesiasbrandon commented 1 year ago

Comment from JeanChristophe on hellonext.

It must be taken into account that nowadays most of the exchanges outsource their custody solution. And are therefore dependent on the solution they use and their architecture (e.g. Binance uses the Fireblocks solution).

So it’s difficult to have a standard, even if the exchange want it. But some exchanges will tell you that ...