Proof of reserves is a method a crypto platform uses to show that it holds at least as much crypto as its customers have deposited with it. The idea is that anyone can check the assets exist, without relying on the company's word alone. Interest in the method grew sharply after FTX collapsed in November 2022.
How does it work?
A proof of reserves usually has two parts:
- The assets. The company shows which wallet addresses it controls, for example by signing a message with their keys. Because the BlockchainBlockchainA public ledger where transactions are grouped into blocks, each linked to the one before, so past records can't be altered without it showing. is public, anyone can see what those addresses hold.
- The liabilities. All customer balances are combined into a so-called Merkle tree, a data structure built on hashesHashA short fingerprint calculated from data, which changes completely if the data is altered by even a single character.. Each customer can check that their own balance is included without seeing anyone else's.
The exchange Kraken was among the first to use this method, in 2014.
What doesn't it show?
- It shows one day. The assets could have been borrowed for the check and returned straight afterwards.
- It doesn't show all debts. A company can hold the crypto but owe others a great deal on top.
- It isn't an audit. In December 2022 the accounting firm Mazars stopped this work for crypto exchanges, partly because the public didn't understand what the reports did and didn't show.
Proof of reserves and regulation
MiCA doesn't require proof of reserves. Instead, the rules require client assets to be segregatedSegregation of client assetsWhen clients' assets are kept separate from a company's own, so its creditors can't claim them if it goes bankrupt. from the company's own, a record of what each client owns, and supervision of the company. Proof of reserves can be a useful addition, but it doesn't replace those rules.
Everything in Myntkaup Learn is written and regularly reviewed by the Myntkaup editorial team. It is for education and is not investment advice. Editorial policy. Updated 2 November 2026.