If you’ve been in crypto for any length of time, you’ve probably heard the phrase “not your keys, not your coins.” Behind that idea is a very real concern: when you deposit funds on a centralised exchange, you’re trusting that the exchange actually holds what it says it holds.
That trust was shattered in November 2022 when FTX collapsed. The exchange had been secretly using customer deposits for its own operations. When users tried to withdraw, billions of dollars simply weren’t there. It changed how a lot of traders think about exchange security, and it put a spotlight on a concept called Proof of Reserves.
This guide explains what Proof of Reserves is, how it works at the technical level, and what it actually means for you as a user.
What Is Proof of Reserves and why does it exist?
Proof of Reserves didn’t come out of nowhere. It emerged as a direct response to a growing distrust of exchange self-reporting, and it gave the industry a way to verify claims mathematically rather than just taking a platform’s word for it.
