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One of the largest crypto exchanges in the world, Kraken, announced it has implemented an audit to verify that 100% of its customers Bitcoin and Ethereum holdings are held on the platform.
The exchange said in a company blog post:
“A Proof of Reserves (PoR) is an independent audit conducted by a third party which seeks to ensure that a custodian holds the assets it claims to on behalf of its clients.
This auditor takes an anonymized snapshot of all balances held and aggregates them into a Merkle tree — a privacy-friendly data structure that encapsulates all client balances.”
Adding:
“Any client can independently verify that their balance was included in the Proof of Reserves audit by comparing select pieces of data with the Merkle root.
Any changes made to the rest of the data, however small, will affect the root – making tampering obvious.”
Ownership of addresses by signing with a private key, anyone can then check they hold their deposit by just following instructions as laid out in the blog post.