{"id":39915,"date":"2022-11-15T21:01:16","date_gmt":"2022-11-15T20:01:16","guid":{"rendered":"https:\/\/www.coinpro.ch\/uncategorized\/is-the-security-of-crypto-exchanges-critical-will-proof-of-reserves-save-us\/"},"modified":"2025-08-08T17:15:28","modified_gmt":"2025-08-08T15:15:28","slug":"is-the-security-of-crypto-exchanges-critical-will-proof-of-reserves-save-us","status":"publish","type":"post","link":"https:\/\/www.coinpro.ch\/en\/insights-en\/is-the-security-of-crypto-exchanges-critical-will-proof-of-reserves-save-us\/","title":{"rendered":"Is the Security of Crypto Exchanges Critical? Will Proof of Reserves save Us?"},"content":{"rendered":"

After the FTX crash, the question arises again: Is the security of crypto exchanges a cause for concern? Market leader Binance is calling for transparent Proof of Reserves. Can this development save the industry from further disasters? <\/p>\n

What Must a Crypto Exchange Provide?<\/h2>\n

Crypto exchanges serve as a marketplace and give users the opportunity to trade various cryptocurrencies with each other. Centralized crypto exchanges offer an additional function compared to their decentralized competitors: They allow customers to exchange fiat currencies for crypto – these are known as fiat on- and off-ramps. <\/p>\n

Centralized crypto exchanges like FTX or Binance<\/a> are also the ones that are repeatedly criticized. On the one hand, repeated hacking attacks<\/a> are to blame, and on the other hand, harmful behavior by the operators themselves. FTX is not the first operation of its kind to embezzle customer funds. <\/p>\n

In addition, crypto exchanges are a danger to sensitive information<\/a>. In order to exchange fiat currencies for crypto, customers have had to complete KYC processes since 2017. Subsequently, the marketplace in question knows the identity of the user, including a photo and ID. <\/p>\n

Recommended reading: How to safely store cryptocurrency and avoid hacking attacks<\/a><\/p>\n

Crypto Exchanges Must Hold Their Customers’ Assets on a 1:1 Basis<\/h3>\n

But crypto exchanges have one specific task above all: They must hold their customers’ assets on a 1:1 basis! This requirement rarely exists legally, as there is no corresponding legislation in most jurisdictions. <\/p>\n

So there is no legal obligation in most cases, especially since many representatives set up their headquarters in particularly lax states. However, they commit themselves to this through their own offer, because practically speaking, a marketplace cannot sell goods that do not exist. <\/p>\n

\"proof
Liquidity of large crypto exchanges. Differences between them arise due to different sizes of the companies. As of November 15, 2022 | Source: WuBlockchain<\/a><\/figcaption><\/figure>\n

The industry is experiencing what happens when a crypto exchange does exactly that in November 2022. FTX can no longer serve its customers’ withdrawals. They embezzled their funds. So many of the cryptos were only in the possession of the users on paper. The exchange collapses as a result and goes bankrupt<\/a>. <\/p>\n

The problem: Many users use crypto exchanges not only as a trading platform, but also as a custodian of their own coins such as Bitcoin or Ethereum. This puts them at risk of being stolen from by the operator. <\/p>\n

Users should therefore make sure that they never leave their cryptocurrencies on a crypto exchange unless they are actively trading with them<\/b>. Instead, they should transfer them to a non-custodial wallet after purchase. <\/p>\n

Recommendation: 5 reasons not to store cryptocurrencies on an exchange<\/a><\/p>\n

A 2019 study shockingly revealed: Only a fraction of crypto users keep their cryptocurrencies in self-custody.<\/a><\/p>\n

Only the opening of trades justifies the storage of cryptocurrencies on a crypto marketplace.<\/p>\n

What should be considered when trading crypto? CoinPro explains. <\/a><\/p>\n