Washington needs to hop on board as the crypto industry wholeheartedly embraces self regulation
Public blockchains have many potential benefits, but one area where they excel is accounting. Blockchains allow for real-time, transparent, and immutable tracking of debits and credits to accounts on a ledger. This means that the existence and ownership of digital assets can be easily verified by anyone with an internet connection. In contrast, traditional assets rely on intermediaries to attest to their existence, leading to concentration and high auditability costs.
The auditability of digital assets has enabled the development of attestation tools that allow users to verify that their assets are being held in reserve and not simply recorded on someone else’s ledger. This is an important development as exchanges and custodians have been plagued by failures and scandals. By adopting a proof of reserve (PoR) system, platforms can provide indisputable proof that they control funds held for users, offering transparency and assurance.
PoR is now being voluntarily adopted by many of the largest exchanges worldwide, including Kraken, Binance, and Bitmex. Lawmakers in the US and abroad have also recognized the importance of PoR and have started to implement legislative initiatives requiring its use. However, there are critics of PoR, such as Senators Elizabeth Warren and Ron Wyden, who view it as a “sham audit” and have called for a campaign against auditors who serve crypto firms.
Despite the criticism, PoR has been proven effective in providing transparency and accountability in the crypto industry. It is not a substitute for standard audits but rather a complement that enhances assurance for users. The industry is working hard to gain back trust, and if PoR becomes widespread and standardized, it can exceed the level of assurance offered by custodians of traditional assets. Lawmakers should support and encourage the adoption of PoR, recognize its validity, and facilitate its proliferation across the industry. This will help the industry to clean itself up and build trust among users.