In the world of digital assets, it is quite common to hear about exchanges getting hacked or tokens being stolen. The unfortunate truth is these events will continue to happen as long as there are centralized trading platforms that are open to hacking and other vulnerabilities. Fortunately, there are ways to protect your funds and keep them safe from potential hackers and thieves. One of the most effective ways to do this is by checking whether an exchange has proof of reserves before you trade on their platform. Read on to learn more about what proof of reserves means for crypto exchanges, five reasons why you should check for it before trading on a new exchange and why you should always check for proof of reserves before trading on a new exchange.
What is Proof of Reserves?
Proof of reserves is the method used to demonstrate that an exchange has the assets to meet their customersâ deposits. This means that if you have a balance of funds on an exchange, you can rest assured that the exchange has the âreservesâ to meet these funds. It is a method used by most, but not all, exchanges to prove that they have the funds they claim to have. It is a method that has been proven effective in detecting false audits. The main goal of this method is to prove that the reserves an exchange has are real and that they have no incentive to fake their numbers because they are not getting paid to do so. It also aims to reduce the chances of an exchange shutting down and running away with funds.
5 Reasons Why You Should Always Check for Crypto Exchange Proof of Reserves
In the world of cryptocurrency, the term âjust becauseâ is used quite often. It refers to the idea that you should always do something because you should do it, not because of a specific reason. However, that doesnât mean that you should ignore the importance of doing something. There are many reasons why you should always check for exchange proof of reserves before trading on a new exchange. Here are five reasons why you should always check for crypto exchange proof of reserves before you trade on a new exchange. Verification of Asset Reserves- The main reason you should always check for crypto exchange proof of reserves is that it verifies that the exchange holds the assets it claims to hold. This means that if you have funds on the exchange, you can rest assured that the exchange has the funds to meet your deposit. Increased Security- Another reason why you should always check for crypto exchange proof of reserves is that it increases the security of your funds. This is because an exchange that has proof of reserves is more likely to be legitimate and not a scam. Reduced Risk of Being Scammed- Another reason why you should always check for crypto exchange proof of reserves is that it reduces the risk of being scammed. This is because you can use evidence of the exchangeâs legitimacy to report the exchange to authorities if they are proven to be a scam. Transparency- You should also always check for crypto exchange proof of reserves because it promotes transparency. This means that the exchange is likely to be fully compliant with all relevant regulations and laws. Lowers Liquidation Risk- Finally, you should always check for crypto exchange proof of reserves because it lowers liquidation risk. This means that the exchange will not be able to shut down and run away with your funds because they have verifiable assets.
How to Check for Exchange Proof of Reserves
The best way to check for exchange proof of reserves is to look for an official audit report. If the exchange has an audit report proving that they have the funds to meet your deposit, you can be relatively sure that the exchange is legitimate. An audit report is a document that was created to evaluate the status of an organization. In the crypto exchange industry, an audit report is used to prove that an exchange holds the assets they claim to have. If you are using a new crypto exchange, you should always check for proof of reserves. You can find evidence of an audit report by searching for âaudit reportâ along with the name of the exchange. You can also check the exchangeâs âabout usâ page because that is usually where they publish audit reports. You should always check for exchange proof of reserves before trading on a new exchange. There is no surefire way to know whether an exchange is legit or not. However, checking for exchange proof of reserves is a good way to reduce your risk of being scammed.
2FA: ALWAYS Required
Another thing that you should always do when trading on an exchange is to enable two-factor authentication (2FA). 2FA is a security feature that is designed to protect your account from hackers and scammers. All reputable exchanges have 2FA enabled by default, but you should always enable it if you have the option to do so. This is because having 2FA enabled makes your exchange account more secure. Even if you have exchange proof of reserves, it is important to have 2FA enabled because it protects your account from hackers. There are many types of 2FA, but the most common ones include SMS authentication, Google authentication and email authentication.
Only Trade on Platforms That Have Token Storage
Another thing that you should do when using a new exchange is to only trade on platforms that have token storage. The best way to determine if a crypto exchange has token storage is to check the exchangeâs terms and conditions. If the terms and conditions mention that the exchange has token storage, you can rest assured that they have token storage. You should only trade on platforms that have token storage because it avoids you having to trust the exchange with your funds. Having to trust an exchange with your funds is one of the biggest risks associated with cryptocurrency trading. If you want to avoid having to trust an exchange with your funds, you should only trade on platforms that have token storage.
Use a Trusted Coin Dealer Audit Pro
Another thing that you should do when using a new exchange is to use a trusted coin dealer audit pro. A trusted coin dealer audit pro is a third-party audit organization that audits crypto exchanges. There are various trusted coin dealer audit pros that you can use to audit your exchange. Some of the most trusted coin dealer audit pros include Coin Metrics, Sentiment and Trade Audit. Using a trusted coin dealer audit pro to audit your exchange is a great way to verify that your exchange has proof of reserves. It is important to note, however, that not all trusted coin dealer audit pros are created equal. Some trusted coin dealer audit pros audit more exchanges than others. Therefore, you should do your research and find a trusted coin dealer audit pro that audits your exchange.
Use a Trusted Blockchain Explorer
Another thing that you should do when using a new exchange is to use a trusted blockchain explorer. A blockchain explorer is a website where you can search the blockchain for information. Some of the most trusted blockchain explorers include Etherscan, Bloks.io, CryptoID and Block Explorer. You can use a blockchain explorer to search for evidence that your exchange has the assets they claim to have. You can also use a blockchain explorer to verify that your exchange has been fully transparent with its customers.
In the End...
The unfortunate truth is that there will always be people who try to scam others out of their money. This is why it is so important to always do your due diligence before you trade on a new exchange. You should always check for crypto exchange proof of reserves before trading on a new exchange. It is also important to verify that the exchange has token storage, uses 2FA, only trades on platforms that have token storage and uses a trusted coin dealer audit pro. Finally, you should also always use a trusted blockchain explorer to make sure the exchange is legit. In the end, it is important to always check for crypto exchange proof of reserves because it verifies that the exchange has the assets they claim to have.
