Proof of reserves
Proof of reserves is a check that an exchange holds enough assets to cover customer balances. It is usually a snapshot of the exchange's wallets compared with what it owes users.
How it works
The exchange publishes its wallet addresses (their balances are visible on the blockchain) and its liabilities, meaning how much of each coin it owes customers. Liabilities are often published as a Merkle tree, which lets you confirm your balance is included in the total without seeing anyone else's.
These reports became common after a major exchange collapsed in November 2022 and it turned out customer funds had been spent. A reserve ratio of 100% or more means assets covered balances at the time of the snapshot.
Proof of reserves has limits. It is a single-date snapshot, so funds could be borrowed for the day. It may not capture all of the exchange's debts, and its quality depends on whether an independent auditor checked it. It is a useful signal, not a guarantee.
Customers hold 10,000 BTC on an exchange, and its wallets hold 10,500 BTC, a 105% reserve ratio. You enter your ID in the verification tool and see that your 0.05 BTC is included in that report's Merkle tree.
The mistake is treating proof of reserves as a promise the exchange cannot fail, and keeping everything there. The report does not show all debts and can be outdated a day later. Keep only what you need for trading on an exchange and hold long-term coins in your own wallet.
Questions and answers
What is proof of reserves in simple terms?
The exchange publicly shows it holds as many coins as it owes customers, and you can check that your balance was counted.
How do I verify proof of reserves?
There is usually a verification page in your account showing your record's hash and its path in the Merkle tree. Reserve addresses can be checked on a block explorer.
Does proof of reserves mean my money is safe?
No. It is a snapshot on one date and may not include all of the exchange's liabilities. It is one trust signal, not insurance.
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Updated: 2026-10-19