Proof of reserves: what it means for exchange users

By Daily Edge · Updated 2026-10-31 · Educational only, not financial advice.

Many exchanges publish a "proof of reserves" (PoR) page. The name sounds definitive, but what a report proves depends on how it was done, which assets it covers and when the snapshot was taken. This guide explains the method in plain terms, what it can and can't tell you, and how to check your own balance. Any exchange-specific detail below comes from that exchange's own page, with the date we checked it.

Before you rely on a report. Proof of reserves is a point-in-time check, and methods differ between exchanges. Read the exchange's own report for its date, scope and reviewer. Daily Edge has no affiliate relationship with any exchange mentioned here.

What proof of reserves means

When you hold crypto on an exchange, the exchange usually keeps the coins in its own wallets and records what it owes you in its internal ledger. Proof of reserves tries to answer one question: at a given moment, did the exchange control at least as much of each covered asset as its customers' balances added up to?

Kraken's proof of reserves page describes it as a procedure performed by an independent third-party accountant that is "intended to confirm that a custodian holds the assets it claims to on behalf of its clients" (checked 2026-10-31).

How it works

Most PoR reports combine two halves: one about what customers are owed (liabilities) and one about what the exchange holds (reserves).

1. A snapshot of customer balances, as a Merkle tree

Customer balances are taken at one moment and anonymised. Each account becomes a "leaf" made by hashing an account identifier together with its balances. Leaves are hashed together in pairs, then those results in pairs, and so on, until one hash is left: the Merkle root. Kraken calls it a cryptographic fingerprint of all the balances at that moment. Change any balance, however slightly, and the root changes, so tampering would show.

2. Proof that the exchange controls enough coins

The exchange then shows that it controls on-chain addresses with publicly visible balances. Kraken says its accountant collects digital signatures produced by Kraken that prove ownership of those addresses. Because blockchains are public, anyone can see the balances held at those addresses.

3. The comparison

The reviewer checks that the on-chain holdings for each covered asset match or exceed the customer total in the Merkle tree. The result is often given as a reserve ratio per asset: holdings divided by customer balances, where 100% means fully covered at the snapshot.

How to check that your balance was included

The Merkle tree lets each customer confirm their own account was counted without seeing anyone else's balance. The general process:

1. Sign in to the exchange and open its proof of reserves section.
2. Find your record for the report date. It usually includes your balances at the snapshot and a leaf ID or hash.
3. Use the verification tool to rebuild the path from your leaf up to the published Merkle root. If it matches, your balance was in the tree.

Kraken documents this flow on its page: account holders open Proof of Reserves in Kraken Pro, select a report date and choose "Verify yourself", or enter their Merkle leaf ID into the third-party accountant's tool. It also publishes the hashing steps for people who want to rebuild the leaf in code (checked 2026-10-31). The check covers only the in-scope assets and only your balances at the snapshot, not later trades.

What proof of reserves does not prove

A PoR report is useful, and it has limits. Kraken lists several of these shortcomings on its own page (checked 2026-10-31):

• It's a snapshot. It shows one moment. Kraken notes that keys may have been lost or funds stolen since the latest review.
• It can't rule out borrowed or encumbered funds. Kraken says the procedure cannot identify hidden encumbrances or prove that funds were not borrowed to pass the review.
• It can't prove exclusive control of keys. Kraken says PoR proves control of on-chain funds at the time of the review but cannot prove exclusive possession of private keys that an attacker might have duplicated.
• It depends on the reviewer. Kraken notes the accountant must be competent and independent.
• Scope is limited. Reports cover named assets. Kraken's page lists the assets in scope for its most recent review; anything outside that list isn't covered.

More generally, a reserves check looks at customer balances in covered assets. A full picture of an exchange's finances, including its other debts, is what an audit of its financial statements is for, and that's a different and broader exercise.

Reading a report: a calm checklist

• Date. When was the snapshot? How often does the exchange say it repeats the review?
• Reviewer. Was it done by an independent third party, and does the exchange name them in the report?
• Scope. Which assets and which products (spot, staking, margin, futures) are included?
• Self-verification. Can you check your own balance against the Merkle root?
• Ratios. Are holdings at or above 100% for the assets you hold? Read how the report defines the ratio.
• Recent events. After a security incident, an exchange may publish a new report. Binance said after its October 29, 2026 hot-wallet incident that it would publish an updated Proof of Reserves once remediation was complete (Binance announcement).

PoR is one input among several. Others include the exchange's account security options, such as two-factor authentication and withdrawal address allowlists, its fees (see crypto exchange fees compared) and whether you keep some coins in your own wallet. Hold My Bitcoin's self-custody guide walks through that last option.

Keep your own records

An exchange's report checks its books, not yours. Keeping your own record of deposits, trades and withdrawals means you can always reconcile what you hold. You can import your exchange's CSV into a trading journal or track a portfolio without connecting a wallet. Both stay in your browser.

Frequently asked questions

What does proof of reserves mean?

Proof of reserves is a check that a custodian, such as a crypto exchange, holds at least as much of each covered asset as it owes its customers at a given moment. It usually combines a cryptographic snapshot of customer balances with evidence that the exchange controls wallets holding enough coins.

How does proof of reserves work in crypto?

Customer balances are hashed into a Merkle tree, which produces a single root fingerprint. The exchange proves control of its on-chain addresses, for example by signing messages with their keys, and the reviewer checks that those holdings match or exceed the balances in the tree. Each customer can then check that their own balance was included.

What can't proof of reserves show?

It is a snapshot of one moment and usually covers only some assets. In its own list of shortcomings, Kraken says the procedure cannot identify hidden encumbrances or prove funds were not borrowed to pass the review, and that keys may have been lost or funds stolen since the latest review.

Does Kraken have proof of reserves?

Yes. Kraken publishes a proof of reserves page describing reviews by an independent third-party accountant, which account holders can verify from inside their account. Check that page for the latest snapshot date and the assets in scope.

Is my crypto safe on an exchange if it has proof of reserves?

Proof of reserves is one useful signal, not a guarantee. It does not cover liabilities outside the snapshot, security after the snapshot date, or assets outside its scope. Reading what a report covers, and when, is more useful than a yes-or-no answer.

Sources: Kraken's proof of reserves page (method, verification steps, shortcomings; checked 2026-10-31); Binance, Security Incident Update (2026-10-30) (checked 2026-10-31).