Proof of reserves, its limits and withdrawal freezes

After several exchange failures, many exchanges began publishing proof of reserves. The aim is to show that the exchange actually holds enough crypto to cover what customers have deposited.

The exchange shows which blockchain addresses it controls, so anyone can see the balances on-chain. It also publishes a list of customer balances in a way that keeps names private. Often it uses a Merkle tree, a data structure that lets each customer check that their own balance was included without seeing anyone else's.