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PoR is benefitting from intense development efforts, but in the final analysis good conduct requires good regulation and a culture of compliance.

Proof of reserves (PoR) has gone from a buzzword to a roar in recent weeks as the crypto world tries to recover from the shock and losses of the current crypto winter. After a flurry of discussion and work, criteria and rankings for adequate PoR are beginning to appear, but the fine points of how to conduct proof of reserves, or even who should do it, remain open questions.

The difference between proof of assets and proof of reserves was pointed out quickly, along with their deficiencies by themselves. Traditional auditors’ attempts at providing PoR were soon frustrated, with major firms stepping up and quickly retreating.

I’m sorry but no. This is not PoR. This is either ignorance or intentional misrepresentation.

The merkle tree is just hand wavey bullshit without an auditor to make sure you didn’t include accounts with negative balances. The statement of assets is pointless without liabilities. https://t.co/b5KSr2XKLB

— Jesse Powell (@jespow) November 25, 2022

Auditors may never provide the assurance users seek from PoR, Doug Schwenk, CEO of Digital Asset Research (DAR) told Cointelegraph. Audits are done periodically, while crypto trades around the clock “Ideally you would have a way to measure those liabilities and the assets in some kind of real time,” he said.

DAR provides information and vetting services to major firms in traditional finance and produces the FTSE Russell index in conjunction with the London Stock Exchange. “We like to see proof of reserve. […] It’s not enough for us to say we feel satisfied, but it is certainly better than nothing.” He added:

“In the world that we’re navigating right now, better than nothing is sometimes a good starting place.”

To complicate matter further, centralized (CeFi) and decentralized (DeFi) platforms present radically different challenges. Thanks to its transparency, “proof of reserve is worthy of calling [itself] proof of reserve” in DeFi, according to Amit Chaurhary, head of DeFi research for Polygon, a scalable blockchain ecosystem compatible with Ethereum.

Related: Proof-of-reserves: Can reserve audits avoid another FTX-like moment?

Chaudhary told Cointelegraph that the zero-knowledge Ethereum Virtual Machine (zkEVM) being developed by the company brings “battled-tested security” to PoR. That software uses Merkle trees to see both positive (asset) and negative (liability) balances and allows a user to verify their accounts while maintaining a high level of privacy. In addition, zero knowledge protocols can offer dual collateral control for securer settlement and Anti-Money Laundering and Know Your Customer controls while preserving anonymity.

The immutable nature of the blockchain record would allow verification of the audit process. Chaudhary added:

“You can deploy an accounting system on your zkEVM. You can design your own accounting system.”

CeFi presents much greater challenges. “Since liabilities could be incurred off-chain, there is no method to show proof-of-liabilities and that a company can honor all customer deposits,” founder of the Aleph Zero blockchain Matthew Niemerg told Cointelegraph in a statement.

Centralized cryptocurrency exchanges are taking a variety of steps to provide PoR that meets users’ needs. Exchange OKX, which has recently committed to providing fresh PoR monthly, uses PoR based on an open-source Merkle tree protocol along with a Nansen dashboard. Nansen provides real-time, third-party transaction tracking.

#OKX released 2nd Proof-of-Reserves Report, Promises Monthly Publication

Reserve ratio: #BTC 101%, #ETH 103%, #USDT 101% pic.twitter.com/spcLT6M1VF

— Satoshi Club (@esatoshiclub) December 23, 2022

OKX told Cointelegraph in a statement that the exchange verifies its holdings of its top three assets, BTC, ETH and USDT, using a Merkle tree, which allows users to verify their holdings, check that their balance is included in the exchange’s total liabilities and compare OKX assets and liabilities.

“OKX discloses its wallet addresses via the Nansen dashboard,” OKX explained further. This allows users to check OKX holdings in real time “to ensure that OKX has enough reserves on-chain for users to withdraw.”

Despite the efforts of OKX and other exchanges to provide transparency, “no amount of math or cryptography can solve the human problem of deceit and fraud, even if the books are audited by respected, independent third parties. Garbage in, garbage out!” said Niemerg.

Part of the challenge of providing transparent services is cultural. Tradition finance has “benefit of living in 2022, where we have almost 100 years of highly regulated capital markets,” Schwenk said.

The DAR seeks to “apply the same rigors as regulators” for “the kind of firms that are used to having a high degree of confidence in their counterparty.” Nonetheless, “It is impossible to get perfect information about any of these counterparties today, because many of them are still getting through some maturity questions and they struggle to be as buttoned up as you see in traditional finance,” Schwenk said.

The European Union has its regulatory framework, while the race is only kicking off in the United States.

2022 will surely be remembered as a year of crypto discontent — one when the price of Bitcoin crashed three times, many large companies went bankrupt and the industry experienced a series of significant lay-offs. However, it was a crucial year for crypto regulation worldwide. Although some regulatory developments are worrisome in terms of their tighter stance on digital assets, their effect could help the industry to mature in the long run.

Looking at the significant regulatory events of 2022 might fuel one’s optimism for the future. The controversial policy to restrict proof-of-work (PoW) mining was supported in New York, but a similar one failed in the European Union. In some jurisdictions, like Brazil and Russia, crypto is undoubtedly gaining momentum.

Of course, there were many more landmarks to remember, but Cointelegraph tried to choose those representing larger regional trends.

The Markets in Crypto-Assets bill

It is fair to put the European Markets in Crypto Assets bill in the first spot because it has passed all the voting stages in the European Parliament and should become law in 2024. The comprehensive crypto framework was first proposed by the European Commission in September 2020 and has been making its way through the various stages of deliberations ever since. Some in the industry, like Binance CEO Changpeng Zhao, expect it to become a regulatory standard copied worldwide.

The bill includes a transparent licensing regime, with the European Securities and Markets Authority designated as the responsible body. Provisions include strit riteria for stablecoin operators and higher legal responsibility for crypto influencers. Positively, a proposed amendment to the bill that would have effectively banned PoW mining and the incomprehensible 200 million euro ($212 million) cap for daily stablecoin transactions did not make it to the final draft. The bill represents a moderate approach, with an understandable emphasis on investor protection.

Also read: The United Kingdom’s plan to regulate crypto and the possible end of a favorable regime for crypto licensing in France.

Lummis-Gillibrand vs. Warren-Marshall

Unlike the European Union, in the United States, the race toward comprehensive legislation has just begun this year. The good news is that there are plenty of contenders.

A joint draft by Senators Cynthia Lummis and Kirsten Gillibrand opened the competition in June. The highly anticipated Responsible Financial Innovation Act (RFIA) contains a division of powers between federal regulatory agencies. Under the bill, the Commodity Futures Trading Commission would regulate investment contracts, which the RFIA qualifies under the new term “ancillary assets.” It also defines decentralized autonomous organizations, clarifies taxation on crypto mining and staking, and initiates a report on the highly controversial topic of retirement investing in digital assets.

There are several bills dedicated to stablecoins. The first, sponsored by New Jersey Representative Josh Gottheimer, would see the Federal Deposit Insurance Corporation back stablecoins like fiat deposits. The second, introduced in September, aims to ban algorithmic stablecoins for two years.

The antipode to the Lummis-Gillibrand bill is the Digital Asset Anti-Money Laundering Act, introduced by Senators Elizabeth Warren and Roger Marshall in December. It would prohibit financial institutions from using digital asset mixers and regulate crypto ATMs. Unhosted wallets, crypto miners and validators would have to report transactions over $10,000. Senator Warren has promised to write comprehensive crypto regulation legislation that favors the United States Securities and Exchange Commission in the role of regulator.

Also read: The Crypto Consumer Investor Protection Act and the Crypto Exchange Disclosure Act by Representative Ritchie Torres.

Russia U-turns on crypto

One of the largest markets for crypto mining, Russia, has made this year memorable for all the wrong reasons. Reaching the status of the most sanctioned state in the world, it joined the club of countries that regard crypto as a tool to mitigate their exclusion from the global financial system. Before the Feb. 24 invasion of Ukraine, the national crypto regulatory discussion was defined by the opposing viewpoints of the central bank and the finance ministry. While the central bank stood firmly against attempts to legalize crypto, the finance ministry has taken a more moderate approach.

The equilibrium shifted in the spring when the central bank issued the first digital asset license. Top officials publicly teased the option to use Bitcoin (BTC) as a foreign trade currency, and the deputy minister of energy proposed legalizing crypto mining. Since then, the Russian State Duma has considered at least three bills. One bill would legalize mining under an experimental regime, and the second would include crypto in the national tax code. The third, which prohibited digital financial assets as payments within the country, had already obtained the president’s signature.

Also read: What we know about Iran’s use of crypto for foreign trade.

Crypto mining moratoriums in the United States and Canada

Perhaps the most disturbing regulatory developments this year happened in the U.S. state of New York and the Canadian province of Manitoba. Both regions, famous for their attractive natural conditions for crypto mining, decided to impose moratoriums on crypto mining operations. This option has remained on the table since the beginning of the global discussion around the environmental disadvantages of proof-of-work crypto mining, with the less energy-intensive proof-of-stake (PoS) consensus mechanism touted as a more sustainable alternative.

Notably, the New York moratorium doesn’t ban PoW mining in principle, leaving the right to operate on the exclusive condition of using 100% renewable energy sources. It once again ties the discussion to the debate around “clean energy” as crypto miners and advocates prepare their arguments to win public opinion. Although only two small regions have initiated the moratoriums, the great battle between PoW and PoS supporters is far from concluded.

Also read: Bitcoin miners rethink business strategies to survive long-term, and Kazakhstan is among the top three Bitcoin mining destinations after the United States and China.

Brazil legalizes crypto as a payment method

At the end of November, the Brazilian Chamber of Deputies passed a regulatory framework that legalizes using cryptocurrencies as a payment method within the country. Although the bill doesn’t make crypto legal tender like occurred in El Salvador, it’s still significant, as it sets the foundation for a comprehensive regulatory regime.

The news may sound small compared with the big narratives about regulation in the United States or Europe. Still, it represents a continuing trend of crypto-friendly moves in Latin America. While Asian jurisdictions have been sending prohibitive signals in the last few years, with Washington and Brussels busy adopting their cautious approaches to digital assets, Latin American countries have shown bold strides toward adoption. Honduras attracts tourists to Bitcoin Valley, El Salvador continues to push its Bitcoin agenda, Paraguay paves the way for crypto regulation, and Argentina’s Mendoza province started accepting crypto for taxes and fees.

Also rea: Kenyan legislation establishes crypto taxation, Nigeria rolls out its central bank digital currency, and the Central African Republic adopts Bitcoin as legal tender.

For crypto industry, 2022 was not exactly stable. But there are still reasons to be excited about next 12 months.

Continue reading Crypto in 2023: 10 Things to Be Excited About in the Next 12 months at DailyCoin.com.

Browser-based cryptocurrency mining has made a comeback, allowing casual miners to earn rewards.

Once assumed to be extinct until its unlikely return in the latter part of 2017, browser-based cryptocurrency mining dates back to 2011 when BitcoinPlus.com launched its then-innovative service.

Of course, back when Bitcoin was fairly new and mining was cheap, the idea of using a website to do the work for miners was quite popular. Thanks to a surge in the cryptocurrency market circa 2017, browser-based cryptocurrency mining has made a resurgence in certain circles today.

The technology’s evolution is also due in part to the advent of blockchain-based coins that are mineable with easy-to-use JavaScript application programming interfaces (APIs) and home hardware. However, the accessibility has also ushered in a slew of malicious browser-based mining services into the fold.

The foundation of cryptocurrencies, built on blockchain technology, is to safeguard financial transactions by embedding them in a public and immutable chain of blocks. To advance and maintain the system, new blocks must continually be attached to store all pending transactions, commonly known as mining.

Miners compete in solving a cryptographic puzzle, referred to as proof-of-work (PoW). The difficulty of this PoW adjusts continually to create new blocks at a consistent rate. This ensures that the process remains predictable and secure by ensuring tamper resistance. As more miners join in on the hunt to find blocks, the complexity increases, and the steady block creation stays intact.

What is browser-based cryptocurrency mining?

Browser-based mining is a method of cryptocurrency mining that happens inside a browser and uses scripting language. This method differs from the more commonly known file-based cryptocurrency mining approach, which requires downloading and running a dedicated executable file.

During the inception of browser-based mining in 2011, mining cryptocurrency was cheap and relatively easy. It used JavaScript code for pooled mining, and users could sign up and embed scripts in their websites to provide a way for page visitors to mine for them. Browser-based cryptocurrency miners only mined for Bitcoin (BTC) back then. But in recent times, newer cryptocurrencies like Monero (XMR) are also mined through browser-based miners.

How does browser mining work?

Can you really mine cryptocurrency with a browser? The answer is yes. By embedding mining code into websites, one can leverage the computing capacity of website visitors to magnify their mining power. Browser mining takes advantage of website visitors’ computing power, allowing miners to significantly reduce their energy bills and hardware expenses.

Monero is an example of a cryptocurrency that enables browser-based mining. The cryptocurrency uses the RandomX hash function, a hashing algorithm used for certain PoW blockchains, such as Monero.

Designed to be application-specific integrated circuit (ASIC)-resistant, RandomX uses random code execution and memory-hard techniques. This means that Monero’s PoW algorithm specifically prevents specialized mining hardware, like ASICs and graphics processing units, from dominating the network. RandomX is purposely optimized for general-purpose CPUs in the hopes of maintaining a more decentralized network and equal block reward distribution.

It suffices to say that this innovative approach to generating income from web-based services is becoming increasingly popular among those looking for added sources of income. However, browser mining is also used for more malicious purposes, as it can be abused to run cryptocurrency mining scripts on unsuspecting users’ machines without their consent or knowledge.

Hidden mining or mining without a user’s express consent is also known as “cryptojacking” and is typically done by embedding JavaScript code on a website or app. To avoid this, users should be careful about the websites and applications they visit and the permissions they grant these services.

How to get started with browser cryptocurrency mining

Those interested in browser-based cryptocurrency mining can easily do so by downloading and installing third-party services, such as CryptoTab Browser. A new user simply needs to create an account and peruse the internet using the browser as usual — the mining will take place in the background, and the user gets rewarded in cryptocurrency. With CryptoTab Browser, the reward is in BTC.

Users can typically turn mining on and off and adjust mining speed according to their preference with these cryptocurrency browsers. As long as the browser is open and the user has set mining on, the browser will continue to mine and earn rewards. A cryptocurrency wallet is typically tied to these wallets, allowing users to hold their rewards safely.

Brave Browser crypto mining is another option that allows users to interact with decentralized applications (DApps), such as games, decentralized finance (DeFi) protocols, decentralized exchanges (DEXs) and more. Most DApps accessed through cryptocurrency browsers will look like normal websites, but they are only accessible via cryptocurrency browsers.

The Uniswap DEX is an example of this. Front-end-wise, it looks like a typical site, but its back-end DApp is only accessible via an Ethereum-compatible cryptocurrency browser. Some examples of cryptocurrency-compatible browsers are:

It’s vital to remember that browser cryptocurrency wallets are applicable only with specific blockchains. For instance, MetaMask will work harmoniously with Ethereum-based DApps, while Phantom is designed for the Solana network. 

To ensure the most secure experience, users should opt for a browser that comes preloaded with a wallet compatible with their preferred DApps. Otherwise, they will need to install multiple extensions on their cryptocurrency browser.

Is browser mining profitable?

The profitability of browser mining depends on several factors, including which cryptocurrency you’re mining and how much hashing power the device has. Additionally, the price of cryptocurrencies will naturally fluctuate over time, so users should be aware that their mining rewards may also go up or down in value. 

Many people find browser mining a fun, engaging and potentially lucrative way to earn cryptocurrencies. For those who are interested in trying browser mining for themselves, there are several options available that can provide an easy-to-use and rewarding experience.

Some of the benefits of browser cryptocurrency mining include:

• Lower energy costs: Browser mining eliminates the need for expensive hardware, which typically consumes significant energy. This saves miners money on electricity and reduces their carbon footprint
• Accessibility: Browser mining is available to anyone with a computer or laptop with an internet connection. This makes it much easier than trying to mine cryptocurrencies on specialized hardware like ASICs, which can be expensive and difficult to obtain
• Autonomy: Since browser mining does not require miners to join a mining pool, it gives them more autonomy and control over their mining experience. This means that one can set their own parameters for how much and what kind of cryptocurrency is mined and adjust these settings according to their preferences.

Are cryptocurrency browsers safe?

There are typically a few common arguments against browser-based cryptocurrency mining. One such argument is that cryptocurrency browsers currently do not natively support proven cryptographic APIs. Undeniably, this applies to native browser code, specifically JavaScript.

Another criticism is their reliance on secure sockets layer and server-based security, as most cryptocurrency browsers are often reduced to the host server’s security. Hypothetically, should that server be compromised, the attacker can alter it or add a backdoor. This means that the attacker can gain unauthorized access to the server, bypassing the server’s security measures. 

There are several measures that users can take to protect themselves when using cryptocurrency browsers. For example, users must always keep their software up-to-date and use strong passwords to protect their wallets. Additionally, they should be cautious about the sites they visit and avoid clicking on suspicious links or downloading unknown files from untrusted sources.

Overall, using reputable browsers with industry-grade security features can protect against common security risks and ensure a safe and enjoyable cryptocurrency browsing experience.

Reflection tokens allow holders to earn passive returns from transaction fees by simply holding onto their assets.

Yield farming, liquidity mining, and staking have become common practices in the crypto market due to the remarkable growth the DeFi ecosystem has witnessed in recent years. These features enable users to earn interest on their crypto holdings by locking them as deposits for specific periods.

The concepts sound appealing but there’s one big risk: the potential decline in the valuation of the locked assets. In other words, users will see losses in U.S. dollar terms if the asset’s value drops during the lock-in period.

These shortcomings have raised “reflection tokens” as a viable alternative. In theory, reflection tokenomics remove the necessity of locking tokens while still offering staking-like benefits. 

What are reflection tokens?

The projects backing the reflection tokens charge a penalty tax (calculated in percentages) on each transaction. In turn, they give out the fee to all token holders depending on the percentage of assets they hold.

As a result, reflection tokens’ holders do not need to lock their assets for a certain period to earn rewards. They earn their income almost instantly in most cases when a transaction is made, with the functions governed by a smart contract.

In addition, users can deposit their reflection tokens in third-party lending and yield farming contracts to earn additional yields. But while the combination of incentives for holding and staking theoretically reduces sell-side pressure, this has not been the case with most reflection assets.

Popular reflection tokens

Some of the most popular reflection tokens include: SafeMoon (SAFEMOON), BabyFloki (BABYFLOKI), FlyPaper (STICKY), MinersDefi (MINERS), and EverGrow Coin (EGC). 

For instance, EverGrow Coin (EGC) ‘s price dropped nearly 98% after peaking at $0.0000039298 in November 2021. This project takes 2% of its network fee and distributes them in the form of Binance USD (BUSD) tokens across the EGC holders.

The EGC weekly chart above shows its bearish price trend accompanying very low trading volumes, suggesting that the buying and selling on its network died down after the early hype. Less volume means lower rewards for EGC holders, which may have prompted them to sell their assets. 

Risks associated with reflection tokens

Reflection tokens give holders the benefit of growing their passive incomes with immediate reward distributions. Nonetheless, they carry specific risks that could impact investors’ profitability. Let’s have a look:

Transaction tax

Projects asses transaction tax when users buy and sell reflection tokens. In other words, first-time buyers typically pay a transaction fee which they can recoup only if the project gains adoption. As a result, it could take months for investors to see profits.

Related: Top-five most Googled cryptocurrencies worldwide in 2022

Scams

Scammer can misuse the growing reflection token trend just as any other digital tokens. They could dupe investors into paying initial transaction taxes, only to abandon the project midway and abscond with all the invested funds. 

Uneven returns

Reflection tokens do not guarantee consistent returns given the yields depend on the asset’s day-to-day volume. There’s a possibility that a token may generate zero yields in the event of no activity on its network.  

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

After last year’s hype over nonfungible tokens, people have been speculating about their potential. It created a bubble of unfounded expectations.

Over the last year, venture capitalists poured more than $4.6 billion into infrastructure and projects related to nonfungible tokens (NFTs). This infrastructure now needs users. They will come when people understand that they can apply these NFTs not just for speculative purposes but to design and structure their everyday activities. For these, they don’t need NFTs — they need to sort their lives out. And, decentralized catalogs are there to help them do it.

We can think about an NFT as a book someone owns, and this ownership is recorded on the blockchain. But what we’re actually missing is the library.

Not just a flower, but a garden

Multiple NFTs making up a collection form a system. This system has a structure through the standards it uses. If you’ve ever visited CryptoKitties, you’ve probably noticed the museum-like categorization of the Kitties and their attributes in their “catalog.”

However, each item in the collection means nothing without the collection itself. You can’t take a CryptoKitty out of the original smart contract. You can copy the image or create a fractional version of it, but you will not be able to transfer its value if the derivative version of your CryptoKitty isn’t linked to the original collection. This means that the value of each NFT is not determined by a stand-alone item in the collection but by the collection itself.

In simple words, if we take a step back from each item in almost any NFT collection, we’ll discover that the actual value is not in a single NFT itself but in a perfect system of multiple NFTs bound together by one smart contract. By doing this, we stop staring at a single flower and realize we are in a well-designed garden.

Related: Throw your Bored Apes in the trash

When applying all the standardization approaches and structuring all the data properly, we are creating systematic lists of items publicly stored on the blockchain — decentralized catalogs.

How decentralized cataloging can add new value

Everyone has heard of Guinness World Records, Michelin Guide or IUCN Red List. In a nutshell, they are all extremely valuable catalogs. Behind each of them is a managing authority that invests its brand and expertise in bringing value to every new iteration of the catalog. Even if the rules of adding new items to centralized lists are not transparent or even questioned, this approach is sustainable.

However, the biggest problem these catalogs present is an extremely high barrier to entry for new, valuable lists to enter the market. Through NFT infrastructure and a Web3 mindset, though, we can democratize the process of building valuable catalogs. The difference between a normal list and a decentralized catalog is the potential value it can accumulate.

Related: Get ready for the feds to start indicting NFT traders

When you own a CryptoPunk, you are a co-owner of the CryptoPunks collection. Yes, that CryptoPunk may represent your inner self, but on its own, it’s just a JPEG. As we have already discovered, the value is in the collection itself, and the value is created not only by the expertise that went into designing the character generator but also by the owners of the collection.

By building an economy powered by co-ownership, we can make future-proof and transparent catalog systems. While yet another restaurant list will hardly add something new to society, there are plenty of situations where decentralized cataloging makes sense.

The library

Let’s imagine the most basic use case of decentralized cataloging. You own a collection of books and you want to share these books with someone. You know, however, there’s a good chance that those you lend your books to will never return them. That’s life.

So, you start a very simple process of making a record of each book you’re sharing to the decentralized catalog; only each record is actually an NFT.

The person taking the book decides to use it to put his own books on the catalog and share them with someone else, and that person shares it with their friend, too. In a few years, your book-sharing club will become an internet phenomenon, with more and more people adding books to the catalog.

It’s only a matter of time before big publishers join in as well. Some publishers may start adding newly published books to distribute them through the catalog system you created. As we know about NFT compatibility, it’s clear that all the NFT marketplaces and infrastructure we have today will become handy tools and interfaces that will work right out of the box. No need for additional listing websites, centralized bookstores or payment solutions.

Related: Time to switch from LinkedIn to MetaMask? Not yet, but soon

And it all started with you, who added the first book as an NFT to the shared collection of books.

The same approach is used in Cointelegraph’s Historical NFT Collection. It is a catalog of news from the largest crypto media outlet, and Cointelegraph readers are choosing which news should be added to it.

The real future of the NFT standard is ordinary, and that’s great. We use many ordinary things every day that were overpriced when they entered the market. As production and technology evolved, however, prices dropped and made them available for everyone.

The same thing will happen with NFTs. The only thing we need to do now is stop staring at the tulips and start designing a garden.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

A chain reorg typically occurs when two nodes independently mine a new block simultaneously, mostly due to a congested network.

Continue reading Chain Reorg Explained: An Introduction to Chain Reorganisation in Blockchain Technology at DailyCoin.com.