In a notable bipartisan move, Senators Thom Tillis and John Hickenlooper have presented the Proving Reserves of Others Funds (PROOF) Act, a legislative endeavor to bolster the security and integrity of the cryptocurrency industry. The bill responds to concerns stemming from incidents like the FTX collapse, aiming to prevent unethical mingling of customer funds and promote transparency.
The PROOF Act introduces a multi-pronged approach to achieving these objectives. It mandates digital exchanges to uphold specific baseline account standards, a crucial step in ensuring the protection of customer funds. Moreover, it necessitates the monthly submission of a proof-of-reserves (PoR) report, a responsibility assigned to a neutral, third-party auditing firm. This report will not only verify cryptographic proof of reserves but also scrutinize a company’s liabilities.
A notable feature of the legislation is the inclusion of civil penalties, with monetary fines for non-compliance. This underscores the commitment to accountability within the crypto space, making it clear that unethical practices will not go unpunished.
As with many legislative initiatives related to cryptocurrencies, the PROOF Act’s passage remains uncertain. While it receives acclaim from various crypto advocates and industry insiders, the bill faces a potentially challenging path through a divided Congress, including potential resistance from the Democratic Party.
The Democratic Party has often exhibited a cautious approach to cryptocurrency advancements, particularly within the Senate and the House of Representatives. The crypto industry faces scrutiny on multiple fronts, with Senators like Elizabeth Warren and several others advocating for stringent regulations through the Anti-Money Laundering Act. Meanwhile, the House has its share of anti-crypto lawmakers, such as Rep. Maxine Waters, who is part of the House Financial Services Committee.
Nevertheless, the notion of proof-of-reserves, as advocated in the PROOF Act, is gaining traction as a desirable public policy. It promises to provide much-needed transparency to the crypto industry, which, although not entirely new, has come under renewed focus since the SBF debacle.
Notably, the inclusion of proof-of-reserves in legislative discussions is not limited to the federal level. States like Texas have already implemented similar requirements, as exemplified by the HB1666 bill. These state-level initiatives aim to ensure that digital asset companies maintain the necessary reserves to protect their customers.
Dennis Porter, founder and CEO of the Satoshi Action Fund, a non-profit advocacy group focused on sensible Bitcoin public policy, sees the value in proof-of-reserves as a means of bolstering consumer protection. Porter also points to the need for more pragmatic digital asset policies, advocating for regulations similar to Texas’s approach.
Overall, the PROOF Act and the broader discourse surrounding proof-of-reserves highlight the growing importance of transparency and accountability in the cryptocurrency industry. As the bill navigates its way through the legislative process, it represents another step toward building a robust framework for the digital asset sector and fostering greater confidence among stakeholders.