Proof of reserves is a cryptographic transparency method used by exchanges and custodians to show that customer assets are being tracked against assets they hold. It usually relies on verifiable snapshots, signed wallet data, and sometimes independent attestations or Merkle-tree style reporting. The goal is to let users and auditors check that liabilities to customers are matched by on-chain or otherwise controlled reserves at a specific point in time.
In cyber security, proof of reserves matters because it improves trust and accountability, but it is not a theft-prevention control. An attacker can still drain hot wallets, abuse signing systems, or exploit operational weaknesses even if reserve reporting is accurate. In practice, it appears as a defense for custody platforms after incidents: it can help confirm that balances are still covered, reveal shortfalls, and support incident response. Strong security still requires key protection, withdrawal controls, segregation of funds, and timely monitoring.