from Balaji | by Balaji

A proof-of-reserves-and-liabilities is a subset of the more general goal of on-chain accounting. If all labeled transactions were on chain, you could auto-generate cash flow, income statement, and balance sheet. It’d be publicly verifiable too. Drill down in block explorer.

In practice, most systems today have some off-chain transactions. And yes, off-chain transactions wouldn’t have the same cryptographic verifiability. But you might run a traditional paper-based audit for the off-chain transactions and summarize the results on-chain. Then merge.

On-chain accounting should become a major focus for web3. On-chain payments → On-chain contracts → On-chain entities → On-chain accounting Cryptographic verification first of simple payments, then more complex contracts, and eventually to fully on-chain accounting.