Binance’s Proof-of-Reserve system comes with a Merkle Tress solution for users to check whether BINANCE has included their accounts in the snapshot of user balances.
Last Friday, November 25, crypto exchange finally unveiled its Proof-of-Reserve System offering complete and detailed insights into it. To begin with, Binance is offering proof of reserves for its Bitcoin holdings.
Binance and Its Proof-of-Reserve System
At present, Binance is having a reserve ratio of 101%. This means that the crypto exchange has enough users to cover all of its users’ balances. This development comes amid the collapse of the crypto exchange FTX which faced a massive liquidity crisis. Ultimately, FTX had to stop processing withdrawals as it couldn’t meet the demand from end users and investors.
Since then Binance chief Changpeng Zhao has been pushing for having a Proof-of-Reserves system. The goal is to provide its customers with greater transparency about their crypto holdings and liquidity positions. This development will also help in rebuilding trust for centralized crypto exchanges in handling customers’ funds.
Binance started by sharing wallet addresses with billions of dollars in crypto assets. Disclosing the recent Proof of Reserves for its BTC holdings, the company proved that it doesn’t need to hold a lot of assets and that it is ready to process all withdrawals. Also, in its latest explanation, Binance noted that the BTC wallets included in its Proof-of-Reserves system don’t include the company’s own funds.
“It is important to note that this does not include Binance’s corporate holdings, which are kept on a completely separate ledger,” the company says.
Binance Offers Merkle Tree Solution
When it comes to user assets, Binance is offering a Merkle Tree solution that includes all individual user accounts and generates a cryptographic seal.
With Merkle Tree, individual users can also root hash to check whether Binance has included their accounts in the snapshot of user balances. Binance also added that its user balances would include several products including Funding, Spot, Futures, Margin, Earn, and Options wallet. Besides, Binance has also provided a short Python script for users to check themselves. Speaking on the matter, Binance chief Changpeng Zhao stated:
“As Binance’s user community is exponentially larger than the next largest exchange, this is a massive under-taking and will take a few weeks to develop the data for the majority of our assets in custody. We are working to get the next update out as quickly as possible to meet the community’s expectations.”
Kraken Chief Calls It Pointless
While crypto exchange Binance makes an attempt to come clean about its Bitcoin reserves, chief Jesse Powell called this practice “pointless” as Binance failed to show its liabilities. Powell added that a complete Proof-of-Reserves system should include the sum of the client’s liabilities as well as user-verifiable cryptographic proof. In his recent tweet, Jesse Powell
“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”.
Read other crypto news on Coinspeaker.
