Binance has just launched its first Merkle Tree-based proof-of-reserves system, starting with its BTC holdings to foster transparency in the cryptoverse, according to a press release on November 25, 2022.
Binance publishes official Merkle Tree-based PoR
Binance, the largest crypto exchange by trading volume, has announced the release of its Bitcoin proof-of-reserves, showing that it currently holds more than 585,000 BTC.
The Changpeng ‘CZ’ Zhao-led crypto exchange’s new proof-of-reserve (PoR) system uses the Merkle Tree data structure, which makes it possible for users to verify its BTC holdings. The new PoR system is billed to be “the next step in its “commitment to transparency and fostering trust in the ecosystem.”
The move comes two weeks after CEO CZ promised to develop a proof-of-reserve (PoR) mechanism to promote transparency in the crypto space when it comes to how users’ funds are handled by centralized exchanges, following the abrupt collapse of Sam Bankman-Fried’s FTX exchange due to customer funds misappropriation and fraudulent practices by SBF and his team.
Binance published a snapshot of its hot and cold wallet addresses as of November 10, 2022, with CZ later revealing the exchange was working on implementing a new proof-of-reserves protocol developed by the Ethereum co-founder Vitalik Buterin.
According to the release, the launch of the PoR system would initially start with Bitcoin (BTC), with other tokens and networks to be added in the next couple of weeks.
“Given recent events, it is understandable that the community will demand more from crypto exchanges, far more than what is currently required of traditional financial institutions. That’s why we’re pleased to provide this latest feature for our users to verify their funds,” said Zhao.
“As Binance’s user community is exponentially larger than the next largest exchange, this is a massive undertaking 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.” Zhao added.
The centralized exchange published a snapshot of account balances which showed that its Bitcoin reserves stood at 582,485.9302 BTC as of 23:59 UTC on November 22, 2022, which is 1% higher than its customers’ funds, which stood at 575,742.4228 BTC at the time, giving Binance a reserve ratio of 101%.
Taking it a step further
Binance has also made it clear that its users can verify their personal BTC transactions on the trading platform in one of two ways; through a provided link or against Binance’s own Merkle Tree.
In the first method, users can verify their transactions against Binance’s Merkle tree by logging into the Binance website and clicking “wallet” then “audit” this will prompt a unique record ID that confirms assets are covered and confirms users’ asset balance at the time of the audit.
The second method involves copying the source code into a python application and cross-referencing it.
Binance has also confirmed that it is currently working to implement zero-knowledge proof technology (zk-SNARKs) to improve privacy, “robustness, and more.