Binance launches proof-of-reserves system for BTC holdings • TechCrunch
Cryptocurrency Exchange Company exchanges released a new website that explains its reserve proof system. The company is starting with BTC reserves. Currently, Binance has a reserve ratio of 101%. That means the company has enough bitcoins to cover all user balances.
This move comes a few weeks after the collapse of FTX, another popular cryptocurrency exchange. In the case of FTX, the company faced a liquidity crisis. It stopped processing withdrawals because it was unable to meet demand from investors and end users.
Since then, crypto companies — and crypto exchanges in particular — have been trying to be more transparent about user funds. It is meant to share more information about hot wallets and cold wallets. But there is still a lot of work to be done before you can fully trust crypto exchanges and how they handle money.
A few weeks ago, Binance started by sharing wallet address with billions of dollars worth of crypto assets. With this move, the company proved that it really holds a lot of assets and can handle a lot of withdrawals. But the company did not specify whether it was user assets or Binance’s own balance sheet, or a combination of the two.
With its new proof-of-reserve website today, Binance made that point clear by saying that BTC wallets included in the proof-of-reserve system do not include Binance’s own funds.
“It is important to note that this does not include the holdings of the Binance company, which is kept on a completely separate ledger,” the company said. You’ll have to believe what Binance says because you can’t verify that with a blockchain explorer.
Binance is starting with BTC holdings. Adding the amount in each Binance wallet is easy. When it comes to user assets, the company is using the Merkle tree to cover all individual user accounts and create a cryptographic seal.
As of November 22 at 23:59 UTC, Binance users have held a total of 575742,4228 BTC — or about $9.5 billion at today’s exchange rates. And Binance has enough bitcoins in its own wallet to cover 101% of this amount. In other words, if everyone withdraws their BTC at the same time, Binance will have enough BTC to process all the withdrawals.
Thanks to the Merkle tree, individual users can use the original hash to check if their account is included in a snapshot of the user’s balance. Binance says it covers user balances across various products — Spot, Funding, Margin, Futures, Earn, and Options Wallet. The company also provides a short Python script for you to test yourself.
“Given recent events, it is understandable that the community will demand more from cryptocurrency exchanges, more than what is currently required of traditional financial institutions. That’s why we’re excited to offer this latest feature for users to verify their funds,” Binance founder and CEO, Changpeng Zhao ‘CZ’ said in a statement. “Since Binance’s user community is exponentially larger than the next largest exchange, this is a huge undertaking and will take weeks to develop data for the majority of our assets. is being held. We are working to roll out the next update as quickly as possible to meet the community’s expectations.”
The company has plans to release similar proof-of-reserve information for ETH, USDT, USDC, BUSD, and BNB in the future. Binance offers hundreds of different crypto assets, so let’s hope they also cover withdrawals for lesser-known cryptocurrencies.
Likewise, the company should work with independent security and financial audit firms so you don’t have to blindly trust the company. There is still a long way to go, but at least today’s new proof of reserve system is a step in the right direction.