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On November 25, the largest cryptocurrency exchange in terms of daily trading volume, Binance, published its bitcoin proof-of-reserves (POR) system using The Merkle approach. At the time of writing, the snapshot provided by Binance shows that the firm’s onchain reserves are equal to 582,485 bitcoin, while the company’s customer net balance is approximately 575,742 bitcoin.
Binance has published the company’s proof-of-reserve system in relation to the bitcoin (BTC) cache the company has. The POR feature initially starts with Binance’s bitcoin holdings, but other “networks [are] will be added in the next couple of weeks.” The news follows the recent FTX collapse and the crypto community insisting that centralized digital currency trading platforms prove their reserves. In addition to the crypto community, exchange executives such as Kraken’s Jesse Powell also participated in the POR call.
Two days ago, Bitcoin.com News reported on Powell’s comment about so-called POR lists that simply showcase digital currency addresses. Powell said these lists of addresses were not legitimate POR audits, and he emphasized that a true POR audit “requires cryptographic proof of client balance and wallet control.” Powell also shared a blog post written in 2014 called “Proving Your Bitcoin Reserves,” which discusses the Merkle approach. Basically, because exchanges use hundreds of addresses, a Merkle tree can be leveraged to consolidate all the data into a single hash, which can then be cryptographically verified by anyone.
Nic Carter’s proof-of-reserve list or “Wall of Fame,” lists centralized trading platforms that have submitted “full POR” audits. At the time of writing, there are five crypto platforms that have shared full PORs that have the Merkle approach on the Wall of Fame. However, three of them (Coinfloor, Gate.io, and HBTC) provided Merkle-based ratings in May 2020, May 2021, and August 2021. Kraken and Bitmex are updated, as they shared Merkle-based ratings this month. On Friday, Binance CEO Changpeng Zhao (CZ) tweeted about the company that shares the firm’s POR.
A number of crypto followers were pleased that Binance shared the company’s POR. The whistleblower known as Fatman responded to CZ’s tweet. “This is amazing,” Fatman so. “Hope smaller exchanges quickly follow suit. Thank you for leading this extremely important initiative. Having cryptographic proof of an exchange’s solidity is a serious game changer.”
Binance’s snapshot was taken on November 22, 2022 at 23:59 (UTC) and records show that Binance’s onchain reserves equal 582,485 BTC, while customer balances equal 575,742 bitcoin. That gives Binance a reserve ratio of around 101%, and the blog post has a section that says users can “click to verify” their BTC holdings on Binance. In order for users to verify balances and transactions, they can log into Binance and click the audit button in the wallet section. “You will be able to find Merkle Leaf and Record ID on the page,” explains Binance.
In addition, Binance has revealed upcoming plans for the POR list which include:
ZK-SNARKs for PoR will allow proof-of-reserves on Binance’s leverage services. “Because Binance offers margin and lending services, the audit results will show the net balance, equity and debt of each user, where net balance = equity – debt,” Binance’s blog post concludes. “As such, there will be individual users who have negative asset balances. We are therefore also working on implementing ZK-SNARKs, which will be used to prove that users have enough other assets to cover the funds with certainty. This will prove that the total the net balance (USD) of each user is non-negative.”
What do you think about Binance sharing the company’s POR related to the exchange’s bitcoin holdings? Let us know what you think about this topic in the comments section below.
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