Your guide to Bitcoin, Ethereum and Web 3.0

There is no doubt that the crypto industry is at an inflection point. In recent months, a series of scandals – including bankruptcies, insider trading and unorthodox withdrawals – have shaken fragile trust in the ecosystem.

Rana Kortam, global policy leader at Binance, said Decrypt that “the challenges have definitely underlined the need to do more,” insisting that “we all have a role to play,” to provide additional protection for users and investors, and build for the long term.

In the US and elsewhere, the authorities have cracked down hard on individuals and companies they consider to be breaking the regulations with criminal proceedings and heavy fines. In Europe, banks were asked to assign crypto the highest possible risk rating and cap their holdings – showing that the crisis of confidence is still unfolding. Centralized crypto exchanges (CEX), where user funds can be stored, have been most affected by the crisis.

Build trust

Binancethe largest CEX by trading volume globally, was one of the first to recognize the colossal challenge facing the industry.

Over the course of last year, the firm began introducing measures around transparency and trust, culminating in a new, actionable framework with guidelines for centralized exchanges, and for the wider community to use (if they wish to do so), and accompanied by a dedicated Building Trust landing page.

First and foremost, the guidelines deal with the handling of customer funds; they describe what any centralized exchange should do in terms of transparency – including what kind of disclosures can be expected and the safeguards that CEXs can put in place, in addition to those required by regulation.

The framework is designed to be useful to users and decision-makers in the wider industry, as well as centralized and decentralized exchanges, and Kortam hopes to get feedback from all of these groups so that the industry “can continue to raise the bar.”

One piece of information about this effort is the Trust Building Landing Page, a place where Binance users can see all the new measures implemented, including the various proof of reserves systems; a review of how to check one’s own reserves and Binance’s on-chain reserves, as well as wallet addresses, educational materials and details on where it is regulated and what “licenses, registrations or other regulatory approvals we have,” Kortam explained.

The area is a lively hub for material related to trust and transparency. Additional content or future iterations of guidelines, new regulatory policy documents, regulatory best practices and more.

Kortam, whose background in public policy and public affairs includes stints at tech giants Google and Uber, as well as fast-growing global fintech Revolut, is keen to point out that Binance doesn’t claim to have all the answers.

The proposed framework, launched last week, is not the end but the beginning of the journey, especially when it comes to transparency and wallet security. It is also designed to work hand-in-hand with regulations, which are needed “to address specific risk-based issues in a way that reduces bad actors, protects users and enables innovation,” she added.

ZK and you shall find

Binance’s efforts to increase trust and transparency gained additional momentum in November 2022, when the exchange published its wallet addresses, “so that the community can verify that we have sufficient holdings of user funds in our reserves,” Kortam explained.

In November 2022, the exchange introduced the first version of a proof of reserves system that relies on Merkle Trees, a technology that allows blockchains to be more efficient and reliable by organizing data in a specific way, thus giving users a new tool to verify that their assets are in the custody of Binance if they choose to store them online.

The exchange’s self-custodial solutions, such as Trust Wallet, were upgraded with additional improvements and security features, and Binance published a wealth of content around “various wallet options; various security and custody solutions available to our customers, said Kortam.

The system is also evolving. In November 2022, Binance CEO Changpeng “CZ” Zhao revealed that the exchange would be a “guinea pig” for a new proof-of-reserve protocol developed by none other than Ethereum founder Vitalik Buterin.

In February, just months after it introduced proof of reserves, Binance upgraded to a new open source system using zk-SNARKs, a technology that has been a cornerstone of blockchain innovation. The technology enables crypto users to send transactions on a blockchain in a fully encrypted manner while demonstrating that they occurred in a legitimate manner.

They represent a significant improvement over Binance’s previous proof of reserves system, Kortam said. In particular, the new system can demonstrate that all user balances in Binance’s custody add up to the claimed sum, she explained. Thus, “we prove that we have all user balances in custody; we have reserves and user assets, one to one, and it can also verify that the total balance of a single user cannot be negative, which was one of the shortcomings of the previous solution , she added.

Back to school

Much of Binance’s work with trust revolves around education. The exchange has around 400 articles and videos, as well as free online courses on the Binance Academy website, and has partnered with universities around the world for targeted programs. Much of the educational content is open source.

Other companies, and even law enforcement agencies, have used these resources for training purposes, says Kortam. The exchange has also worked with them directly, she adds.

“The more R&D, the more we have to do better on education and trust,” Kortam said. She explained that users need to see that their balances are safe and that centralized exchanges can honor withdrawals of assets held in their custody.

Feedback from the community

The steps Binance has already taken are part of a broader effort to increase confidence in the crypto industry, Kortam said. Børsen is already working with other industry players, as well as various associations and community leaders, to increase trust, she says.

This community was quick to provide feedback on the exchange’s latest proof of reserve innovation, which is open source so it can be easily adopted or adapted, and Binance has already acted on some of the feedback.

“We don’t believe that trust or security is proprietary,” Kortam said. “Every company, every actor has the same duty to build trust in the industry and raise the standard across the board.”