Binance Launches Proof-of-Reserve System for BTC Holdings

Cryptocurrency exchange company Binance has released a new site this explains his reserve proof system. The company starts with BTC reserves. Binance currently has a reserve ratio of 101%. This means that the company has enough bitcoins to cover the balances of all users.

The move comes a few weeks after FTX crash, another popular crypto exchange. In the case of FTX, the company is facing a liquidity crisis. It stopped processing withdrawals because it could not meet the 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. This means sharing more information about hot and cold wallets. But there is still a lot of work to do before you can fully trust crypto exchanges and how they handle funds.

A few weeks ago, Binance started sharing wallet addresses with billions of dollars worth of crypto assets. With this move, the company proved that it really has a lot of assets and can process a lot of withdrawals. But the company did not make clear whether these were user assets, or Binance’s own balance, or a combination of the two.

With today’s new Proof of Reserve site, Binance clarified this point by saying that BTC wallets included in the Proof of Reserve system do not include Binance’s own funds.

“It’s important to note that this does not include Binance’s corporate shares, which are kept on a completely separate ledger,” the company says. You’ll have to take Binance’s word for it as you can’t verify this with blockchain explorer.

Binance starts with BTC holdings. Adding the amounts to any Binance wallet is easy. As for user assets, the company uses a Merkle tree to include all individual user accounts and generate a cryptographic seal.

As of November 22 at 23:59 UTC, Binance users collectively held 575,742.4228 BTC — that’s about $9.5 billion at today’s exchange rate. And Binance had enough bitcoins in its own wallets to cover 101% of those funds. 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 underlying hash to verify that their accounts are included in the snapshot of user balances. Binance says it includes user balances in various products – spot, financing, margin, futures, profit and options wallet. The company also provides a short Python script so you can check for yourself.

“Given recent events, it is understandable that the community will demand more from crypto exchanges, much more than what is currently demanded from traditional financial institutions. We are therefore pleased to provide this latest feature for our 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 massive undertaking and will take several weeks to develop the data for the majority of our assets in custody. We are working to release the next update as quickly as possible to meet the community’s expectations.”

The company already plans to publish similar Proof of Reserve information for ETH, USDT, USDC, BUSD and BNB in ​​the future. Binance offers hundreds of different crypto assets, so hopefully they can cover withdrawals for lesser-known cryptocurrencies as well.

Likewise, the company should work with independent financial and security audit firms so that you don’t just have to blindly trust the company. There’s still a long way to go, but at least today’s new proof-of-reserve system is a step in the right direction.

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