Proof of Reserves (PoR)
Binance, a company that trades in cryptocurrencies, has made a new site that explains how its proof-of-reserves system works. The company has BTC on hand to start. Binance has a reserve ratio of 101% right now. It means that the company has enough bitcoins to pay off the balances of all of its users.
Since then, crypto companies, especially crypto exchanges, have been trying to be more open about how user funds are handled. It means talking about hot and cold wallets more. But a lot of work needs to be done before you can fully trust crypto exchanges and how they handle money.
This move comes about two weeks after FTX, another popular cryptocurrency exchange, shut down. In the case of FTX, the company ran out of money. It stopped letting people take their money out because it couldn’t keep up with the demand from investors and end users.
Binance by sharing billions of dollars
A few weeks ago, Binance began giving out wallet addresses that held crypto assets worth billions of dollars. This move showed that the company does have a lot of assets and can handle a lot of withdrawals. But the company didn’t say for sure if those are user assets, Binance’s own assets, or a combination of both.
With today’s new proof-of-reserves site, Binance made it clear that the proof-of-reserves system does not include Binance’s own funds in BTC wallets.
“It is important to note that this does not include Binance’s corporate holdings, which are kept on a completely different ledger,” the company says. You will have to take Binance’s word for it, since you can’t use a blockchain explorer to check that.
Binance will start out by holding BTC. It’s easy to figure out how much money is in each of Binance’s wallets. When it comes to user assets, the company uses a Merkle tree to make a cryptographic seal that includes all user accounts.
At 23:59 UTC on November 22, Binance users had a total of 57,574,228,228 BTC, which is about $9.5 billion at the current exchange rate. Binance had enough bitcoins in its own wallets to cover 101% of these funds. In other words, if everyone withdraws their BTC at the same time, Binance would have enough BTC to handle all withdrawals.
“Given recent events, it makes sense that the community will expect more from crypto exchanges, much more than what is currently expected of traditional financial institutions. Binance founder and CEO Changpeng Zhao ‘CZ’ said in a statement, “That’s why we’re happy to offer this new way for our users to verify their funds.” “Because Binance’s user base is a million times bigger than the next largest exchange, this is a huge project, and it will take a few weeks to get the data for most of our assets in custody. We are working hard to get the next update out as soon as possible to meet the needs of the community.”
The company already has plans to release similar proof-of-reserves information for ETH, USDT, USDC, BUSD, and BNB in the future. Binance lets you buy and sell hundreds of different cryptocurrencies, so let’s hope they can also handle withdrawals for less popular ones.
In the same way, the company should work with independent financial and security auditing firms so that you don’t have to blindly trust the company. Even though we still have a long way to go, the new proof-of-reserves system is at least a step in the right direction.