Binance Launches Proof of Reserve System for BTC Assets

Cryptocurrency exchange company Binance has released a new site explaining its proof-of-reserve system. The company starts with BTC reserves. Currently, Binance's reserve ratio is 101%. This means that the company has enough Bitcoin to cover all users' balances. This move comes a few weeks after the collapse of FTX, another popular crypto exchange. In FTX's case, the company faced a liquidity crisis. It stopped withdrawals because it could not meet the demand from investors and end users.

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Binance Works to Be More Transparent

Crypto companies, and especially crypto exchanges, have been trying to be more transparent about user funds since this happened. While this means sharing more information about hot and cold wallets, which may sound very credible to some, others are still not convinced. A few weeks ago, Binance took the first step by sharing its wallet addresses with billions of dollars worth of crypto assets. With this move, the company proved that it indeed has a lot of assets and can handle tons of withdrawals. However, the company did not disclose whether these were user assets, Binance's own balance sheet, or a combination of both. With the 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 very important to note that this does not include Binance's corporate assets, which are held on a completely separate ledger," the company said. Since you can't verify this with a blockchain explorer, you'll have to take Binance's word for it.

Company to Prove Reserves for Every Blockchain Asset in the Future

Binance is starting with BTC holdings. It seems easy to aggregate the amounts in each of Binance's wallets. When it comes to user assets, the company uses a Merkle tree to include all individual user accounts and create a cryptographic seal. The company 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 it is hoped that they can also cover withdrawals for lesser-known cryptocurrencies. Similarly, it is believed that the company should work with independent financial and security audit firms so that you don't have to blindly trust the company. On top of all this, the step with proof of reserves makes sense to many users.