Binance, the world’s leading cryptocurrency exchange, has followed through with its pledge to develop a proof-of-reserves (PoR) system. In an official statement, the crypto exchange announced the arrival of its proof-of-reserves system, which it claims is the the next step in its “commitment to transparency and fostering trust in the ecosystem.”
This development comes soon after Binance refrained from bailing its rival crypto exchange FTX from its financial and liquidity troubles by calling off the acquisition deal. FTX later filed for bankruptcy, and apparently owes nearly $3Bn to 50 of its largest creditors.
Binance’s proof-of-reserves system is referring to those assets that it holds in custody for users, and provides evidence that it has the funds to cover its users assets 1:1, and then some. For now, it is starting with Bitcoin (BTC) reserves. Once a user deposits one Bitcoin, the reserves of Binance increase to ensure that client funds are fully backed.
Currently, it has enough Bitcoin to cover the balances of all of its users with a total of 582,485 Bitcoin in its reserves. Its users, on the other hand, have a net balance of 575,742 Bitcoin, giving the crypto exchange a healthy reserve ratio of 101%.When it comes to user assets, Binance is using a Merkle tree to include all individual user accounts and generate a cryptographic seal.
So the fears of Binance pulling a FTX and failing to meet the surge in customer withdrawals are addressed, for now. Going forward, Binance intends to release similar proof-of-reserves systems for other cryptocurrencies, such as ETH, USDT, USDC, BUSD, and BNB.
“It is important to note that this does not include Binance’s corporate holdings, which are kept on a completely separate ledger,” the company said in its statement, adding that it would bring transparency updates in the future, which include the involvement of third-party auditors to audit its PoR results.
This development will please crypto enthusiasts and startups, who have had a forgettable year in 2022. Not only has the global cryptocurrency market shed off significant parts of its market cap, but the prices of cryptocurrencies have tumbled to new lows over the past 11 months. The collapse of FTX was simply the cherry on the cake and added to the already volatile environment in the crypt industry.
“As Binance’s user community is exponentially larger than the next largest exchange, this is a massive under-taking and will take a few weeks to develop the data for the majority of our assets in custody. We are working to get the next update out as quickly as possible to meet the community’s expectatibot,” said Changpeng Zhao, Binance founder and CEO.