Binance Launches Proof of Reserves System In Line With Its Commitment Towards Transparency

In keeping with its pledge, Binance has launched a proof-of-reserve mechanism for users of its platform. The announcement was made via Twitter by Binance CEO Changpeng Zhao. 

This launch comes two weeks after Binance announced plans to create a Merkle Tree-backed proof of funds mechanism. The proof-of-reserve mechanism became paramount following the collapse of the FTX crypto exchange. 

Launching this protocol will help Binance reassure users of its commitment to delivering transparent services. Additionally, the mechanism will allow users to verify the exchange’s holdings at all times.

According to information on the Binance website, Bitcoin is the only digital asset available through the proof-of-reserve mechanism. However, over the next few weeks, other digital assets will be added to the system.

In addition to adding other tokens, the POR mechanism is set for several transparency updates. These updates include audits of POR results by third-party auditors. There are also plans to implement ZK-SNARKS into the proof-of-reserve mechanism.

Before the launch of this mechanism, Binance had published information about its on-chain activity and wallet addresses to the public. The launch of the POR mechanism was welcome by crypto enthusiasts and traders. There are expectations that other platforms in the crypto space will follow this example by developing their proof-of-reserve mechanisms.

Although Binance pioneered the idea of releasing proof of funds, other platforms have adopted the idea. Crypto exchange Bybit released its wallet addresses to the public on Nov 16, a week after FTX collapse. Other platforms like OKX, Crypto.com, Bitfinex,  and KuCoin have also shown proof of funds to the public.

Public Reaction

While most applauded and acknowledged the efforts of the Binance team, some have found issues with what Binance's Proof-of-Reserves does not contain.

In a tweet, Kraken CEO and co-founder Jesse Powell called it a pointless process. According to Powell, the PoR must include liabilities as that will help people understand whether an exchange has more crypto in its custody than it owes to clients.

CZ’s Response

Responding to Powell’s accusation, Binance CEO Changpeng 'CZ' Zhao refuted by sharing Binance's upcoming plans that involve third-party auditors to audit the exchange's proof-of-reserve results.