Binance’s Commitment to Transparency: The August 2023 Reserve Report
Binance, the leading global cryptocurrency exchange, has recently unveiled its August 2023 reserve report. The report reveals a reserve ratio significantly exceeding 100% for all its major cryptocurrency holdings, underscoring the exchange’s robust financial health.
This disclosure is part of Binance’s ongoing commitment to uphold a Proof of Reserves (PoR) system. The PoR system provides evidence that Binance holds sufficient funds to cover all customer deposits. The report is based on an audit for BTC Block Height 801130, with aggregated data updated to August 1st, 2023.
Proof of Reserves (PoR) is a transparency protocol that verifies the solvency of a cryptocurrency exchange. It serves as evidence that the exchange holds enough funds to cover users’ assets on a 1:1 ratio. In essence, when a user deposits a Bitcoin, Binance’s reserves increase by at least one Bitcoin, ensuring all client funds are fully backed. These figures do not include Binance’s corporate holdings, which are kept separate.
Binance’s PoR Report: A Closer Look at the Numbers
Binance’s PoR report indicates that the exchange’s reserves significantly surpass the customer net balance for all reported cryptocurrencies, including Bitcoin, Ethereum, Binance Coin, Tether, BUSD, and USDC. The reserve rates range from 101.62% to 117.99%, demonstrating that the company has ample reserves to meet all potential customer withdrawals.
The PoR system aims to enhance transparency, safety, and user protection in the cryptocurrency ecosystem. It discourages exchanges from misusing user funds and fosters trust among users. In line with this, Binance allows users to verify their account’s inclusion in the last PoR verification, further emphasizing the exchange’s commitment to transparency and user trust.
The Role of Merkle Trees and zk-SNARKs in the Verification Process
To ensure it holds all user assets 1:1, Binance has implemented a system that leverages Merkle trees and zk-SNARKs (Zero-Knowledge Succinct Non-Interactive Argument of Knowledge). A Merkle Tree is a cryptographic tool that condenses large volumes of data into a single hash, called a Merkle Root. This root acts as a cryptographic “seal” summarizing all the input data. Merkle Trees allow users to verify specific contents included within a particular set of sealed data.
In the context of PoR, Binance uses the properties of Merkle Trees to verify that individual user accounts are incorporated within the liabilities report inspected by an auditor. Each user can verify their asset holdings using their unique generated Merkle hash/record ID.
In addition to Merkle Trees, Binance also utilizes zk-SNARKs in the verification process. A zk-SNARK is a proof protocol that allows one to prove that they know a value without revealing what that value is. In the case of Binance, the exchange uses a zk-SNARK to demonstrate that all the leaf nodes’ balance sets (i.e., user account balances) contribute to the exchange’s claimed total user asset balance.
