Binance Upgrades Proof Of Reserves Verification For Better User Privacy

Binance, the world’s largest exchange by user base and trading volume, has updated its Proof of Reserve (PoR) system. update February 10th.

Binance Integrates ZK-SNARK into its PoR Verification System

The exchange has now integrated the Concise Non-Interactive Zero-Knowledge Argument, or ZK-SNARK. The exchange said that by using this architecture in their reserve confirmation system, they will be able to better protect users’ sensitive information while keeping it private from third parties.

Vitalik Buterin, co-founder of Ethereum, was the first to propose ZK-SNARK. It is a method of zero-knowledge cryptography where a user can demonstrate that they own an item or asset without necessarily revealing knowledge or interacting with the prover or verifier. Apart from this Binance implementation, ZCash relies to ZK-SNARK in their secure transactions.

Following this update, Binance announced that it has added four new tokens to its PoR system, increasing the total number of supported coins to 13. Supported assets include Bitcoin, Tron, Tether, SHIB, Solana, Chainlink, and more. The exchange plans to add more coins in the coming days.

Bitcoin price February 10
Bitcoin price February 10 | Source: BTCUSDT on Binance, TradingView

In addition to adding more coins, the exchange also open-sources its verification system.

Accordingly, any other platform or exchange interested in this style may integrate as is or with minor modifications without permission from any party, including the exchange led by Changpeng Zhao.

Binance explained that the purpose of the open source technology is to increase transparency and allow the wider community to benefit.

We are making the code for the Binance PoR system open source because we want to continue to provide greater transparency to our users so that industry peers and the community can benefit from this innovative technology.

FTX’s downfall is why users demand more transparency

In November 2022, the FTX crypto exchange filed for bankruptcy. Further investigation revealed that Sam Bankman-Fried was misusing user funds through his trading arm, Alameda Research.

This was a trigger for centralized exchanges to prove that user clients were safe. After releasing reserve confirmation statements, several exchanges including Binance, OKX, Bybit, and others have issued statements.

However, this has not stopped users from moving coins from centralized exchanges to non-custodial wallets. Users excited over $12 billion in assets in the two months from November to December 2022.

While the push for asset transparency is positive and ensures that exchanges don’t mix funds, subtleties remain about how exchanges best confirm reserves and who exactly should do it.

In particular, there are questions about whether exchanges issued proof of assets rather than proof of reserves, detailing that every coin deposited by a user was sufficiently backed and available on every network.

Binance was the first to release proof of reserves after the FTX crash. But since then, several crypto exchanges have also started to publish their proof of reserves in order to restore user confidence.

Image from Binance Academy, chart from TradingView

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