Binance CEO Changpeng Zhao (CZ) has tweet promised to his followers that it will soon proof-of-reserve will handle. This means it will make completely transparent how much bitcoin (BTC) and other cryptocurrencies they own. CZ made this known after the FTX fiasco, which eventually ended in the acquisition of FTX by Binance. The proof-of-reserve promise is in a sense a bright spot in all the negative news surrounding FTX.
Merkle tree proof-of-reserves
In the message on Twitter, from CZ, there is talk of a “merkle-tree proof-of-reserves”. He says that all crypto exchanges should use this way of transparency. This means that crypto exchanges have to demonstrate in a cryptographic way that they have reserves in cash. The CEO of Binance also refers to this as “complete transparency” and Binance is going to start doing this soon. As a result of proof-of-reserve, exchanges can demonstrate that they actually manage all customer deposits. This was not the case with FTX and everyone panicked for a so-called bank run taken care of.
However, Binance would not be the first exchange to adopt the proof-of-reserve principle. The American Kraken has had this policy since the beginning of this year. This ensures that customers have a lot more certainty about their money. Ultimately, the fall of FTX will hopefully provide a lot more reliability at all other crypto exchanges.
Crypto exchange OKX also has via Twitter announced that they will be rolling out a Merkle-tree proof-of-reserves policy in the coming weeks. According to OKX, this is an “important step to build basic trust in the industry.”
Crypto Community
A large part of the Crypto community on Twitter, CZ supports the idea that every crypto exchange should do proof-of-reserves. However, not everyone agrees that proof-of-reserves is the solution. Antonio Julianofounder of the decentralized exchange (DEX) dYdX, says this policy would not reveal all the necessary information:
The problem is that centralized exchanges (CEXs) cannot provide proof of reserves. What if you show a wallet with $20 billion. How do you know that the sum of user balances is not $30 billion? How do you know if the entity has outstanding loans? How do you know which contracts they have entered into?”
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