PoR certified for Binance: Bitcoin reserves are guaranteed
PoR certified for Binance: Bitcoin reserves are guaranteed
Crypto

PoR certified for Binance: Bitcoin reserves are guaranteed

By Alessia Pannone - 8 Dec 2022

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It’s official: Binance’s Bitcoin reserves are fully guaranteed, according to a disclosure by auditing firm Mazars

Indeed, after the collapse of FTX and the growing distrust of CEXs, Changpeng Zhao, CEO of Binance, himself had expressed that it was necessary for all crypto exchanges to implement a Proof of Reserves certification. 

This is why CZ requested the Mazars company to first audit his platform with regard to PoR, the results of which were positive in the past few hours. As stated on CZ’s Twitter profile: 

Mazars is one of the leading audit firms based in Paris. 

Not only that, it is also one of the best-performing international accounting firms and has previously worked for former US President Donald Trump’s company.

Binance working to reassure users: Mazars confirms the reliability of the exchange 

Recently, auditing firm Mazars released a report on Binance’s BTC reserves. Notably, the audit firm came to the same conclusion as Binance itself. 

As of 22 November at 11:59 PM (UTC), Binance held enough Bitcoin to cover all user balances on the exchange.

As a matter of fact, Binance had already launched a Proof of Reserves website almost two weeks ago to reassure its users after the collapse of FTX . Today’s audit only confirms that Binance is not lying.

However, as usual, there are some limitations with these Proof-of-Reserve efforts. 

The biggest among them is that Binance is focusing only on BTC for now. If, for example, people hold other cryptocurrencies, there is no Proof of Reserves system yet.

Although Bitcoin is the most popular cryptocurrency, Binance also offers hundreds of different ones. So, hopefully this is just a first step on CZ’s part. 

Similarly, both Binance and Mazars reviewed BTC reserves on 22 November at 11:59 PM (UTC), and while it is difficult to provide a snapshot, Binance did not commit to a time sequence for its Proof of Reserve reports. For example, the cryptocurrency exchange might share data every week or every month.

What’s in Binance’s PoR: the Merkle tree 

Logically, after hearing about a positive outcome for Binance’s PoR, the question arises as to how it is constituted and how it functions. Specifically, what is in Binance’s Proof of Reserves system and Mazars’ review report? 

It is important to first point out that Binance uses a Merkle tree to include all individual user accounts and generate a cryptographic seal. This Merkle tree covers user balances on several Binance products: Spot, Funding, Margin, Futures, Earn, and Options Wallet.

In addition, Binance also listed all the wallets that hold clients’ assets. So, blockchain explorers allow a way to obtain the balance of crypto wallets simply by looking at the public addresses of those wallets. 

PoR’s report between Binance and Marzas

Binance discovered that its users collectively held 575,742.4228 BTC ($9.7 billion at today’s exchange rate) and that it has enough BTC and wrapped BTC to cover 101% of those funds. Hence, they contacted Mazars so that the auditing firm could independently verify what the cryptocurrency exchange was saying.

Mazars then asked Binance to execute small transactions at a specific time to prove that the wallets were indeed under the platform’s control. It also used a different method for some wallets. In that case, Mazars used Etherscan and BSCscan to verify that the ETH and BSC wallets belonged to Binance.

The auditing firm verified the scripts that Binance is using to extract the total value in user accounts. Mazars also verified that there was no duplication of user IDs and built its own Merkle tree using this open source script developed by SilverSixpence

Some users, for example, have a negative BTC balance because they used the margin and lending service with other cryptocurrencies as collateral. Indeed, in the commentary to the audit report, Binance said: 

“Binance’s margin and loan products are always over-collateralized and subject to additional risk controls (such as automatic liquidation). These products ONLY use funds from customers who are actively using Binance Earn products such as savings whose terms allow.”

When everything is taken into account, Mazars and Binance come to the same conclusion regarding BTC reserves. So, this is definitely a good step in terms of transparency. Now, all that remains is to hope for more announcements in the coming weeks.

Though, it tends to be difficult to be disappointed when it comes to CZ. 

Alessia Pannone

Graduated in communication sciences, currently student of the master's degree course in publishing and writing. Writer of articles from an SEO perspective, with care for indexing in search engines.

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