Binance Upgrades Proof Of Reserves Verification For Better User Privacy

Binance, the world’s largest exchange by user count and trading volumes, has upgraded its proof-of-reserve (PoR) verification system, per an update on February 10.

Binance Integrates ZK-SNARK In Their PoR Verification System

The exchange has now integrated “Zero-Knowledge Succinct Non-Interactive Argument of Knowledge” or ZK-SNARK. By using this architecture in their proof-of-reserve verification system, the exchange said they would better protect sensitive user information, keeping them private from third parties.

Vitalik Buterin, the co-founder of Ethereum, first suggested ZK-SNARK. It is a zero-knowledge cryptography method where a user can demonstrate that they own an item or asset without necessarily disclosing the knowledge or interacting with the prover or verifier. Beyond this implementation by Binance, ZCash relies on ZK-SNARK in its shielded transactions. 

Following this upgrade, Binance has revealed that it has added four new tokens to its PoR system, pushing the total number of coins supported to 13. Assets supported include Bitcoin, Tron, Tether, SHIB, Solana, Chainlink, and others. The exchange plans to add more coins in the days ahead. 

Besides adding more coins, the exchange is also open-sourcing the code behind its verification system. 

Accordingly, any other platform or exchange interested in this style can integrate as it is or with minor tweaks without seeking permission from any party, including the Changpeng Zhao-led exchange. 

By open sourcing, the technology, the objective, Binance explained, is to increase transparency and allow the broader community to benefit.

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

The Fall Of FTX Is Why Users Demand More Transparency

In November 2022, crypto exchange FTX filed for bankruptcy. Further investigations revealed that Sam Bankman-Fried misused user funds through its trading wing, Alameda Research. 

This was a trigger for centralized exchanges to prove that user clients were safe. By issuing proof-of-reserve statements, several exchanges, including Binance, OKX, Bybit, and others, issued statements.

Still, this didn’t prevent users from moving coins from centralized exchanges to non-custodial wallets. Users moved over $12 billion of assets in two months between November and December 2022. 

While the push for asset transparency is positive and ensures that exchanges don’t commingle funds, there remain fine points on the best ways for exchanges to conduct proof-of-reserves and who exactly should do it. 

Proof of reserves using zero knowledge could have prevented this whole mess…

who’s building a solution to hold centralised actors in crypto accountable?

— Jamie Burke (@jamie247) November 12, 2022

Specifically, there are questions about whether exchanges were issuing proof-of-assets rather than proof-of-reserves, detailing that every coin deposited by the user was sufficiently backed and available in every network. 

Binance was the first to publish its proof of reserves following the FTX collapse. But since then, multiple crypto exchanges have also moved to publish their proof of reserves in an effort to restore user confidence.