Binance launched a Proof-of-Reserve (PoR) tool available for every client. So far, the system verifies only reserves in BTC. More coins will be added in the coming weeks. Users must log in to check if their bitcoins are backed by reserves.

Binance notes that this is not the latest version of the Proof-of-Reserve tool. Binance also plans to involve third-party auditors to audit PoR results and implement zk-SNARKS.

“As such, there will be individual users having negative asset balances. We are hence also working to implement ZK-SNARKs, which will be used to prove those users have enough other assets to cover the funds with collateral. This will prove that the total net balances (USD) of each user is non-negative.”

As of November 22, Binance had 582,485 BTC in reserve, while its users have 575,742 BTC in their wallets. Accordingly, Binance can fulfill all obligations to customers in BTC with a ratio of 101%.

Users can check the existence of bitcoins from their accounts. This information is confirmed using a Merkle tree, a cryptographic principle that encrypts large amounts of data, allowing to get confirmation of the correctness of the data without fully revealing it. Once logged into the exchange, users can click the "Wallet" button and then "Audit", which will generate a unique identifier confirming the full coverage of their deposits in BTC.

However, not everyone was satisfied with the actions of Binance. Jesse Powell, the founder of Kraken, criticized the initiative calling it useless.

“I'm sorry but no. This is not PoR. This is either ignorance or intentional misrepresentation. The merkle tree is just hand wavey bullshit without an auditor to make sure you didn't include accounts with negative balances. The statement of assets is pointless without liabilities.”

“The whole point of this is to understand whether an exchange has more crypto in its custody than it owes to clients. Putting a hash on a row ID is worthless without everything else.”

The initiative to proму reserves is a hot trend on crypto market that was inspired by FTX's meltdown. The management of FTX used the funds of their users for other purposes. As a result, the company's balance sheet had a noticeable hole. When Binance decided to sell a large batch of native FTX tokens, FTT, traders rushed to withdraw assets from FTX. Due to the already existing hole in the balance, FTX didn't have enough coins to meet the demand. As a result, FTX went bankrupt.

Naturally, the reputation of other popular centralized exchanges suffered. All centralized exchanges began to be suspected of similar actions - albeit without any evidence. In response, trying to restore thei reputation, trading platforms began to reveal their reserves. Thus, they want to prove that they do not abuse the funds of traders and investors, but only keep them.

But the very first steps in this direction only aggravated the situation. So, the scandal erupted around Gate.io and Crypto.com. Users noticed that Crypto.com for some reason sent a large transaction in ETH to Gate.io. This happened neatly before Gate.io revealed its reserves. And then the coins were returned to Crypto.com. The latter tried to explain the movement of coins as a mistake, but after all those lies from FTX, no one wants to believe in such explanations.