Binance Users Can Now Verify The Bitcoin They Own Via Merkle Tree

[Fivestar4everMVP]

Binance have opened their Proof Of Reserve(POR) system to the general public, and users of the exchange can now verify their amount of Bitcoins they hold in the exchange via a Merkle Tree.

Since the FTX fiasco, alot of cryptocurrency investors have lost confidence and trust in the centralized system of holding and trading coins, many now calling for a quick adoption of decentralization since its the only way investors can truly own their crypto assets..

CZ, being the CEO of the (supposedly) world largest centralized crypto currency exchange, in the place of Binance, has been doing all he possibly can to see that trust returns to the centralized crypto holding/trading firms, he as been on the forefront advocating for a new system where centralized platforms can proof the the public that customers funds are indeed, in their custody, to give users the assurance that anytime they request for their money, they would get it.. This system is termed Proof Of Reserve(POR).

Binance, on the 25th of November, 2022 announced the launch of their proof of reserve system where users can now be able to verify the amount of Bitcoins they hold on binance via a Merkle tree.

From the root Merkle tree, it is shown that the exchange currently has BTC582,485.9302 BTC in its on-chain reserve while BTC575,742.4228 BTC belongs to customers of the exchange.

What do you guys think about this?
Do you think that if all other centralized platforms launch their POR, trust can really return to the centralized system of cryptocurrencies?

Personally, I think CZ/Binance Is doing all they can to bring transparency and trust to centralized exchanges again, but in all, this still does not change the fact that decentralization is needed at this stage, though the effort is really commendable, but by now, decentralization ought to be on everyones mind.

Let's discuss.

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[jossiel]

For every system that's been made, there will always be a loophole for it. We may not see it for now since it's just new but wait until several months or years and we'll see another fiasco.

Maybe it will be made by other competitor of Binance or it will be Binance itself.

CZ is stepping up the game for the exchanges and asking to follow him by doing such through merkle tree. On the otherhand, those that want to see their reserve funds, it's a good thing.

[Tytanowy Janusz]

From the root Merkle tree, it is shown that the exchange currently has BTC582,485.9302 BTC in its on-chain reserve while BTC575,742.4228 BTC belongs to customers of the exchange.

ok, they hold 0.5M of users BTC, but how do I know that this include mine bitcoins? How do I know if their liability is not 10x bigger (5M bitcoins) and this POR (proof of reserve) is not only a 10% fractional reserve?

________________________

CMC lauched a proof of reserve badge next to exchanges that done POW.
https://coinmarketcap.com/rankings/exchanges/

Everyone can go and check how much founds exchanges have. So far data is available for binance, kucoin, bitfinex, bybit, okx, crypto.com, huobi

CZ too is very good any PR since his twitter account is followed by almost crypto user while user that he didn’t follow can’t make a comment on his post that makes it a media manipulation.

Have you ever read comments on twitter under most viewed tweets? Its 99% a spam of "send me 1 BTC i'll send you 2 BTC back". Its not media manipulation. Its the only way to avoid spam and scams.

[ABCbits]

What do you guys think about this?
Do you think that if all other centralized platforms launch their POR, trust can really return to the centralized system of cryptocurrencies?

At very least, people can verify they hold more coin than coin belongs to the customer. People still need to trust the exchange to give them their money when they request withdraw.

[Guessti]

The question will go back again on how will user trust the data provided on the merkle tree. Yes it’s displaying my balance but who can authenticate that data provided is valid without any legal audit by 3rd party on Binance reserves. Personally as non techy, I don’t know exactly how can I guarantee the data I’m viewing will help me to trust my money on holding on exchange despite this proofs using the charts provided by them.

I just remember too the Kraken CEO made a comment about this few hours ago.

According to Powell, a complete proof-of-reserve audit must include the sum of client liabilities, user-verifiable cryptographic proof that each account was included in the sum and signatures proving the custodian’s control over the wallets.[1]

I know Binance want there users to trust them but they are doing all audit part on there own and telling people to just believe them. CZ too is very good any PR since his twitter account is followed by almost crypto user while user that he didn’t follow can’t make a comment on his post that makes it a media manipulation.

[1]https://cointelegraph.com/news/binance-proof-of-reserves-is-pointless-without-liabilities-kraken-ceo

What are you talking about? You can always verify actual balances on any block chain using any 3rd party to lookup any address, etc.

That is the point of blockchain and its value, everything is public data. It is self audit system.

You could never prove to the whole world you have x amount of gold in a vault. You can with crypto though.

[Fivestar4everMVP]

The question will go back again on how will user trust the data provided on the merkle tree. Yes it’s displaying my balance but who can authenticate that data provided is valid without any legal audit by 3rd party on Binance reserves. Personally as non techy, I don’t know exactly how can I guarantee the data I’m viewing will help me to trust my money on holding on exchange despite this proofs using the charts provided by them.

Well, if you go through their announcement article which I believe I also shared in the OP,  if you read it all through, you will discover that they have plans for third party audit in the works, and also some other implementations which they believe will give users the assurance that POR data is authentic, you can see the part in the screenshot below.
Like I said in the OP, I personally believe in decentralization and it will take something much more than POR for me to ever fully trust a centralized system the same way I trust a decentralized system, but then, the POR thing I think is a good implementation, atleast better than nothing, soon, investors and traders will start avoiding exchanges that does not show their POR..

[franky1]

From the root Merkle tree, it is shown that the exchange currently has BTC582,485.9302 BTC in its on-chain reserve while BTC575,742.4228 BTC belongs to customers of the exchange.

ok, they hold 0.5M of users BTC, but how do I know that this include mine bitcoins? How do I know if their liability is not 10x bigger (5M bitcoins) and this POR (proof of reserve) is not only a 10% fractional reserve?

because your balance is part of the account which totals the same as the blockchain holding

EG - i  really simplifying it down to most basics to show how merkles can be used

imagine 2 pages of excel
page one is all the coins on blockchain held by a service. which totals 575k btc

and page 2 is customer balances which total 575m
where your name (hashed for privacy) is on page 2.
where other users are not revealed due to hashes to others knowing real names .. but they too can find their own reference hash in that page 2 list

EG
page 1                             page 2
deposits                          user accounts(not in order)
1legacyuserA 10btc          da42dab49777512b8f425b43a493816c -4btc
1legacyuserB 4btc            01880749a3a55a34659994ef23dcf0c3  -10btc
1legacyuserC 15btc          9db3b3f7b608880d0a7d19a5cc611fb8 -11btc
1legacyuserD 11btc          e8836d7e6bcf77e6e9454b5c1f6ebbdf -15btc

                                       then take the first 2 da42+0188. hash them
                                       =95f309a30aac743c459b24afe8c9e51f -14btc
                                       then take the second 2 9db3+e88. hash them
                                       =d0569e38584ec9ff272270ebf9b37d7d  -26btc

                                        then take those two 95f3+d056 hash them
                                        39cc18deff1270d8436687dc5a458e54 -40btc
total 40btc in custody        

imagine you are first depositor userA of page1
and are the 0188 prefix hash of page 2

for demo i MD5 "Tytanowy Janusz - 10btc"
and for instance MD5 "userC - 15btc" is the 9db3 prefix hash

you can see your allotment hash is part of a accounting process which totals the same as page 1 total

as long as a users allotment is in that total the user is seen as being counted/included. thus "safe"

ofcourse its not 100% proof because a exchange can simply one day shout "we been hacked" and take all coins. but atleast being seen and counted is a better standing than having no count not included in any count

[hZti]

This is somehow good and somehow bad, since it makes everything more secure but at the other hand it will make people trust exchanges to store coins which is fundamentally wrong. There will definitely an exchange in the future that will anyway steal the coins. Since even if I can see that the exchange holds my BTC no Indy stops them from stealing them and run away with them. (See MT Gox, BTC-E or FTX) It gives a proof of something that is basically pointless.

[hatshepsut93]

This is somehow good and somehow bad, since it makes everything more secure but at the other hand it will make people trust exchanges to store coins which is fundamentally wrong. There will definitely an exchange in the future that will anyway steal the coins. Since even if I can see that the exchange holds my BTC no Indy stops them from stealing them and run away with them. (See MT Gox, BTC-E or FTX) It gives a proof of something that is basically pointless.

Well, we need somebody to store their coins on exchanges to provide liquidity for the markets. Bitcoin network has less than a million transactions per day, while a single exchange has more trades than that for BTC/USD, not even considering other pairs. If no one held their coins on exchanges, trade volumes would shrink and BTC would be more volatile in short term. And the overall price could be lower as the result.

Maybe in the future, when LN is well integrated by exchanges, traders would move BTC instantly between their wallets and exchange with negligible fee, but right now it's not happening, sadly.

[hZti]

This is somehow good and somehow bad, since it makes everything more secure but at the other hand it will make people trust exchanges to store coins which is fundamentally wrong. There will definitely an exchange in the future that will anyway steal the coins. Since even if I can see that the exchange holds my BTC no Indy stops them from stealing them and run away with them. (See MT Gox, BTC-E or FTX) It gives a proof of something that is basically pointless.

Well, we need somebody to store their coins on exchanges to provide liquidity for the markets. Bitcoin network has less than a million transactions per day, while a single exchange has more trades than that for BTC/USD, not even considering other pairs. If no one held their coins on exchanges, trade volumes would shrink and BTC would be more volatile in short term. And the overall price could be lower as the result.

Maybe in the future, when LN is well integrated by exchanges, traders would move BTC instantly between their wallets and exchange with negligible fee, but right now it's not happening, sadly.

That is actually a very good idea. An exchange where your coins are sent directly to the wallet of the buyer. Maybe there could be a model where there is a refund issued by the exchange if the coins are not recived within an hour. Still there is the problem with fees and also that people may not send the coins at all if they see the price went up in the timeframe they have.

[bittraffic]

This is cool. Other exchanges I think will like to also open thier balances to all so that people will see thru which one is insolvent and we be aware of what might happen and prevent another SBF in this industry.

CZ is quick to have this transparency. Because he was already criticized for taking the step for the POR by the guys who promoted FTX particularly MeetKevin and his friends such as Stephan Graham.

[Cruxleo]

Trust when lost is generally difficult to get back, even between nations, marriages and mere friendship. The POR initiative is commendable for sure but it's actually not enough to savage the situation. Binance had a clear chance to remedy the whole outburst initially by going on to acquire FTX but backing out of the deal and letting them down suggests they actually cared more about their prominence in the domain than whatever.

[Lucius]

People, don't be naive and don't believe the fairy tales presented to you by various CEOs who have never done anything for Bitcoin, nor will they ever do it. In the fear that people will start massively withdrawing their funds from CEX, they invented that POR and now they are competing to show the bigger numbers as if that means that those who have the most BTC in their possession deserve people to trust them more than some others.

Well, Binance is very poor compared to what Coinbase supposedly has - and when everything is added up, let them make sure that the total amount does not exceed 19 million BTC

In a series of tweets, Coinbase CEO Brian Armstrong says the largest US-based crypto exchange platform holds about 2 million BTC, which translates to $33.12 billion at Bitcoin’s current price of $16,561.

[DdmrDdmr]

As far as I’m aware, Besides Binance, OKX and Phemex are using the same Merkle Tree method; it may become somewhat widespread. We’ll see.

They don’t currently allow people to trace all their assets though: Binance has implemented it only for bitcoin so far, OKX has it for bitcoin, ethereum and usdt, and Phemex does it for bitcoin, ethereum, usd, usdt and usdc.

They do differ is the actual verification process, some requiring downloading CSV with the whole snapshot of <CustomerId hash, asset amount>, others requiring executing some python code, some list a set of addresses that hold the coins, others additionally provide a files with a signed message to prove those addresses are theirs. Formal audits-to-be mentioned here and there too.

The overall idea is that the sum of all balances for a given asset, of all customer account hashed ids, is to be less than or equal to the balance for that asset in the published list of addresses for that asset in control of the given Exchange.

Of course we have to believe that all customers (probably with a non-cero balance, I’m not sure here) are actually included within the data structure that ties the CustomerId hash to its balance for the asset, and that none are left out. But since each customer can verify his inclusion in the data structure, any left out customers could call the whole thing a bluff were it to happen.

Note: Proof of reserves is not proof of unhackable reserves.

[cabron]

Could this become a standard for all exchanges to implement?

It would kill the exchanges that have nothing in thier balance but thier own token. It's not really an issue of whether exchanges have tons of coins but just the trust to open it for the public to see. This is a game for CZ to look thru the balances of every competitor he has and I think he is really up to see who is losing the game.

[DooMAD]

If a kidnapper sent out a ransom note and included proof of life, would you applaud them on their efforts and say it made them more trustworthy?

Of course not.  The kidnapper could still act against your wishes because they hold hostage what you hold dear.  You are powerless.

Use that mentality when it comes to your BTC.

[o_e_l_e_o]

This proves nothing. We all know Binance own some bitcoin. What we don't know is if Binance own enough bitcoin to complete cover all their liabilities. And without proof of liabilities (which is not being provided nor will be forthcoming), then this whole thing is smoke and mirrors designed to trick newbies who don't understand any better. Just like most of what Binance do (such as their centralized scamcoins masquerading as bitcoin).

CMC lauched a proof of reserve badge next to exchanges that done POW.

Oh look. Binance owned CMC rates Binance as the best. There's a surprise!

Of course we have to believe that all customers (probably with a non-cero balance, I’m not sure here) are actually included within the data structure that ties the CustomerId hash to its balance for the asset, and that none are left out. But since each customer can verify his inclusion in the data structure, any left out customers could call the whole thing a bluff were it to happen.

So they release one Merkle tree which includes 50% of customers, and a second Merkle tree which includes the other 50% of customers. Every customer can check they are included and see that their balances are "fully backed up", even though they are actually running at a 50% deficit. Or even more trivially than that, they simply create a fake account on Binance and credit it with negative 500,000 BTC. Include that in the Merkle tree and oh look! Everything checks out just fine. Not only is it completely trivial for them to do this, but it is also impossible to prove they are not doing this and impossible for anyone to verify anything at all.

This proves nothing. If you leave coins on any centralized exchange after the events of the past few months, then you absolutely have no one to blame but yourself when you lose everything.

[hZti]

This proves nothing. We all know Binance own some bitcoin. What we don't know is if Binance own enough bitcoin to complete cover all their liabilities. And without proof of liabilities (which is not being provided nor will be forthcoming), then this whole thing is smoke and mirrors designed to trick newbies who don't understand any better. Just like most of what Binance do (such as their centralized scamcoins masquerading as bitcoin).

And even if they did show their liability’s it is still like they own the keys to your house, that you yourself don’t have the keys to. They can come at any time and steal or loose your coins. Because not your keys not your coins.

[Odusko]

This is somehow good and somehow bad, since it makes everything more secure but at the other hand it will make people trust exchanges to store coins which is fundamentally wrong. There will definitely an exchange in the future that will anyway steal the coins. Since even if I can see that the exchange holds my BTC no Indy stops them from stealing them and run away with them. (See MT Gox, BTC-E or FTX) It gives a proof of something that is basically pointless.

I don't think this new feature is any thing new and should not be celebrated in any form, however, we still have some exchange balance tracking sites so this is nothing new and the automate questions should be.
1: How true is the volume shown on the wallet to represent the actual funds in exchange possession?
2: what are the institutions that will audit this balance to assure it accuracy and total control if anything goes wrong with the Exchange.
I made a post about this development some couple of days back you may take a look.

CoinMarketCap, a leading market researcher and tracker in the crypto industry, announced the launch of a new feature on its platform that gives users updated financial insights on exchanges.

The proof of reserves (PoR) tracker audits active cryptocurrency exchanges in the industry for transparency on liquidity at a given moment. According to the announcement, the tracker details the total assets of the company, and its affiliated public wallet addresses, along with the balances, current price and values of the wallets.

CoinMarketCap reports the PoR trackers will update data every five minutes. On Nov. 22, the company tweeted a guide for users on how to navigate the tool.

As recent unfavorable events in the cryptocurrency market in the past few days-weeks get more tough, with cryptocurrency businesses crashing and funds getting locked up on exchanges, coin market capitalization one of the leading cryptocurrency researchers and databases watch have introduced a new feature on the site, we're cryptocurrency users can see exchanges reserve and public wallet balance.
This development was announced on the platform tweeter handle.

this development from the coin market cap is a welcome development since recent events show that the CEO of exchanges is taking funds that are available for the running of the exchanges and putting it into other ventures or financing their personal lifestyle. E.G FTX exchange situation.
With this feature, the current financial conditions of exchanges are made public even though this can not solve the problem of exchange crashes and hacks in totality it will help to monitor their current balance to see what their reserve hold.

[Minecache]

CZ too is very good any PR since his twitter account is followed by almost crypto user while user that he didn’t follow can’t make a comment on his post that makes it a media manipulation.

Have you ever read comments on twitter under most viewed tweets? Its 99% a spam of "send me 1 BTC i'll send you 2 BTC back". Its not media manipulation. Its the only way to avoid spam and scams.

I’m aware on this but choosing only who will reply on his topic is a form of media manipulation too as far as I know. That spam post is just a minimal reason to turn the comment off from his post for those he didn’t choose to comment.

The way I view it, He only wants to see positive response on all the opinion he is trying to post on his social media account. CZ is not an ordinary crypto influencers and newbie that reads his post same as the reply will easily believes since no one giving a criticism on his post that he limits through censorship that I mention above.

Vitalik Twitter and other influential person in crypto doesn’t have this feature on the comment section of there post because they are often to criticism.

I don't think it's media manipulation, today's information is not only concentrated on twitter, twitter is not the only or most popular social network. Nowadays market issues are discussed everywhere and as soon as there is a question people quickly find out and spread it on all social media channels. I don't know what the exact reason is but I think it's not media manipulation. I don't follow CZ and Elon on twitter but I've been using reddit a lot lately and their tweets are often discussed on reddit and I haven't seen any hypothetical as you say.