Binance, the world’s largest crypto exchange, has implemented a new proof of reserves protocol meant to enhance “privacy, security, and reliability.” Utilizing advanced, zk-SNARK zero knowledge proof technology, the new Proof of Reserve (PoR) enables users to verify that all of their holdings are backed 1:1 and show that Binance has additional reserves to cover user assets, a company spokesperson said.
According to a press release from the spokesperson, Binance added this new private, secure verification system in response to calls for greater security and transparency to protect users and investors across the crypto industry. Binance is making the code for its PoR open-source to provide additional transparency so that any user can verify their holdings and others in the industry can benefit from the technology.
Binance's new PoR Verification System features novel zk-SNARK technology that is private, secure and "would require an unfeasible amount of computational power to break its security", the press release said. The release cites Polyhedra Network, a Web3 infrastructure builder, which has said that modern zero-knowledge proof systems are so secure they are essentially unbreakable.
"On Friday, Feb. 10, we made an update to our Proof of Reserve (PoR) Verification System, adding new tokens and advanced technology that further enhances privacy, security and reliability, and announced that we will be making our PoR system open-source," Binance said in the press release. "This means that we are showing evidence and proof that Binance has funds that cover all of our users assets 1:1, as well as some reserves."
Binance explained in a Feb. 10 blog post that after crypto exchange FTX collapsed in November, the crypto industry experienced a "crisis of trust" that the Binance development team has been working to overcome. The goal of the new PoR system is to restore trust by proving to the public that Binance backs all user funds 1:1, plus additional reserves. Binance took steps immediately following FTX's bankruptcy toward demonstrating PoR by releasing Merkle tree cryptographs that enabled users to verify their holdings. Binance said that although the Merkle tree represented an advancement in its transparency push, it had two shortcomings.
One shortcoming was that in order to guard users' privacy, users' holdings were represented by leaf nodes in hashes, so the Merkle root could not represent the sum of the leaf nodes, according to the blog post. The second shortcoming cited in the blog was that a malicious entity theoretically could create a fake account and enter a false balance, which would then cause the total required reserves to appear smaller.
Binance's new zero-knowledge proof protocols resolve those potential problems by ensuring that no users can have a negative balance in the Merkle tree, and that all leaf nodes are contributing to the claimed total user balance of each asset, the blog said.
Zero-knowledge proof protocols such as zk-SNARKs enable Binance to execute a computation and demonstrate to a verifier that the computation was executed accurately under certain constraints, but without having to disclose the inputs to the verifier, according to the blog post. Binance plans to publish the first iteration of user proofs using the new verification system in a follow-up announcement. It has made its code open-source so that any other crypto exchange can follow suit and generate proof of reserves for its users and assets.
"We hope this will be instrumental in pushing the transparency of the digital asset industry to a new level," the blog post said. Binance said it looks forward to receiving feedback from the community so it can improve upon this first version of the new technology.