Binance announced a huge upgrade to its proof-of-reserves verification system on February 10, stating that it will now incorporate zk-SNARKs. This cutting-edge technology will enable it to validate its reserves in a more secure and transparent manner.
This upgraded PoR mechanism currently allows confirming the exchange’s reserves for thirteen distinct crypto assets. In addition, the improvement will certify that funds held on the platform are backed 1:1 while protecting the confidentiality of sensitive user data.
Binance upgrades PoR to include zk-SNARKs
After the collapse of FTX in 2022, proof-of-reserve verification became an important component of the cryptocurrency business, as it helps verify that exchanges possess the assets they claim to hold. Binance was one of the first exchanges to use the technology, employing standard cryptography at first. However, the latest improvement to integrate zk-SNARKs should dramatically enhance the process’s security and transparency.
The zk-SNARKs improvement, which Ethereum founder Vitalik Buterin initially proposed, will give “more privacy and security,” according to Binance CEO Changpeng Zhao. According to him, this is a significant advancement in PoR technology. Everyone in the business has access to our open-source PoR system, allowing us to supply all users with the SAFU they require.
Zk-SNARKs, abbreviated as “zero-knowledge” Succinct non-interactive argument of knowledge” is a cryptographic approach that enables one party to demonstrate to another that they possess a specific quantity of assets without disclosing any more information. This purportedly makes it a superior alternative for confirming Binance’s reserves since it enables the exchange to demonstrate the presence of its assets while protecting sensitive information.
Continuing the efforts in providing transparency on user funds, Binance is excited to introduce zk-SNARKs, a zero-knowledge verification method that keeps sensitive information private and more secure, to its proof-of-reserves (PoR) verification system.
The exchange added this feature in response to growing investor concerns about the safety of their funds on bitcoin exchanges. Binance previously announced a PoR method that was primarily based on the Merkle Tree – a data structure used in cryptography that can be utilized for verification.
The Binance team determined that the Merkle Tree-based approach alone was insufficient for user privacy, so it added support for zero-knowledge proofs.
Crypto exchanges lean towards zk-SNARKs
In the wake of the FTX crisis, Binance, along with other large exchanges, including Crypto.com, Bybit, and OKX, implemented a Merkle-tree-based proof-of-reserves mechanism. However, despite these efforts, some analysts continue to doubt the system’s effectiveness.
Paul Munter, the acting chief accountant of the Securities and Exchange Commission, raised concern in an interview with The Wall Street Journal that proof-of-reserve filings may not give adequate data for stakeholders to establish a company’s financial viability. Despite these complaints, Binance and other exchanges are committed to increasing openness in the crypto industry.
With the addition of zk-SNARKs, the PoR system of the exchange now supports a total of thirteen cryptocurrencies. As part of the release, the crypto exchange stated that it had included SHIB, DOT, CHZ, and SOL in its proof of reserves report.
The adoption of zk-SNARKs by Binance is the final phase in a transparency plan set in November 2022. Obtaining the services of a third-party auditor to assess its proof-of-reserves was part of its strategic plan. Unfortunately, this endeavor has been endangered by auditing firm Mazars’ departure from the cryptocurrency market. Mazars was the accounting company that carried out the agreed-upon procedure for the first proof-of-reserves report of the exchange.
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