As the collapse of FTX highlights the need for more transparency among crypto exchanges, CZ Zhao Channing said Binance It is implementing a new Proof of Reserves protocol developed by Vitalik Buterin, co-founder of Ethereum.
One way for exchanges to provide investors with a clearer picture of their solvency situation is to use a crypto-based backup mechanism for accounting procedures.
The Proof of Reserves protocol, which has been around for a few years, uses the Merkle Tree algorithm to combine a large amount of data into a single hash and effectively check the integrity of the data set.
CZ promised to provide “complete transparency” through Merkle Trees by implementing the mechanism on Binance, and called on all other crypto exchanges to do the same.
However, this process can take some time. Fixed Binance . is posted A snapshot of its hot and cold portfolio headlines on November 10, the world’s largest exchange by volume, appears to be looking at alternative ways to create more transparency in its reserves.
“Usually we need a third-party auditor. Unfortunately, our first third-party auditor has been very busy because they are also a FTX reserves auditor, and as you know, there is a little bit of an audit there,” the Binance CEO said during today’s meeting. AMA in Twitter Space.
The ‘guinea pig’ of the new protocol
According to CZ, this afternoon he spoke with Buterin, who “wants to come up with some kind of new Proof of Reserves protocol and use Binance as a guinea pig, or first test case.”
“He’s very excited about it, and we’re connecting our teams to do that,” Zhao said. “Roughly, we can expect a schedule of about two weeks, which is why we’ve posted all of our cold wallet addresses for people to see right away.”
It is not immediately clear how different this new protocol is from an already existing encryption solution.
“It may not be as good as the Merkle Tree, but at least we can say, ‘Look, that’s how much money we have,’ and anything people do to increase transparency is a good thing,” said the Binance CEO.
After the FTX fallout, a handful of other cryptocurrency exchanges have promised to publicly share the Merkle Tree Proof of Reserves as well.
These companies include the likes of Crypto.com, which moved to disclose its reserves on Friday, and Huobi Global, which published an interim asset transparency report on Sunday.
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