The large influx of funds belonging to Binance has caused concern in the cryptocurrency community today.
According to a tweet from Whale Alerts, the exchange withdrew over 127,000 BTC in a single transaction and deposited the coins to an anonymous wallet address.
– whale alert (whale_alert) November 28, 2022
Of course R&D and nervousness were expected to prevail under the circumstances in society. With exchanges rushing to apply their own guide to reserves and some companies transferring large sums of money into private wallets before the lockdown, the chances of thinking the worst were more than justified.
The mysterious move sought to prove Binance’s transparency.
Shortly thereafter, the Binance CEO explained that it was just a test required by an independent auditor to prove that the exchange actually controls the tokens it claims to own:
This is part of the Proof of Reserve audit. The validator asks us to send ourselves a specific amount to show that we have control of the wallet. The rest goes to a change of address, which is a new address. In this case, Input tx is uppercase, and so is change. Ignore the FUD! https://t.co/36wUPphIZk pic.twitter.com/2NkH5L5J9j
– Czechoslovakia Binance (cz_binance) November 28, 2022
CZ’s clarification calmed the speculators’ spirits and halted a sharp drop of more than 5% at 01:00 UTC.
Binance has proven this by transferring exactly 127,351 Bitcoins, which is equivalent to about $2 billion at the time of writing. The anonymous wallet that received the funds was also owned by the exchange.
The world’s largest cryptocurrency exchange indicates that it had to go through this test as a way to provide transparency and assure absolute control over its assets. The auditor tried to prove that Binance could indeed move a large amount of money without affecting its operation.
Evidence of reserves and the need to regain confidence
Due to the collapse of FTX, many exchanges have submitted solvency reports to prove that their users’ funds are being backed up.
The styles varied. While Binance initially opted to exclusively use Merkle trees, others, such as Grayscale, have vehemently refused to implement the measure for security reasons. However, others, such as the Mexican exchange Bitso, have published their own version of a guide or extended reserves, promising to implement other measures to increase their reliability, including zero-knowledge checks, external audits, talks with regulators and the publication of periodic reports.
But there are also critics of current implementations of backup testing. The most recent example is former Kraken CEO Jesse Powell, who has lashed out Binance Not conducting external audits and including accountability in their reports.
sorry but no. This is not PoR. This is either ignorance or willful misrepresentation.
The Merkle tree is just hand-waving nonsense without an accountant making sure no accounts with negative balances are included. A wealth statement is meaningless without debt. https://t.co/b5KSr2XKLB
– Jessie Powell (@jespow) November 25, 2022
Even with all these efforts, there seems to be a waning of trust. Hardware wallets are reporting record sales, centralized crypto exchanges are now handling less money, and self-care wallets as well increasing.
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