A report on Binance’s BTC reserves was made public by the auditing company Mazars. The auditing company and Binance both came to the same conclusion. The exchange held enough bitcoins and wrapped bitcoins as of November 22 at 23:59 UTC to cover all user balances.
Following the failure of FTX, Binance had already started a proof-of-reserves website to reassure its users. According to Mazars, today’s audit merely provides further evidence that Binance doesn’t seem to be lying.
As always, these exercises for proving reserves have some restrictions. The main qualification is that Binance is currently only concentrating on BTC assets. There is currently no proof-of-reserves system if you own other cryptocurrencies.
Despite the fact that bitcoin remains the most widely used cryptocurrency, Binance provides thousands of different crypto assets. So let’s hope that this is just the beginning.
On November 22 at 23:59 UTC, Binance and Mazars both checked the Bitcoin reserves. Although it’s difficult to give a quick snapshot, Binance hasn’t set a deadline for its proof-of-reserves reports. The cryptocurrency exchange, for instance, might share data once per week or once per month.
Now that you are aware of everything, let’s discuss what is contained in the Mazars auditing report and Binance’s proof-of-reserves system. Binance creates a cryptographic seal by using a Merkle tree to include each individual user account. This Merkle tree includes user balances for the Spot, Funding, Margin, Futures, Earn, and Options Wallet products on Binance.
All of the wallets that contain customer assets are also listed by Binance. By simply looking at the public addresses of cryptocurrency wallets, blockchain explorers allow you to view the balance of those wallets.
According to data from Binance, its users held 575,742.4228 BTC in total ($9.7 billion at the current exchange rate), and the company has enough BTC and wrapped BTC to cover 101% of these assets. It then got in touch with Mazars to let the accounting company independently confirm what the cryptocurrency exchange was saying.
Mazars asked Binance to execute a small transaction at a specific time to demonstrate that Binance was indeed in control of the wallets. It employed a different technique for some wallets. In that instance, Mazars used Etherscan and BSCscan to confirm that Binance is the owner of the ETH and BSC wallets.
The auditing firm checked the scripts that Binance is using to extract the total value in user accounts. Mazars checked that there wasn’t any duplication of user IDs and constructed its own Merkle tree using this open source script developed by SilverSixpence.
Some users have a negative BTC balance because they have been using the margin and loan service with other crypto assets as collateral. “Binance’s margin and loan products are always over-collateralized and subject to additional risk controls (such as auto liquidation). These products ONLY utilize funds from customers actively using Binance Earn products such as savings whose terms permit this,” Binance said as a comment in the auditing report.
If you take everything into account, Mazars and Binance reach the same conclusion when it comes to BTC reserves. This is a good step when it comes to transparency. Now, let’s hope there will be more announcements in the coming weeks.