On Friday, the world’s largest crypto exchange Binance upgraded its Proof of Reserves (PoR) verification system to include zk-SNARKs in an effort to increase transparency and security.
“The code for the system will also be made open-source to provide enhanced transparency with the community and create a seamless process for other industry players to adopt the technology,” wrote the company in an announcement post. “This is the first version of our zk-SNARKs implementation and we are looking forward to receiving community feedback so we can continue to improve the system.”
Binance CEO Changpeng ‘CZ’ Zhao said in a Friday tweet that Ethereum co-founder Vitalik Buterin first suggested the idea of using the zk-SNARKs technology, and the integration will be an important step to take forward the POR technology.
zk-SNARKs
zk-SNARKs stands for “zero-knowledge Succinct Non-interactive Argument of Knowledge.” It is a cryptographic technique that allows one to prove to the other possession of a certain quantity of assets while keeping all other information concealed.
The technique is believed to be a superior method for confirming the reserves, as it allows an exchange to confirm its holding 1:1 assets without disclosing sensitive data.
Following the recent collapse of FTX, proof-of-reserves verification has become a vital component of the CeFi sector, as it ensures that exchanges hold the assets they report to have. Binance was one of the first exchanges to implement this system, starting with conventional methods.
Other leading exchanges, such as Crypto.com, Bybit, and OKX, have also adopted a Merkle-tree-based proof-of-reserves system with the aim of increasing transparency.
Despite the efforts, not everyone is convinced of the system’s effectiveness. Paul Munter, the acting chief accountant of the Securities and Exchange Commission, recently raised concerns in an interview that the POR system doesn’t provide sufficient data on a company’s financial stability.
