Jesse Powell criticises Binance’s proof-of-reserves function

Kraken co-founder Jesse Powell criticised the initiative of the cryptocurrency exchange Binance to provide transparency in the custody of user funds.

This is simply «here’s a hash of your record in the BTC spreadsheet». ok… but what’s the point? The whole point of this is to understand whether an exchange has more crypto in its custody than it owes to clients. Putting a hash on a row ID is worthless without everything else.

— Jesse Powell (@jespow) November 25, 2022

«Sorry, but no. This is not Proof-of-Reserves. This is either ignorance or deliberate deception. Merkle Tree without an auditor to verify that you have not included accounts with negative balances, is just nonsense. An asset ledger is meaningless without liabilities», he wrote.

Powell argued that the whole point of Proof-of-Reserves is to determine whether the platform holds more digital assets than it owes to its clients.

In response to the criticism, Binance chief Changpeng Zhao pledged that it would be audited by independent auditors in the future. He also rejected the inclusion of accounts with negative balances and said he was open to questions and checks.

And absolutely no negative balances involved. It will be verified in the audit for the above PoR.

Actually the first time I heard about a «negative balance» in a PoR. «Innovative»…

We welcome questions and checks. Let’s build together.

— CZ 🔶 Binance (@cz_binance) November 26, 2022

Earlier Binance announced an update, which will allow Bitcoin holders to verify storage by the exchange. In due course the initiative is expected to be expanded to holders of ETH, USDT, USDC, BUSD and BNB. 

Earlier Binance disclosed information about its cryptocurrency reserves.

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