- Changpeng Zhao has suggested exchanges do the Merkle Tree proof-of-reserves.
- He put out the suggestion as it can aid in full transparency.
- Five exchanges including Gate, Binance, OKX, Huobi, and Bitget have vowed to follow it.
Five major exchanges, including Gate.io, Binance, Huobi, OKX, and Bitgate, have announced that they will follow the Merkle tree structure to provide complete transparency.
Exchanges such as Justin Sun/Huobi Bitget have said that they will publish their merkle tree reserve certificates to increase transparency. The number of exchanges that have said they will be announced or have been announced so far has reached five: Gate Binance OKX Huobi Bitget. https://t.co/kr8agLwCYy— Wu Blockchain (@WuBlockchain) November 9, 2022
Changpeng Zhao, the CEO of Binance, recently mentioned Merkle Tree proof-of-reserves in one of his tweets. Additionally, he suggested that all cryptocurrency exchanges should conduct the same kind of audit. CZ emphasized that cryptocurrency exchanges shouldn’t adopt the fractional reserve method used by banks.
Zhao also announced that the company would soon begin performing proof-of-reserves. This, he said, will also open the door for complete transparency. Zhao’s tweet comes after the recent disclosure that Binance had fully acquired FTX.
One method or structure used to increase transaction verification transparency is the Merkle Tree. Exchanges for cryptocurrencies must be transparent about the user funds they hold. Users can use the method to examine and confirm that the exchange actually holds the funds.
In essence, this involves the crypto exchange giving the auditor the data. The auditor then creates the Merkle Tree using the information from the user balances. After the calculation, the auditor verifies and publishes the Merkle Tree and root hashes.
The Merkle Tree leaves will be saved as a plain text file and made available to the public on GitHub. Customers will be able to personally check their own balances thanks to this.
The liquidity crunch faced by FTX is one of the prime examples of the necessity to implement proof-of-reserves. SBF also recently mentioned in a staff note that the exchange witnessed over $6 billion in withdrawals over the last 72 hours, as of Tuesday.
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