Now the CEO of Binance Said We Will Respond!
Binance took a big step and announced its reserves. It was shared with the whole world that the ratio of the company’s Bitcoin reserve to the total investor accounts was 101%. In the past few minutes, the world-famous Kraken CEO Jesse Powell expressed his thoughts and reactions on the subject.
Immediately after, Changpeng “CZ” Zhao, the boss of the Binance Exchange, ignited the discussion by tweeting a response to the topic. It is not known where the incident will go, but the first steps of a new struggle may be taking place.
What Did the CEO of Kraken Say?
Kraken CEO Jesse Powell made a series of criticisms after Binance’s reserve announcement. He made these criticisms via Twitter and said:
Sorry, but no. This is not Proof of Reserves. This is either ignorance or deliberate misrepresentation. The Merkle tree is just hand-waving nonsense without an auditor to make sure you don’t include accounts with negative balances. Without obligations, asset declaration is meaningless.
This is simply “here is a hash of your record in the BTC spreadsheet.” Okay… but what’s the point? The whole purpose of this is to understand if an exchange has more crypto money than it owes its customers. Putting a hash on a line ID was worthless without everything else.
People who should know better, especially journalists, should take the time to understand this before exaggerating and misleading consumers.
CZ Replied to the Subject On the Answer
Following the statements made by the CEO of Kraken, CZ made a series of statements, first on Twitter and then on official Binance resources. These explanations were as follows:
Brian A and Jesse P say that FTX is an “overseas stock market” problem, even though SBF is American. I tweeted questions about Coinbase/Grayscale. Brian replied. Jesse is questioning Binance’s Proof-of-Reserves today. We will answer. I see these as healthy controls.
Then the official website is Binance.com the following statement was shared on behalf of CZ via ‘s blog:
I would like to take this opportunity to answer a few questions from the community about how funds and wallets are managed on Binance.
First, two basic facts:
Binance holds all of its customers’ crypto assets in separate accounts, which are defined separately from the accounts used to hold Binance-owned crypto assets.
Binance uses Binance’s own wallet infrastructure to protect user assets and Binance’s own assets.
Now let’s move on to the details.
Deposit Money, Hot and Cold Wallets
First of all, it is important to understand how wallets work on Binance. There are deposit wallets with one (or more) addresses per user for each blockchain. You deposit money to your deposit address. Our system monitors the blockchain and this balance Binance.com adds to your account in October.
After being verified on the chain, you can buy, sell or spend these coins on Binance as you see fit. These coins may or may not move from that address immediately. Binance regularly “sweeps” these coins into a hot (or cold) wallet. The rationale behind exchanges sweeping tokens is to minimize the number of transactions and keep gas fees to a minimum, thereby significantly reducing user fees in general.
In general, large amounts are swept more quickly, and we can expect a few deposits to sweep small amounts, or we can expect network gas fees to be low to sweep. A key reason we remain so competitive is that methods like this keep gas costs low and the savings we then pass on to our users with some of the lowest transaction fees in the industry.
When users want to withdraw money, our system sends them money from the hot wallet and deducts the amount from their account balance. If the hot wallet falls below a certain amount, we replenish it from the cold wallet.
If the hot wallet grows too big due to the sweep, we will move some funds to a cold wallet and process future sweeps directly to the cold wallet, again to reduce the number of transactions and gas fees.
There are some exceptions when it comes to a large deposit. In this scenario, we can sweep directly into the cold wallet. And when a large withdrawal is requested, we can process it directly from the cold wallet.
In this regard, I hope that you can see that the Decoupling and movement of funds between deposits, hot and cold wallets, is completely independent of user account balance updates, except for the cases of deposits and withdrawals.
When users trade on Binance, a small commission is deducted from each trade, and the Binance platform has Binance.com it is transferred to your account. This is the income of Binance. We use this to pay for operational costs, servers, vendors and our employees.
And the amounts (profits) that we do not spend, we keep in this account. Binance has been profitable in our operations four months after our founding and during the two bear markets we have experienced.
Binance devotes significant resources to ensure full compliance with all laws and regulations to which it is subject.
Accordingly, Binance keeps all crypto assets of its customers in separate accounts. More specifically, Binance maintains “customer balances”, which are internal accounting (or ledger) entries within the Binance system that record customers’ rights to crypto assets.
Each Binance customer has an account/UID, which is a ledger-based (off-chain) account (or sub-account) with a unique identifier (UID) and associated login credentials, in which the customer’s balances are recorded within the Binance system.
This allows Binance to always register crypto assets belonging to its customers and distinguish them from crypto assets belonging to Binance. Binance conducts a daily reconciliation of all crypto assets held by Binance on behalf of its clients.
We only spend our own funds. We do not use customer funds to make transactions on our own account.
In line with our commitment to ensuring full legal and regulatory compliance, Binance has also begun work on proactively creating on-chain segregated client crypto asset wallets to comply with this requirement under the MiCA Regulation, which will soon come into force in Europe.
Why are we using the Binance wallet infrastructure to protect user assets and Binance’s assets?
As one of the largest asset custodians in the crypto space, security is at the top of our priority list. To ensure this, we spend hundreds of millions of dollars on security, hire the best people and use the best technology. This is one of the biggest investments we make every year.
We believe that our wallet infrastructure is one of the most secure in the industry and that Binance is the best place to protect crypto.
We considered using third-party wallet software. However, we have reviewed other wallet vendors and we have much more confidence in the security of our own ecosystem than we have seen from other vendors.
Moreover, creating a self-contained ecosystem has prevented Binance customers from being exposed to the kind of contagion risks we’ve seen with the explosions of other industry players such as Celsius, Voyager, and now FTX.
Finally, no other wallet or storage solution has the variety of coins that we support or hold in our hands.
For the above reasons, we protect our assets and the assets of our clients on Binance.
We hope that at this point you understand why the $1 billion Industry Recovery Initiative was sent through the Binance cold wallet. This was a large withdrawal from the Binance account, which led to the fact that the transaction was made from a cold wallet. And when we rebalance the $1 billion SAFU insurance fund, it can be processed from the hot or cold wallet.
How do you verify that user assets are secure?
Merkle Tree reserve proof is the best way. It allows you to verify that the account balance of you and each of our users is included in the final reconciliation with the total wallet balance. It is designed to make sure that your funds are there. There is no way to fake it.
Thanks to blockchain technologies, we can make our industry much more transparent compared to traditional financial sectors. Binance will continue to lead by example and move the sector forward.
Looking at all these explanations, we can see how sure CZ is of himself, even if it is not known where things will go. It seems that the answers he will give to other questions in the future will be awaited with great curiosity.
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