The security and openness of the verification process are anticipated to be greatly enhanced by the zk-SNARKs inclusion.
On February 10, cryptocurrency exchange Binance announced a significant improvement to its proof-of-reserves verification process. Binance said it will now use zk-SNARKs, a cutting-edge technology that will enable it to validate its reserves in a more secure and transparent way.
Proof-of-reserves verification has become a vital component of the cryptocurrency business after FTX's collapse in 2022 since it helps verify that exchanges actually retain the assets they claim to. One of the first exchanges to use the technology was Binance, which at first employed conventional cryptography. However, the security and openness of the verification process should be much enhanced by its recent upgrade to include zk-SNARKs.
The zk-SNARKs improvement, which was first proposed by Ethereum creator Vitalik Buterin, would offer "more privacy and security," according to Binance CEO Changpeng Zhao.
“This is an important step forward in PoR technology. Anyone in the industry can take advantage of our open-source PoR system so that we can provide all users with the assurance they need to feel SAFU.”
The term "zero-knowledge Succinct Non-interactive Argument of Knowledge," or "zk-SNARKs," refers to a cryptographic approach that enables one party to demonstrate to another that they have a specific quantity of assets without disclosing any other information. As a result, it is said to be a superior method for confirming Binance's reserves since it enables the exchange to demonstrate the presence of its assets while maintaining the secrecy of important data.
Following the FTX crisis, Binance and other well-known exchanges including Crypto.com, Bybit, and OKX introduced a Merkle-tree-based proof-of-reserves method to improve transparency. Despite this effort, some professionals are still dubious about the system's efficacy.
Paul Munter, the Securities and Exchange Commission's acting top accountant, highlighted worries that proof-of-reserve filings do not offer adequate documentation for stakeholders to assess a company's financial viability in an interview with The Wall Street Journal. Despite these complaints, Binance and other exchanges keep working to increase openness in the cryptocurrency sector.