The head of the US Securities and Exchange Commission (SEC) filed a lawsuit against Binance last week. The details of this case, which shocked the crypto money markets, have been talked about a lot, so I chose to focus on the security of the funds held by users on Binance in my article.
Are User Funds Safe?
First of all, let’s take a look at what “Proof of Reserve” means.
It is an independent audit that verifies the assets held by a cryptocurrency exchange on behalf of its clients. The audit is done by a third party and the results are publicly published.
PoR is important for several reasons. First, it helps build trust between exchanges and their customers. By proving the assets they hold, the exchanges can show that the cash flow is sufficient and that the customers’ funds are safe. Second, the PoR will help prevent fraud because if the exchange is found to be misrepresenting its reserves, it could face significant financial penalties and obviously damage its reputation.
There are several different ways that PoR audits can be performed. The most common is for the auditor to take an anonymized snapshot of all balances held by the exchange. The auditor then collects these balances in the Merkle Tree, which allows balances to be verified without disclosing any personal or sensitive information.
What is a Merkle Tree?
The Merkle Tree is a cryptographic tool that enables large amounts of data to be combined into a single hash. This single hash is called the Merkle Root and acts as a cryptographic seal that “summarizes” all the data entered. In addition, Merkle Trees allow users to validate certain contents in any “sealed” dataset.
What is Secure Asset Fund (SAFU) for Users?
SAFU is an emergency fund established by Binance in July 2018 to protect users’ funds. When the fund was established, Binance pledged to allocate a certain percentage of transaction fees to the fund to protect users.
The system works as follows, in simple terms:
When a user deposits one Bitcoin into their account, Binance’s reserves are increased by at least one Bitcoin in return. Thus, it aims to prove that Binance has a 1:1 ratio of user funds to equivalent assets and some additional reserves, has no debt in its capital structure, and has an emergency fund (SAFU fund) for emergencies.
As of June 1, Binance proof of reserve:
SAFU fund wallets consist of BNB, BTC, USDT and TUSD and anyone who wants to can examine these addresses.
Binance SAFU Wallet Addresses:
- BTC: 1BAuq7Vho2CEkVkUxbfU26LhwQjbCmWQkD
- BNB and USDT (BEP20): 0x4B16c5dE96EB2117bBE5fd171E4d203624B014aa
- TUSD (ERC20): 0x4B16c5dE96EB2117bBE5fd171E4d203624B014aa
In this period when there is a lot of information pollution, I shared this information with you in order to make users feel safe.
Good week everyone.
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