Binance, which is the largest centralized cryptocurrency exchange worldwide in terms of trading volume, was one of the first companies to acknowledge the significant difficulty that the industry is currently facing. In 2022, Binance implemented various measures to improve transparency and trust in its operations, resulting in a new set of guidelines for centralized exchanges and the broader community to follow, which are actionable and accompanied by a specialized webpage called “Building Trust.”
The guidelines primarily focus on how centralized exchanges should manage customer assets. They outline the expectations for transparency, including the types of disclosures that should be made, as well as the additional safeguards that CEXs can implement in addition to those required by regulations.
The guidelines aim to be beneficial to users, policymakers, and both centralized and decentralized exchanges within the broader cryptocurrency industry. Kortam intends to receive input from all of these parties to improve the framework and elevate industry standards.
To support this initiative, Binance created the Building Trust landing page where users can access information about the new measures implemented, such as various proof of reserve systems. The webpage provides a guide on how users can verify their own and Binance’s on-chain reserves, wallet addresses, educational resources, and details about Binance’s regulations, licenses, registrations, and other regulatory approvals, according to Kortam.
The Building Trust landing page is an evolving platform that serves as a central hub for information regarding trust and transparency. It includes a range of content, such as future iterations of guidelines, policy papers on regulation and best practices, and more. Kortam, who has a background in public policy and public affairs at tech companies like Google, Uber, and Revolut, emphasized that Binance does not claim to have all the answers. The proposed framework, launched last week, is just the beginning of a journey focused on transparency and wallet security, and it is intended to complement regulations that address specific risk-based issues to mitigate bad actors, safeguard users, and foster innovation, she added.
Binance’s efforts to increase trust and transparency gained momentum in November 2022 when the exchange published its wallet addresses, enabling the community to verify its sufficient holdings of user funds in reserves, according to Kortam. Additionally, Binance introduced the first version of a proof of reserves system that uses Merkle Trees, a technology that organizes data in a trustworthy and efficient manner, providing users with a new tool to verify their assets if they choose to store them online. The exchange’s self-custody solutions, such as Trust Wallet, received additional enhancements and security features, and Binance provided a variety of content on different wallet options and security and custody solutions for customers.
Binance’s system is evolving, as the exchange announced in November 2022 that it would be a “guinea pig” for a new proof of reserves protocol developed by Ethereum co-founder Vitalik Buterin, according to the CEO CZ. In February, just a few months after introducing proof of reserves, Binance upgraded to a new open-source system that uses zk-SNARKs, a technology that has been pivotal in blockchain innovation. The technology enables crypto users to send encrypted transactions on a blockchain while proving that they were conducted legitimately.
The Binance CEO, CZ, recently had a conversation with Dan Roberts and Stacy Elliott, where they discussed several topics, including global and US regulation, Binance’s HQ locations, crypto bailouts, deal-making approaches, sports marketing push by crypto exchanges, and CZ’s belief that we live in a simulation. The conversation was extensive and available to watch, and the hosts encourage listeners to subscribe to the gm podcast on Apple or Spotify.
The new proof of reserves system using zk-SNARKs represents a significant improvement over Binance’s previous system. According to Kortam, the new system can demonstrate that all user balances in Binance’s custody add up to the claimed total, proving that Binance has all user balances in custody, and can also verify that the total balance of any single user cannot be negative. This was not possible with Binance’s earlier solution.
Back to school
Binance has made a significant effort to educate the broader community about blockchain technology and cryptocurrencies. The Binance Academy website offers free online courses and resources, and the exchange has partnered with universities around the world to offer targeted programs. Its educational content is also open-source, making it accessible to other companies and law enforcement agencies for training purposes. Binance has also worked directly with these groups to provide education and training on blockchain and cryptocurrency-related topics.
FUD stands for “Fear, Uncertainty, and Doubt,” and is often used to describe the spread of negative or misleading information in the cryptocurrency industry. Kortam suggests that the more FUD that is spread, the more important it is for exchanges like Binance to focus on education and building trust with their users. By providing transparent information about their operations and security measures, exchanges can help users feel more confident in their ability to safely store and trade their cryptocurrency assets.
The measures Binance has taken already are part of a wider effort to increase trust in the crypto industry, Kortam said. The exchange is already working with other industry players, as well as various associations and community leaders, to increase trust, she says.
This community was quick to provide feedback on the exchange’s most recent proof of reserves innovation, which is open-source so that it can easily be adopted or adapted, and Binance has already acted on some of the feedback.
“We don’t believe that trust or safety are proprietary,” said Kortam. “Every company, every player has the same duty to build trust in the industry and raise the bar across the board.”