In a blog post dated November 26, the CEO of Binance provided responses to queries posed by the Binance community regarding the management of the exchange's funds and wallets. The Chief Executive Officer of Binance has stated that the company is dedicated to ensuring that it complies with all legal and regulatory standards and that it does not utilize the cash of its customers anywhere on its platform.

The exchange stores the customers' assets in accounts that are distinct from the account that is used to house Binance's own monies. In addition, the company employs the wallet facility to protect its own cryptocurrency holdings as well as the assets of its customers.

The exchange moves all deposits made by users to the deposit wallet, and then periodically transfers tokens to either a hot or cold wallet, depending on the volume of transactions. As a consequence of this, it helps to cut down on the total number of transactions, which in turn helps to cut down on the cost of gas.

In the end, Binance was able to pass the savings forward to its consumers while continuing to provide the lowest transaction fees available among other exchanges. Additionally, in order to make deposits and withdrawals as smooth as possible, Binance maintains a balance in its hot wallets.

The company's cold wallets, on the other hand, can process larger transactions and withdrawals. Therefore, each user is given a unique identity, also known as a UID, along with accompanying login data. This is done to help separate the customer's cryptocurrency holdings from those of Binance.

According to recent reports, Binance has started developing separate on-chain customer cryptocurrency asset wallets in order to comply with the recently implemented Market in Crypto Assets (MiCA) law.

Will the Proof-of-Reserve for the Merkle Tree Be Able to Help Authenticate Assets?

The Chief Executive Officer of Kraken, Jesse Powell, has stated that the so-called "proof-of-reserve" implemented by Binance is "pointless" due to the fact that the exchange has not accounted for its liabilities. In response, Zhao is of the opinion that the Merkle Tree technique is the optimal method for verifying the cryptocurrency holdings of users.

In addition, Zhao stated that "Binance would make use of the services of third-party auditors in its strategy for the proof-of-reserve."

There will be a delay of a couple of weeks, but our goal is to get the process forward more quickly."

In reaction to the failure of the FTX exchange and the subsequent bankruptcy of that company, Binance invented the proof-of-reserve method. Binance has responded to the demand that cryptocurrency exchanges publish their proof of reserve to show that they actually hold the assets that they claim to hold. Cryptocurrency enthusiasts have been pushing for this for some time now.

Customers are now able to verify their Binance holdings by using the technique. Nevertheless, with the usage of the Merkle tree-based method, individuals may discover just their Bitcoin holdings.

However, the exchange has committed to introducing additional currencies over the next few weeks. Additionally, additional recent developments concerning its transparency initiative were discussed in the conversation.

One illustration of this would be the use of third-party auditors in the zk-SNARKs protocol's implementation of its proof-of-reserve. Binance is said to have been one of the first cryptocurrency exchanges to publish its proof of funds after the trends got underway after the failure of the FTX ecosystem.

Bybit, Bitifinex, KuCoin, OKX, and Crypto.com are some of the other companies that have followed suit.