Binance CEO responses to Kraken founder’s criticism regarding Proof-of-Reserves

Recently announced, Binance’s Proof-of-Reserves system met criticism from Kraken’s CEO Jesse Powell. Soon, Binance CEO responded on Twitter to Powell’s remarks.

Last week, Binance published its Proof-of-Reserves (PoS) system for the company’s Bitcoin (BTC) holdings. The new system initially works with the crypto exchange’s BTC holdings but will later be expanded to include other tokens as other “networks are being added in the next couple of weeks.”

However, proposed by Binance, the PoR method has come under fire from Jesse Powell, Kraken’s founder and CEO, who described it as being pointless.

According to Powell, in order for a proof-of-reserve audit to be considered comprehensive, it is necessary to include the total amount of client liabilities, user-verifiable cryptographic proof that each account was included in the total, and signatures demonstrating the custodian’s direct authority over the wallets.

“I’m sorry but no. This is not PoR. This is either ignorance or intentional misrepresentation. The merkle tree is just hand wavey bullshit without an auditor to make sure you didn’t include accounts with negative balances. The statement of assets is pointless without liabilities,” he said on Twitter.

Kraken CEO further explained that this is only displaying a hash of their record in the BTC spreadsheet; nevertheless, what is the objective of this?

The purpose of this is to determine whether or not an exchange owns a greater quantity of cryptocurrency than it owes to its customers. According to Powell, just adding a hash to a row ID is pointless in the absence of the other information.

Binance CEO Changpeng “CZ” Zhao responded on Twitter to the remarks made by Jesse Powell. CZ was quoted as saying “Upcoming Plans: Involve third-party auditors to audit PoR outcomes.”

“I said multiple times publicly, the bottleneck was the auditors has a few weeks wait. We move forward in incremental steps,” he added.

Further, Zhao added there are zero instances of any kind of negative balances. It will be checked for accuracy as part of the audit for the PoR mentioned above. This was the very first time he had ever heard of a negative balance in a PoR. He continued by noting that they welcome inquiries and checks and that the company is innovative.