Binance Releases Proof-of-Reserves System (theblock.co) 79
Binance has released its proof-of-reserves system, starting with bitcoin, in order to show that the exchange is healthy and solvent. From a report: This comes just weeks after rival exchange FTX collapsed, after seemingly swapping user funds for other, more illiquid tokens -- eventually leading to a liquidity crisis. Binance's goal is to show that it holds its users' assets in the same tokens that they have deposited. For bitcoin, Binance has provided a snapshot of account balances and the exchange's bitcoin reserves. It claims it has 582,485 bitcoin in its reserves, while its users have a net balance of 575,742 bitcoin -- giving it a margin of 6,743 bitcoin. It also provided a link for Binance users to verify their own bitcoin on the exchange.
Auditor (Score:5, Interesting)
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I mean an auditor can be paid off, or fooled. We have a regulatory agency, the SEC, who didn't know anything about Samuel Bankman-Fried and his giant FTX scam, as he donated billions of dollars to the very politicians who appoint those regulators.
By contrast, if you prove mathematically that you own all the reserves- as the big exchanges are doing- then there's no need for that, at least in theory. Everything you have can be inspected on every blockchain (including opaque blockchains, like Monero, if you
Re:Auditor (Score:5, Insightful)
That would be difficult to do with a reputable auditor. There is a reason why neither FTX nor Binance has one.
> We have a regulatory agency, the SEC, who didn't know anything about Samuel Bankman-Fried and his giant FTX scam
SEC obviously knew about FTX. But were not allowed to investigate. There are very large groups of people who do not wish crypto business to be regulated. And it does not help that FTX is based in Bahamas.
> Having exchanges provide proof of reserve is a great idea. Auditors? Eh, sure. But I'd take the proof of reserve over the auditor every time.
How would proof of reserve work for things like cash reserves? Remember all of these businesses claim to have large amount of cash reserves as well.
A business that opens its books to financial auditors, opens it systems to security auditors, and also uses a proof of reserve system could probably be trusted with a little bit of money. The rest should be completely ignored by crypto traders.
For myself, since I don't knowingly partake in Ponzi schemes, I am going to skip them all.
Re:Auditor (Score:5, Insightful)
Having exchanges provide proof of reserve is a great idea. Auditors? Eh, sure. But I'd take the proof of reserve over the auditor every time.
Any "proof" of reserves beyond that is just sophistry. What does it mean to "have a reserve"? What it means is that the reserve is held in a set of wallets that only you have access to the private key of and that are only for that use. How do you prove that? Imagine we built a special machine that only gives out the key to one person (a cryptobox e.g.) then we could build a proof built on this. Imagine the NSA was listening on the power supply or EM radiations from that cryptobox and used their special knowledge to work out the key. There would be no evidence of that for the people involved in the system, just as there is normally no evidence of copying for other nefarious reasons. Then, at the last minute, when the exchange is collapsing, whoever has the copy of the private key can just take away the reserves.
An auditor could check the security procedures around a reserve and, for example, ensure that no single person has access to more than a fraction of the reserve so that it requires a big conspiracy to steal. They could check that all of the people with access to the reserves are well known, non criminal people with citizenship only in countries with strong legal systems such as the EU, Japan or America. Having a public list of the wallet addresses that an exchange keeps its reserves in so that they can be watched by others would be fine. All that any proof of reserves proves is that you can fool people with mathematics. Nothing more, nothing less.
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An auditor could check the security procedures around a reserve and, for example, ensure that no single person has access to more than a fraction of the reserve so that it requires a big conspiracy to steal. They could check that all of the people with access to the reserves are well known, non criminal people with citizenship only in countries with strong legal systems such as the EU, Japan or America. Having a public list of the wallet addresses that an exchange keeps its reserves in so that they can be watched by others would be fine. All that any proof of reserves proves is that you can fool people with mathematics. Nothing more, nothing less.
Indeed. And that an external auditor will become liable for damages if things collapse (as they must for crypto-"currencies", we now have ample proof of that) hence they are highly motivated to look at actual facts. Add that some of the big ones had very costly failures and scandals in the last few years and the chances of fooling an external auditor are slim.
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I mean an auditor can be paid off, or fooled.
Paid off? No. An externanlfnancial auditor becomes liable if the report is not accurate. So you need to a) pay them a lot and b) the risk of it all going belly-up is small. No external auditor will see that in a scrypto-scammer.
Fooled? Yes, but it takes real work. A large, experienced bank can do it, but it is not easy and the auditor will be subject to huge fines if found out. So they have a rather high level of motivation to get it right. A little rat-shop like Biance has no chance to make that work.
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Oh my god, Heh. Hah. Hahahahahah. You're either a crypto bro trying to grow an exchange of your own, or you're hopelessly naive. Crypto exchanges are literally exploding all around you like a big fire in a fireworks warehouse.
What would surprise me would be if a single crypto outfit is found to be actually following financial and accounting best practices.
The comment about preferring "proof of reserve" over a bonded, professional audit?
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By contrast, if you prove mathematically that you own all the reserves- as the big exchanges are doing- then there's no need for that, at least in theory. Everything you have can be inspected on every blockchain (including opaque blockchains, like Monero, if you cooperate and provide the relevant view keys).
Everything "you" have can be inspected. On the other hand, everything "they" have cannot be. You are still relying on the transparency of the exchange to disclose their holdings and liabilities without omitting anything. The problem is how do you verify completeness of what they disclosed. This cannot be done without someone with authority inspecting their books.
Non-custodial wallets are safe in theory, but it is just hard long currency. It is very hard to earn profit or interest from it beyond pure spec
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If the crypto is in your account its yours, if not its not yours (you need to trust whoever owns the account).
That second part, "you need to trust" is the bit that auditors are there to answer. Cryptocoins aren't really liquid. In order to use your cryptocoin you need someone who holds a large amount of different currencies that they can convert it into or a central place which can accept payments from you. Also, in order to hold it safely, for example allowing inheritance and recovery if your computer crashes and you lose your keys, you heed to put it somewhere. (Yes, I know you can do all this stuff yourself in t
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Binance can show them any addresses they like and tomorrow they can immediately transfer the coins to privately held wallets and even if the auditors or regulators see it instantly there isn't a god damned thing they can do about it.
If that's true then the auditor should pick it up immediately as a problem. There are multiple ways around this. Binance could keep some of they crypto themselves and some of it managed by another company that they can draw on when they need it, following appropriate procedures to ensure that the people that ran of with the money are removed from the company. They could use key splitting [wikipedia.org] so that multiple different employees are needed to use the funds, each with explicit instructions to ensure that this is
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except the auditors are toothless tigers in this scenario..
I suppose there could be a solution by way of bringing the auditors and regulators also into a smart contract along with the transacting parties, but I haven't seen any so far and don't expect to in the near future.
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What is needed here is an external auditor.
I assume you're thinking of the big, professional auditing companies. The problem with those is - and always has been - that they are paid by the companies they are auditing. That's a clear conflict of interest, and it means that you cannot trust the results. Enron, for example, was audited by Arthur Andersen. Arthur Andersen didn't want to endanger a nice, lucrative contract, so...
Really, for sensitive industries, this is what government regulators are for. However, as long as politicians can be bribed,
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Enron...... Arthur Andersen
Sure, the general system has problems but there's a reason why we keep using these examples, which are companies that I personally, and most Slashdotters have never dealt with. That reason is that they are exceptions. From day to day, most of us deal with companies without even thinking about whether they will steal our money. We go to the standard banks and use the standard credit card companies and it just works and if the company does collapse we, as private citizens, don't tend to lose everything unless
Re: Auditor (Score:1)
The easy answer is some mathematical proof that you own what you say you own. No need for expensive and corrupt auditors, FTX donated millions to the people currently in power to keep the auditors away.
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Note that Arthur Andersen does not exist anymore as a direct result of what they did for Enron. And they were one of the world's largest multinational corporations at that time as well. Size did not protect them.
The remaining ones have gotten a lot more careful and are not easily corrupted these days.
Re: Auditor (Score:2)
Enron, Worldcom, and AA are examples of how auditors actually work. Note that there is no AA. Why? Because, pretty much overnight, their word had no value to ALL their customers. That loss of credibility is how they went out of business and no one can bail them out of that. It was one of the few instances in the history of the Auditing world where Changing an Auditor mid-fisical year actually increased your statement's credibility! Normally investors see it as an alarming signal and many companies teleg
Re: Auditor (Score:2)
Reason I did this is because I wanted to go into crypto but at the same time I had zero faith in it.
Re:Auditor (Score:5, Interesting)
It really is not a Ponzi scheme, and its worth understanding why, because its both more interesting and more dangerous.
Ponzi, in the 1920s, promised very high interest on deposits made. He allegedly had some brilliant and secret way of making money on the deposits. So people deposited funds with him, and he did indeed pay the high interest rates. The reason he was able to do that is that he used the deposits from new investors to pay existing investors' interest.
Madoff did the same thing - along with other things. Ponzi schemes have been fairly common in financial history, and they always have the same principle: paying interest on deposits out of new deposits. The way they collapse is also always the same. As the scheme continues the operator makes no return on the holdings. Therefore he needs new deposits all the time to use to pay interest on the existing ones. But the more deposits he gets, the greater the interest due becomes, and at some point he becomes unable to pay the interest. He cannot attract enough new investment deposits. Then people start trying to withdraw their deposits, and its soon all over.
The math makes this result inevitable whatever the returns promised, as long as you can't achieve the returns you promise, but if you promise much higher returns than are available in the markets it will obviously happen sooner. But you have to do this in order to attract the first investors.
This is not what has happened with crypto. What's happened with crypto is a classic asset bubble in a market. There are items which are in limited quantities. People decide they want them. So they buy, this drives up prices, and this attracts more buyers who come in with the sole aim of selling when the rise has made a profit for them. Its completely different from a Ponzi scheme, its a decentralized crowd behavior phenomenon. The classic example is Dutch tulip mania in the 17th century, or the various shares in the South Sea Bubble flotations in England. Real estate bubbles are a similar phenomenon. The 1920s bubble was one of these.
These things also end completely differently from Ponzi schemes. In Ponzi schemes the operator goes broke. In asset bubbles, the buyers stop buying and the prices collapse. How far they collapse depends on whether there is a real use for the assets. Prices fall to the level which allows that. So real estate bubbles in housing usually fall to a limit, because the housing is actually needed and usable to live in. The huge commercial estates that have been built in China may turn out to be closer to worthless if there's no-one who wants to have their offices there. It turned out in 1929-31 that the floor price on shares of excellent companies with what turned out to be good prospects was very low indeed, far lower than their real value as revealed by their later performance. RCA (Radio) is an example.
Asset bubbles, unlike Ponzi schemes, have the feature that prices can fall well below real values of the assets. The crowd behavior which caused the irrational rise can also cause an irrational fall. This is what makes them dangerous. As in 1929 it can produce panic and contagion, as compared to the exuberance and contagion which characterized the rise, and this can have very far reaching effects.
Crypto is an asset bubble. The question is how low it can go. Its very hard to predict these things. There are a number of possible scenarios. One is that it settles down at a stable level and is used as a medium of exchange. A bit like dollar bills. I find this unlikely because I think the collapse of the sector is going to turn people off it too much for this to happen. Another is that people simply stop buying it. In this scenario it falls to close to zero - to where it was when the mania started. You cease to be able to use it for payment, you are unable to convert it to real state issued money. When you try and sell it you either get no offers or pennies on the thousands it sells for today. It just vanishes from sigh
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That's some good analysis there, nice one. +1
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but there is no-one like a Madoff who has been running it. Any more than there was in 1929. It was a crowd mania.
Thanks, that was pretty insightful and useful. I think you are wrong about this bit here. It's clear that, in the case of Bitcoin, there's quite a bit of truth to what you say. Santoshi has apparently disappeared and his reserves of coins appear not to be active. With most other coins, the people involved in the IPO are still around and are manipulating the market, either deliberately or, quite often, with their founder's zeal. That means that a cryptocoin, especially outside the main few - Bitcoin and Ethe
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but there is no-one like a Madoff who has been running it. Any more than there was in 1929. It was a crowd mania.
Thanks, that was pretty insightful and useful. I think you are wrong about this bit here. It's clear that, in the case of Bitcoin, there's quite a bit of truth to what you say. Santoshi has apparently disappeared and his reserves of coins appear not to be active. With most other coins, the people involved in the IPO are still around and are manipulating the market, either deliberately or, quite often, with their founder's zeal.
Eh? You think during tulip, or real estate, or any other bubble there were no people trying to manipulate the market?
Re: Auditor (Score:2)
This is more like it. I can believe bitcoin or ethereum are in some sort of asset bubble (though thatâ(TM)s not my real belief , but is plausible) The rest of it: complete and utter fraud.
Re: Auditor (Score:2)
Also, didnâ(TM)t SBF specifically, publicly talk about getting new investors so he could pay off the existing ones? What does that sound like?
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But imagine the tulips were grown using a technology that improved the current state of the entire economic system by making it more efficient and eliminating unnecessary middlemen.
Except that cryptocurrencies are less efficient, not more. You can't beat the efficiency of a centralized database run by a trusted party (or a set of collaborating centralized databases run by a set of trustworthy parties). You can try to argue that it's better not to have to trust anyone, but in fact we have really good institutions for enabling and managing trust. This is a thoroughly-solved problem. In fact, the trust-based solution is better because it enables transactions to be reversed in the event o
Re: Auditor (Score:3)
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The key here is that even with the tulips you had tulips which had some actual physical value. Crypto has absolutely no value whatsoever. I
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The reason why crypto is a Ponzi scheme is that it pays out old investors using the money from new investors.
No it doesn't. Just because investors drive up the asset value doesn't make it a Ponzi scheme.
In any case here's a simple litmus test: Ponzi schemes are illegal with specific laws against them in 52 countries, and in legal grey area covered by other laws such as fraud in many others. Yet crypto companies aren't being taken to court. Why do you think that is? Are 52 countries (several of which have banned crypto currencies) secretly agreeing to not enforce the laws against Ponzi schemes on their books for ..
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I sort-of agree and disagree. Yes, crypto-"currencies" are an asset bubble. But at the same time they are not assets at all. Hence they are not really an asset bubble, because there are no assets in play. The only place where assets come in is if people buy in. Also, the people running the scheme are taking money out of it all the time. And that is what crypto-"currencies" share with Ponzi-schemes: The only payouts are made from pay-ins and the pool of money paid in is smaller than that paid out to "investo
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Inside FTX they were referring to embezzlement and theft as "loans". They were taking other people's assets and using them to speculate. This worked as
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Many of the exchanges, including FTX, offered people who gave them money high interest. I suppose you could claim that their investment strategy wasn't "secret," but on the other hand, FTX was sending the money over to their speculative investment sister company.
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Indeed. Also note that an external auditor is typically legally responsible for the audit results and can become liable if the audit results are not accurate. Without that, anything a crypto exchange (or really anybody) claims about "reserves" is completely meaningless.
Ah, yes (Score:2, Troll)
The very same Binance which is endorsed by Cristiano Ronaldo (the football player) these days.
Because that dude is clearly the best person to know how Binance works, right? RIGHT???
Re: Ah, yes (Score:4, Funny)
Celebrities know best, whether it's tech, politics, or health matters.
Re: Ah, yes (Score:1)
Re: Ah, yes (Score:2)
Heh heh. Poo potatoes...
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Hey look I'm solvent! (Score:4, Funny)
I have a whole stack of monopoly money! Can I get a loan?
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Sure, I'll loan you all the monopoly money you need! The interest that accrues will be calculated in US Dollars, though - as will the prepayment penalty.
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If you start a new crypto coin, call it Monopoly Moon or something like that, you would have a very good shot.
- but is this a Ponzi scheme? - (Score:3)
What we urgently need now is 32 more Slashdot contributors to clearly state that crypto is a Ponzi scheme. That will put us over the top! That will make a total of 500 people who have repeated the Ponzi scheme meme! Surely there is a prize for such mindless repetition.
It's OK to say that crypto is a scam, or other negative terms, but the word Ponzi really makes a difference; it proves you are insightful! So do your part for Slashdot redundancy and tell the world that crypto is a Ponzi scheme!
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500 people who have repeated the Ponzi scheme meme!
God I'm so intimidated now. I haven't said "Ponzi" before and now I never will.
It's clear, a ponzi scheme has a bunch of earlier investors who believe they are investing in a business of legitimate value and then make money selling on to later investors who then make some money selling on to yet later investors who end up holding the can when the whole thing collapses.
By contrast, a cryptocurrency has a bunch of earlier investors who believe they are investing in a token of legitimate value and make money s
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He's trying to help you out here. Your earlier definition isn't exactly a Ponzi scheme, and your cryptocurrency definition isn't either. Bitcoin has gone up and down repeatedly over the years. It clearly has some fundamental value, whatever that may be.
The actual reality here is that crypto is something new. It has some properties (difficult to censor, open ledger, provable artificial scarcity) that more tangible and real things do not. It also has a bunch of strange things that are psychological hooks
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Ponzi actually did have a postage stamp arbitrage strategy that generated high return on investment. The trouble is, it had a very low saturation point, and he accepted far more funds for investment than the saturation point of the strategy. He had no other strategies, so he used new clients' funds to pay returns to existing clients. It's this last part that's become known as a "Ponzi scheme".
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it proves you are insightful
Insightful is the new way of describing someone who has no fucking idea what they are talking about, which should be self evidence that despite all claims about it being a Ponzi scheme, those schemes are illegal in basically every western country, and yet no one goes after crypto.
There are two possible answers to this:
a) a global conspiracy by the secret one world government to let crypto Ponzi schemes slide, or
b) idiots don't know what a Ponzi scheme is.
Bank run (Score:2)
Re:Bank run (Score:5, Informative)
FTX was managed by clown but I doubt any bank, fiat or crypto, in the world has enough liquidities to manage a real bank run. We have seen fiat banks collapse in 2008. Also when a national currency collapse, banks can't honor withdrawals, it has happened in many countries. Your money in the bank is not real money it is just a promise.
Real banks are backed by their national banks. Normally with specific limits - e.g. about 100k Euros per customer per bank in the EU. That limit doesn't really matter for normal people because you can get around it by spreading your money between different banks (which is the aim of the limit - so people don't take too much risk in one bank). In the end, a national bank can just "print" money to cover whatever debt. Obviously in theory that devalues the currency but by a trivial amount compared to other fluctuations and the effect is that normal customers get their money back with close to the full value they put in. Nobody will get their money back from FTX.
All banks are scams.
And yet today I'll eat using money I put in the bank. If I put all my money in FTX I'd end up hungry.
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The fact that something like FTX exists is a design problem in the cryptocurrency universe. Since crypto is specifically designed to get around regulation you inevitably end up with bad actors all through the system.
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Real banks are backed by their national banks.
Sure, check lebanon banks for a recent example (happened in other countries already). They will stop your withdrawals until the baked money is worth nothing.
That limit doesn't really matter for normal people because you can get around it by spreading your money between different banks
It doesn't matter because most people don't reach 100k limit anyway and thus have one bank with 90% of their life saving.
And yet today I'll eat using money I put in the bank. If I put all my money in FTX I'd end up hungry.
Yes until you can't get this money. Yes banks are safer than crypto exchange but when things start to go wrong people discover their money don't really belong to them.
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(which is the aim of the limit - so people don't take too much risk in one bank)
I think the limit was chosen because 100 kEUR is a nice round number above the median wealth, which can be estimated to 87 kEUR per adult in EU. Calculation using https://en.wikipedia.org/wiki/... [wikipedia.org] and computing the weighted average.
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Say what you want, I just bought a pizza with BTC.
Bullshit. You bought a pizza with fiat currency, obtained by selling BTC to some sucker.
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Re: Filecoin (Score:2)
Bullshit Bullshit?
Someone is busy digging (Score:2, Interesting)
Ever since this fall from grace has started, binance has been really busy digging a grave for FTX on top of the already absolutely abysmal FTX situation.
Offering to âoesaveâ FTX, only to publicly drop them the next day? Check!
Dissing FTX and wood-nymph-friend Sam every interview? Check!
Publicity how much better funded they are? Check!
Donâ(TM)t get me wrong, FTX and Sam deserve it all and then some, it just makes you wonder what was really going on behind the scenes between those twoâ
Your money is safe (Score:2)
You can invest in my tulips, I have plenty of other tulips to back it up.
Re: Your money is safe (Score:1)
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C'mon, if you spam, at least check whether your spam link works in preview.
Seriously, everything gets worse and worse online. Even the spammers ain't what they used to be.
Fully transparent financial records needed. (Score:2)
Doesn't help much if they have debt, those bitcoins will be liquidated first to cover any debts and customers can then try to get back some of their assets. In case of bankruptcy that is.
Proof? (Score:2)
582k reserves of nothing = zero (Score:1)
Math day!
582k Bitcoin at True Value of zero per bit coin is: 582k x 0 = 0 net worth.
Re: 582k reserves of nothing = zero (Score:2)
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True, I hadn't considered the negative consequences of all the wasted energy burned "creating" these things nor the hardware required and the human potential wasted that could have been spent on other things. The costs are truly staggering.
Great now tell me ... (Score:2)
All Good (Score:1)
But what happens if people cash-out ? (Score:2)
Remember Moody's and S & P? (Score:2)
Correct me if I'm wrong but listening to 'reputable' rating agencies was a provable disaster in 2008. 14 years later they've added...(drumroll please)...
CRYPTO BUZZWORDS!