Binance Reserve Proof Upgrade! Adopting "zk-SNARKs" technology to solve the problem of negative asset balances

After the bankruptcy of FTX, the issue of user asset transparency has sparked widespread discussion among centralized exchanges. As one of the leading exchanges in the industry, Binance adopted Merkle tree technology for asset proof in November last year, allowing users to verify wallet addresses and balances of different assets. However, the original Merkle tree structure had its issues. Binance recently announced that it will adopt zk-SNARKs technology to make asset verification more reliable for users.

Background: Binance announces asset proof! 120,000 BTC, 1.9 million ETH, 6.95 billion USDT

What were the original issues with Binance's Reserve Proof System?

According to an article released by Binance, they identified two main issues with their original Merkle tree-based Reserve Proof solution:

1. To protect user privacy, the Leaf Nodes in the Merkle proof represent hashed values of user-held assets, making it impossible for the Root Node of the Merkle Tree to reflect the total balance information of its Leaf Nodes.

2. As per Vitalik's article, by adding false accounts with negative balances, the required total reserve amount can be reduced. In a malicious Merkle Tree scenario, although the Root Node would still reflect the balances of the Leaf Nodes, it could lead to privacy issues.

To address these issues, Binance decided to enhance their Reserve Proof System by adopting the zero-knowledge proof protocol "zk-SNARKs" and made the following improvements:

1. All Leaf Nodes in the Merkle Tree contribute to the total balances of assets claimed by Binance.
2. No user's asset balance is negative within the Merkle Tree.

So, what is zk-SNARKs?

In simple terms, zero-knowledge proof protocols like zk-SNARKs allow the prover (Binance) to prove to the verifier (users) that a specific calculation has been accurately performed on certain inputs under certain constraints without revealing those inputs.

Despite the computationally intensive process behind it, this can help users quickly assess the security of their assets.

Upgraded Asset Reserve Proof

After implementing the zk-SNARKs protocol, Binance's Reserve Proof framework still relies on the Merkle tree but now presents users' asset and liability totals, as well as information on various assets, referred to as the Global State. However, users' individual account information remains encrypted.

To prove reserves, Binance will generate zk-SNARKs proofs for the Merkle tree structure, with each Leaf Node (user asset balance) needing to meet the following conditions:

1. Each asset balance of the user is included in the Global State list mentioned above.
2. The user's net asset balance cannot be negative.
3. The change in the Root Node takes effect after updating user information to the hashed value of the Leaf Node.

Through this update in reserve proof technology, Binance aims to enhance the transparency of digital asset proofs to a higher standard while addressing the issues highlighted by Vitalik in the article.

As part of this upgrade, Binance's Reserve Proof System has added four new tokens, supporting a total of 13 cryptocurrencies at present, allowing users to independently verify the holdings of the following assets in Binance custody.