Binance Opens Bitcoin Reserves to Merkle-Tree Verification

Binance released the first version of its proof-of-reserves system on November 25, 2022, giving customers a cryptographic method to check whether their Bitcoin balances were included in an exchange-generated Merkle tree.

The company reported an on-chain reserve of 582,485.9302 BTC and a customer net balance of 575,742.4228 BTC from a snapshot taken at 23:59 UTC on November 22, 2022. Binance presented the resulting reserve ratio as 101%. Subtracting the reported customer balance from the reported reserve produces a margin of 6,743.5074 BTC, although that calculation does not establish the exchange’s broader solvency.

The disclosure mattered because it attempted to move centralized-exchange transparency beyond lists of wallet addresses. It also arrived after FTX Trading Ltd. filed for Chapter 11 protection on November 11, 2022, an institutional failure that made the treatment of customer assets an immediate industry concern.

What customers could verify

A Merkle tree combines account records into a single cryptographic root. Binance customers could retrieve a record associated with their accounts and test whether their balances were represented in the tree without receiving other customers’ private account information.

Binance said its customer calculation covered balances held across products including spot, funding, margin, futures, earn and options accounts. The company also published reference material for customers who wanted to perform the verification themselves.

That feature addressed one narrow but important question: whether a participating customer’s reported BTC balance had been included in the November 22 snapshot. It created a check that a conventional company statement or wallet-address list could not provide on its own.

The reserve side was tied to reported on-chain holdings at Bitcoin block height 764,327. Blockchain records can confirm balances at disclosed addresses, but the November 25 materials did not, by themselves, constitute an independent examination of every representation Binance made about address control, account completeness or liabilities outside the reported BTC customer balance.

What the first release did not prove

The initial system covered BTC only. Binance said support for ETH, USDT, USDC, BUSD and BNB would follow, leaving customers in other assets outside the first verification set on November 25. The company also said involving third-party auditors was an upcoming step, which means the first publication should not be described as a completed independent financial-statement audit.

There was another disclosed complication. Binance offered margin and loan products, so an individual customer’s net balance could equal assets minus debt and could be negative for a particular asset. Binance said it planned to add zero-knowledge proofs to demonstrate that customers with negative asset balances had sufficient collateral elsewhere and that each customer’s total net balance in dollar terms was non-negative. That capability was a plan, not a completed feature on November 25.

Proof of reserves was therefore useful evidence about a specific asset at a specific moment, but it was not equivalent to a full balance sheet. It did not continuously monitor reserves after 23:59 UTC on November 22, establish the absence of undisclosed corporate obligations or independently verify all customer-account data.

A new transparency baseline

The significance of the release was institutional rather than purely technical. Binance was testing whether public blockchain balances, privacy-preserving account aggregation and customer-level verification could become a minimum disclosure standard for centralized custodians.

On November 25, the defensible conclusion was limited: Binance had published a reproducible inclusion mechanism and reported BTC reserves exceeding the customer net balance in its snapshot. Whether that model could mature into comprehensive, independently tested assurance remained unresolved.