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Changpeng Zhao, more commonly known as ‘CZ’, sent a message to all ‘Binancians’ on the platform earlier this month asking how Binance will approach managing funds within different types of wallets. clarified.
CZ describes the purpose of the email as “answering some follow-up questions from the community regarding how to manage funds and wallets on Binance.”
He begins by addressing two basic facts. The first is that the platform keeps all of the client’s crypto assets in segregated accounts. CZ ensures that these accounts are identified separately from accounts used to hold crypto assets belonging to Binance.
He follows this up by ensuring that the platform deploys its own wallet infrastructure to protect both the assets of its platform and its users.
CZ’s email explains exactly how the Binance wallet works and works.
There is a deposit wallet, with one (or more) addresses per user per blockchain, the email reads. Deposit to the deposit address. Our system will monitor the blockchain and add the balance to his account on Binance.com.
Once the deposit is confirmed on-chain, users will be able to spend their coins on Binance as they wish. However, CZ warns that coins may or may not move immediately from that address.
He explains that the platform periodically sweeps coins into hot (or cold) wallets. The main difference between these two types of wallets is that hot wallets are connected to the internet. Cold wallets, on the other hand, store coins and user data offline on hardware devices.
The logic behind why exchanges sweep tokens is to minimize the number of transactions and gas fees. This ultimately helps reduce overall user fees.
Generally speaking, continues CZ.
The main reason we remain so competitive is that this way we can keep the cost of gas low and pass those savings on to our users with the lowest transaction fees in the industry.
When a user wants to withdraw, Binance transfers funds from their hot wallet and deducts the amount from their account balance. When the hot wallet falls below a certain amount, the cold wallet is replenished with numbers.
If the cleanup overwhelms the hot wallet, we will move some funds to the cold wallet, the email continued.
Essentially all future sweeps are processed directly into the cold wallet. Again, this is to reduce both the number of transactions and gas costs.
CZ explains that there are certain exceptions for large deposits coming in. We may also process large withdrawal requests directly from cold wallets. “
In that context, we understand that, with the exception of instances of deposits and withdrawals, deposits, sweeps and transfers of funds between hot and cold wallets are completely independent of updating user account balances. I would appreciate it.
When a user makes a trade on Binance, a commission is deducted from each trade. This commission is then transferred to an account owned by the Binance platform. This fee makes up the bulk of the platform’s revenue. Used to cover operating costs, servers, vendors, and employee salaries.
The rest of the offering will be kept in the original account. CZ explains how the platform continues to be profitable four months after its launch. Maintaining resilience through two bear markets.
Binance invests significant resources to fully comply with all applicable laws and regulations.
Therefore, Binance keeps all of its clients’ crypto assets in segregated accounts. More specifically, Binance maintains a customer balance. An internal accounting (or ledger) entry within the Binance system that records a customer’s entitlement to virtual assets.
Each customer on Binance has an Account/Unique Identifier (UID). This is a ledger-based (off-chain) account (or sub-account) within the Binance system that has a UID and associated login credentials and records client balances.
This allows Binance to always keep track of crypto assets belonging to customers and distinguish them from crypto assets belonging to Binance. Binance reconciles all Binance-held crypto assets on behalf of its customers on a daily basis.
“We only use our own funds,” the email said. We do not use client funds to trade on our own accounts.
CZ confirms that Binance has built a segregated on-chain customer cryptocurrency wallet to comply with compliance requirements under the European MiCA regulation, which will soon be introduced in Europe.
CZ uses his email to answer some of the platform’s users’ most pressing questions. So why is his own wallet using his infrastructure to protect user funds and his own?
As one of the largest custodians of crypto assets, security is rightfully on the top of our list of priorities.
This is achieved through significant security investments. This includes hiring the best people and hiring the best technology. “It’s one of the biggest investments we make each year,” he says, CZ.
We consider our wallet infrastructure to be one of the most secure in the industry, and Binance is the perfect place to secure your cryptocurrencies.
We have considered using third-party wallet software. However, we have reviewed other wallet vendors and are more confident in the security of our own ecosystem than we have seen from other vendors.
Furthermore, by creating a self-sufficient ecosystem, Binance customers were protected from exposure to contagion risks similar to those seen with implosion of other industry players. Celsius, Voyagerand now FTX.
Last but not least, no other wallet or custodial solution can handle the huge variety of coins we support or hold. protects our assets and those of our customers, the email concludes.
How does Binance verify the safety of user funds?
CZ explains how this is achieved through the Merkle Tree Proof of Reserve. Be the “best way”.
This allows users to see their account balance with a final reconciliation with their wallet total balance. Designed to ensure the existence of funds. More importantly, it is very difficult to counterfeit or break.
Blockchain technology allows us to make our industry much more transparent than the traditional financial industry. Binance will continue to lead by example and move the industry forward, CZ said at the end of the email. says.
The most important question of all, and perhaps the elephant in the room, is why CZ felt the need to send such an email.
Transparency is always appreciated on all levels, but unfortunately Binance wrong end of the aforementioned FTX collapse.
On a broader level, the competitor collapse has shaken consumer confidence in cryptocurrencies and, more specifically, Binance’s ability to manage its funds accordingly.
The platform experienced massive withdrawals of no less than $3 billion in the hours following the collapse of FTX. In addition to these issues, the platform is under investigation by the U.S. Department of Justice for money laundering violations.
However, in just a few hours, the crypto industry will enter a brand new year. This could be a huge opportunity for a confusing platform to open a new chapter. He is one of transparency and unwavering consumer trust. This leaves only one question that can be answered. Is this enough?
