What is the Merkle tree certificate that several top CEXs announced publishing as proof that they own funds?

In this post:

  • Rumors about FTX crash
  • Binance announced to share of proof of reserves
  • Other top crypto exchanges are working on Merkle Tree

Before explaining what is Merkle Tree certificate and why top crypto exchanges are publishing it, you need to know a little background. Since the last year, things are not good in the crypto market. In May Luna crashed which took billions of dollars out of the market. Now another crash is on the way and this time it is in the form of FTX.  

There were rumors of an FTX crash because of its financial state and these rumors intensified when Binance announced the liquidation of all of its FTT tokens. Many other investors and users of FTX follow the suit and there was an overwhelming outflow and withdrawal of funds. However, the FTX community ensured users and agreed on the strategic transactions with Binance.

In the mids of all this, CZ announced that it will start Merkle Tree or proof of reserves to support full transparency and he urged other crypto exchanges to do the same so that there would be a sense of trust between exchanges and investors.

What is Merkle Tree?

Transaction data is very important in the blockchain and to secure that Merkle Tree is used. It stores the transaction data so that all the users can access the data. Additionally, it verifies the data in a large content pool. This help the exchange users to trust because the crypto holding is safe using public blockchain information.

How is it helping the transparency of crypto assets?

Crypto assets users can verify the stability of their holdings on exchanges using Proof of Reserves. In order to maintain privacy, the Merkle tree is used as a data structure in this advanced cryptographic accounting procedure.

Due to the ease with which point-in-time attestations can be manipulated, and the limitations of simple cash flow analysis (such as unaccounted liabilities), the PoR becomes increasingly important. It helps crypto exchanges gain the trust of users by providing accurate information about held balances.

Top crypto exchanges started using Merkle Tree

Many top crypto exchanges announced to use Merkle Tree certificate in order to gain more trust and avoid any speculation. If FTX had announced Proof of Reserved, it would have not seen so much withdrawal and rumors because Proof of Reserve ensures transparency and trust. FTT lost 70% of its worth within a few days.

Binance was the first one to announce that it is going to have Proof of reserve and urged other exchanges to regard transparency as their primary concern. In a tweet, CZ said that “All crypto exchanges should do Merkle-tree proof-of-reserves.” And further added that “@Binance will start to do proof-of-reserves soon. Full transparency.”

A few hours later, OKX, one of the top crypto exchanges announced the same strategy in a tweet from OKX’s official Twitter account. It said that every crypto exchange needs to share its auditable Merkle Tree publicly and OKX is planning to share theirs in the coming weeks. They consider it an important step to establish a baseline trust in the industry.

Furthermore, other top crypto exchanges like Gate, Houbi, and Bitget also announced to have Merkle tree proof of reserves. All of these exchanges are working on Proof of Reserve sharing and will soon share one.

Final thought

Transparency is very important for all crypto exchanges because, without it, users and investors lose trust in the platform which may result in an FTX form of withdrawal. If users have any sort of proof that their fundings are secure and safe, they would never withdraw their funds no matter what. That is the precise reason why most of the crypto exchanges decided to share proof of reserve to gain more trust from investors and users.

Disclaimer. The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decisions.

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