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Binance CEO tries to reassure customers spooked by FTX collapse that Crypto has a future

Binance founder and CEO Zhao Changpeng
Binance founder and CEO Zhao Changpeng. Photo: Benoit Tessier/Reuters (Benoit Tessier / reuters)

Binance boss Changpeng 'CZ' Zhao has sent a 'personal' email to the multitude of retail investors who use his centralised exchange, assuring them that everything is above board on the world's largest crypto platform.

The email was addressed to the community of 'Binancians' in a confidence boosting exercise for customers on how funds and wallets are managed at Binance.

The Binance boss stated that it conducts "a daily reconciliation of all crypto-assets that are held by Binance on behalf of its customers".

Read more: How crypto fell to earth in 2022: Eight charts that tell the story of a cruel crash

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Zhao added: "We only spend our own funds. We do not use client funds to deal on our own account."

Zhao emphasised that "Binance holds all of its clients’ crypto-assets in segregated accounts which are identified separately from any accounts used to hold crypto-assets belonging to Binance and that it also uses Binance’s own wallet infrastructure to safeguard user assets and Binance’s own assets."

In the wake of the implosion of the FTX cryptocurrency exchange, competitor centralised cryptocurrency exchanges such as Binance and Coinbase (COIN), are making strident efforts to reach out to their community of customers, and the media, to allay fears that a similar fiasco could occur on their platforms.

Read more: Worst crypto scams and 'coverups' of 2022

Now more than ever the adage of "not your keys, not your coins" rings true.

Both retail and institutional investors have felt the pain first-hand of allowing opaque, off-shore and centralised crypto-platforms, such as FTX, to have control of their funds.

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Deposit wallets on Binance

According to Binance, the centralised exchange has deposit wallets, with one or more address per user, per blockchain. Users deposit their cryptocurrency and stablecoins into their deposit addresses.

The Binance system monitors the blockchain and adds that balance to user accounts, which are stored on Binance.com.

Once Binance verifies that these coins are on chain, they can then be traded and spent on the Binance exchange.

The Binance exchange allows users to trade blue chip digital assets like bitcoin (BTC-USD) and ethereum (ETH-USD), as well as a dubious salad of lesser altcoins, some that have use-cases, others that do not.

Read more: Crypto tanks after FTX implosion

Blockchain analysts are able to scan publicly distributed ledgers (DLTs) and watch the movements of vast amounts of tokens.

The email from the Binance boss explained why user coins get 'swept' into different wallets.

He said that the platform, "periodically 'sweeps' those coins into a hot or cold wallet. The logic behind why exchanges sweep tokens is to minimise the number of transactions and keep gas fees minimal, thus dramatically reducing user fees overall".

Read more: FTX bankruptcy sees 80,000 UK crypto investors lose funds

He added: "Generally speaking, large amounts will be swept more quickly, and we may wait for a few deposits to sweep the small amounts or wait for the network gas fees to be low to sweep. A key reason we remain so competitive is that methods like this keep gas costs low, savings we then pass on to our users with some of the lowest trading fees in the industry.

"When users want to withdraw, our system sends them funds from the hot wallet and deducts the amount from their account balance. If the hot wallet gets below a certain amount, we replenish it from the cold wallet.

"If the hot wallet gets too large from the sweeping, we will move some funds to a cold wallet, and process future sweeping directly to the cold wallet, again to reduce the number of transactions as well as gas fees."

Read more: 'Get your money off exchanges', warns Bitboy Crypto after FTX scandal

Zhao added that there are certain exceptions when a large deposit comes in and that the platform may sweep directly to the cold wallet.

He also said that when a large withdrawal is requested, they may process it directly from a cold wallet.

Cold wallets store digital assets offline, and out of reach of computer hackers.

How Binance profits from user activity

Zhao explained that commission is deducted from each trade on their centralised platform, and moved to a Binance.com account owned by the Binance platform.

This is Binance’s revenue and the company stated that it has been profitable in its operations since four months after its founding in 2017.

In reference to the fall of the FTX exchange, he said that its "self-sufficient ecosystem" has shielded Binance customers from being exposed to the types of contagion risk we have seen with the implosions of other industry players.

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