Vitalik Buterin suggested using ZK-Snarks to check the balance sheets
Ethereum founder Vitalik Buterin proposed using ZK-Snarks to verify data on cryptocurrency exchanges reserves. In his opinion, the technology will make the Proof-OF-RESERVE (Por) procedure more efficient.
Big thanks to @balajis and staff from @coinbase @krakenfx for discussion!
– Vitalik.ETH (@vitalikbuterin) november 19, 2022
“Each time a large centralized exchange collapses, the main question that arises, is it possible to use cryptographic methods to solve the problem. Instead of relying exclusively on “fiat” instruments like state licenses, audits, studying corporate governance and biographies of persons standing beyond the platform, the company could create cryptographic evidence that the funds stored in the blockchain are enough to cover obligations to users, ” – He wrote.
According to Butaterin, ideally, a system should appear that would not allow the exchange to operate with customer means without their consent. He emphasized that ZK-Snarks technology could help achieve this goal.
The founder of Ethereum called the Merkle Tree Proof-OF-RESERVES procedure “as good as the evidence of obligations can be at all”. At the same time, he noted that this model has a number of problems associated with confidentiality.
As part of the Merkle Tree Proof-OF-RESERVES, the exchange or an independent organization performs the snapshot of the platform wallets and unites them into the tree of Mercla. For example, such a method plan to use Huobi and Binance.
According to Butaterin, even with the simplest implementation, ZK-Snarks will make the Por procedure more confidential: the “branch” of the Tree of the Time, transmitted to the specific user as evidence of solvency, will not allow him to find out information about the balance of other depersonalized customers.
He added that if desired, the technology can be adapted to more difficult conditions. As an example, the founder of Ethereum cited a situation in which, using ZK-Snarks, the platform shows users that, as part of marginal trade, does not provide preferences to other participants.
Buterin said that cryptographic methods allow you to check the exchange reserves exclusively in digital assets:
“Platforms store not only cryptocurrencies, but also fiat – within the framework of the banking system. […] The procedure will rely on traditional trust models: the credit institution will confirm the balance, auditors will confirm the balance and so on. Given that https://gagarin.news/news/how-is-crypto-profit-calculated/ the fiat is not amenable to a cryptographic test, this is the best that you can do “.
In conclusion, Buterin noted that in the future “cryptographically limited” centralized exchanges may appear. According to him, they will store assets in specialized smart contracts, which exclude the unauthorized use of client means.
He also allowed the occurrence of “semi -caste” platforms that fiat, but not cryptocurrencies will trust.
The publication of the founder of Ethereum was noticed by the head of Binance Chanpen Zhao. He stated that the exchange team will introduce the described test algorithm and make it open to the industry.
I Don’t Understand All the Equations in There Either. OUR Team Says Will Implement It and Make It Open-Source, for the Industry.
– Cz 🔶 Binance (@cz_binance) november 19, 2022
Earlier, Buterin called the ZK-Rollups protocol based on ZK-Snarks with a priority tool for solving the problem of scalability Ethereum.
Recall that the updated Ethereum roadmap involves the full integration of evidence technology with zero disclosure.
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