The collapse of many major crypto ecosystems in 2022 reveals the urgent need to improve the way crypto exchanges operate. Ethereum co-founder Vitalik Buterin believes in exploring ways beyond money. “fiat” to guarantee the stability of crypto exchanges, including technologies such as Zero-Knowledge Succinct Non-Interactive Argument of Knowledge or zk-SNARKs.
After discussions with Balaji Srinivasan and crypto exchanges such as Coinbase, Kraken and Binance, Buterin agreed.recommendto options for creating cryptographic proofs of on-chain funds that can cover investors’ liabilities when needed Also known as safe centralized exchanges (CEX).
The best-case scenario is a system that does not allow rypto exchanges to withdraw depositors’ funds without their consent. CZ acknowledged the importance of Buterin’s advice, stating: “Working on a new Vitalik concept.”
Earliest effort to ensure the safety of funds The proof of solvency is that crypto exchanges publish a list of users and associated holdings. However, there were privacy concerns that prompted the creation of the Merkle tree technique, which eased leak concerns. flow of privacy
“The Merkle tree technique is as good as the proof-of-liabilities. If the goal is to prove liability only But its privacy features are still not ideal.”
Buterin recommends using zk-SNARKs. Buterin recommends placing user deposits in the Merkle tree and using zk-SNARK to prove their true value. This further conceals information about other users’ balances.
Buterin also discussed using proof of assets to verify exchange reserves while weighing the pros and cons of such a system. And even if a long-term solution is required, With multisignature and social recovery wallets, Buterin suggests two options for the short term, custodial and noncustodial exchanges, as shown below:
“In the long term future My hope is that we will move closer to all the exchanges that are non-custodial Or at least in terms of crypto,” Buterin added. On the other hand, highly centralized recovery options can be used for wallet recovery for small funds.
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