December 5, 2022

Vitalik Buterin: You can use zk-SNARK to check exchange reserves

Article reading time:
2 minutes.

Vitalik Buterin: You can use zk-SNARK to check exchange reserves

The co-founder of Ethereum believes that the industry needs an approach that will not allow trading platforms to use users' money without approval.

Vitalik Buterin noted that when another centralized crypto exchange fails, the public asks: “is it possible to use cryptographic methods to solve the problem”:

“Instead of relying solely onfiat tools like government licenses, audits, corporate governance studies, and biographies of the people behind the platform, companies could create cryptographic evidence showing that the assets stored on the blockchain are sufficient to cover obligations to users.”

Ethereum co-founder is confident that the verificationsite balance (Merkle Tree Proof-of-Reserves) is "as effective as a confirmation of commitment scheme can be." Buterin noted that this decision may raise questions related to anonymity.

Ethereum co-founder believes that even partialThe introduction of zk-SNARK (a cryptographic protocol that uses public, probabilistically verifiable zero-knowledge proofs) will make the PoR procedure more anonymous: the “Merkle tree branch” passed to a specific user as proof of solvency will not allow obtaining data on the balances of other clients. Buterin believes that zk-SNARK can be updated to more complex conditions. He gave an example of a case when the zk-SNARK platform showed clients that it does not provide preferences to other participants as part of margin trading.

Vitalik Buterin noted that cryptographic methods enable the exchange to audit only digital assets, and not fiat, which is placed on exchanges.

The CEO of the Binance exchange urgedcrypto companies to publish data about their balances. At the same time, the investment company Grayscale, citing security, refused to post information about the reserves.