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 on fiat tools like government licenses, audits, studying corporate governance and biographies of the individuals behind the platform, companies could create cryptographic proofs showing that the assets stored on the blockchain are sufficient to cover obligations to users.”

The co-founder of Ethereum believes that Merkle Tree Proof-of-Reserves is “as effective as a proof-of-commitment scheme can be.” Buterin noted that this decision may raise questions related to anonymity.

The co-founder of Ethereum believes that even partial implementation of zk-SNARK (a cryptographic protocol that uses public, probabilistically verifiable zero-knowledge proofs) will make the PoR procedure more anonymous: a “Merkle tree branch” transferred to a specific user as proof of solvency will not allow obtaining data on balance sheets 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 has urged crypto companies to publish their balance sheet data. At the same time, the investment company Grayscale, citing security, refused to post information about the reserves.