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

The Ethereum co-founder believes the industry needs an approach that prevents trading platforms from using users' money without approval.

Vitalik Buterin noticed that when another centralized crypto exchange suffers failure, the question arises in society: “is it possible to use cryptographic methods to solve the problem”:

“Instead of relying solely on fiat tools such as government licenses, audits, corporate governance studies, and biographies of the individuals behind the platform, companies can create cryptographic proofs that show that the assets stored on the blockchain are sufficient to cover obligations to users."

The Ethereum co-founder believes that Proof-of-Reserves Merkle Tree is “as efficient 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 using 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 solidity will not allow to obtain data on the remains on other clients. Buterin believes the zk-SNARK can be upgraded to more complex conditions. He gave an example of a case where the zk-SNARK platform showed clients that it does not give preferences to other participants as part of margin trading.

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

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