Ethereum CEO suggested using zero knowledge succinct arguments of knowledge (zk-SNARK) to verify crypto exchanges after FTX’s crisis. He also assumed that the technology would allow for “cryptographically constrained” CEXs and “half-custodial” platforms in the future.
Vitalik Buterin published an article on his blog making several assumptions about the future security of CEXs. He suggested that the Proof-of-Reserve (PoR) audit algorithm could be improved with zero knowledge succinct arguments of knowledge (zk-SNARK).
Ethereum CEO said that using zk-SNARK would improve the effectiveness of Proof-of-Reserve that crypto exchanges implemented to prove their assets’ security after FTX’s collapse. According to Buterin, zero knowledge succinct arguments of knowledge can reduce the possibility of exchanges using client funds without their consent.
Buterin stressed that the Proof-of-Reserve algorithm, based on the Merkle tree technique, had several flaws and potential vulnerabilities related to insufficient privacy. And zk-SNARK would enhance the confidentiality of the Proof-of-Reserve procedure. Users will be able to verify the platform’s solvency but won’t have access to information about the specific accounts of other clients.
Vitalik said that zk-SNARK, which is expected to be implemented on Ethereum at The Verge stage, would allow the creation of “cryptographically constrained” CEXs in the future. Such exchanges will only use digital assets and store them in special smart contracts (validium), thus eliminating the possibility of unauthorized use of client funds. Besides, Ethereum CEO suggested some “half-custodial” exchanges could appear soon, where users would trust fiat storing but not cryptocurrencies.
Vitalik’s post caught the attention of Changpeng Zhao, CEO of Binance and a possible reason for FTX’s problems, which provoked users’ distrust of crypto exchanges. Zhao said that the Binance team was ready to implement the zk-SNARK technology described by Vitalik and “make it open-source for the industry.”
Last week, major cryptocurrency exchanges revealed reserves in their portfolios to prove the security of assets. To read about how events surrounding FTX and SBF are developing, check out CoinsPaid Media’s related articles.
