Vitalik Buterin, Chief executive officer and co-creator of Ethereum, suggests utilizing zk-snarks to improve the security and dependability of Merkle tree exchanges by storing user funds in a manner akin to Validium smart-contracts.
CZ concurred with this idea and announced that it would be put into practice on Binance and made open source. For the purpose of implementing solvency proof, a central exchange. Every time there is a prominent CEX explosion, according to Vitalik, joint investigations get started.
Way the new system works
The point of the new system is to investigate the backgrounds of those in charge of corporate governance, exchanges, and reliance on conventional strategies like licenses from the government and auditors.
Exchanges can therefore present cryptanalytic evidence that the money they have is enough to cover their susceptibility to clients.
Additionally, he continued, cryptocurrency traders can set up a system in which deposits cannot be retreated without the depositor’s permission. But still, clients are free to research the total scope of the system’s functions which honors the ideal CEX.
Unfortunately, the network is currently experiencing a private and ineffective DEX leak. Buterin admitted that the intention behind the post was to stoke more mistrust in the conversation. Zk-snarks can therefore be a workaround for both existing problems with technology and new, stronger concepts.
Compressed Non-Interactive Zero-Knowledge Argument, also known as “zk-SNARK,” is a type of proof architecture that can justify the existence of specific knowledge, like a private key, determiner or supporter.
Manage contact and solvency
The post claims that demonstrating the exchange’s ability to pay off all deposits is how proof of solvency is established. The question of the way to handle the situation in which proving ownership (proving assets) and the entire amount of clients’ depositions result in proving solvency was raised.
Publication of a listing of pairs (name and money stock) makes it simple to verify a deposit. Every user has access to the list, which also includes their possessions, and anyone can verify the entire list. You can verify that every balance has been written off for a sum that is not negative.