The collapse of numerous major crypto ecosystems in 2022 revealed the urgent need for revamping the way crypto exchanges operate. Ethereum (ETH) co-founder Vitalik Buterin believed in exploring beyond “fiat” methods to ensure the stability of crypto exchanges, including technologies such as Zero-Knowledge Succinct Non-Interactive Argument of Knowledge (ZK-SNARKs).
Following a discussion with angel investor Balaji Srinivasan and crypto exchanges such as Coinbase, Kraken and Binance, Buterin recommended options for the creation of cryptographic proofs of on-chain funds that can cover investor liabilities when required, a.k.a, safe centralized exchanges (CEX).
Having a safe CEX: proof of solvency and beyondhttps://t.co/AKEweYZfj2Big thanks to @balajis and staff from @coinbase @binance @krakenfx for discussion!
The best case scenario, in this instance, would be a system that does not allow crypto exchanges to withdraw a depositor’s funds without consent.
Vitalik's new ideas. Working on this. Just don't read the title aloud around people (Vitalik wrote it).https://t.co/AtR6KiSx5B
Fellow crypto entrepreneur CZ, who has been vocal about Binance’s intent for complete transparency, acknowledged the importance of Buterin’s recommendations, stating that:
The earliest attempt to ensure fund safety was proof-of-solvency, wherein crypto exchanges publish a list of users and their corresponding holdings. However, privacy concerns eventually fueled the creation of the Merkle tree technique — which dampened the privacy leakage concerns. While explaining the inner workings of the Merkle tree implementation, Buterin explained:
As a result, Buterin placed his bets on cryptography via ZK-SNARKs. For starters, Buterin recommended putting users’Read more on cointelegraph.com