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 beyond https://t.
co/AKEweYZfj2 Big 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’ deposits into a Merkle tree and using a ZK-SNARK to prove the actual claimed value.
Adding a layer of hashing to the process would further mask information about the balance of other users. Buterin also discussed implementing proof-of-assets for confirming an exchange’s reserves while weighing the pros and cons of such a system, considering that crypto exchanges hold fiat currencies and the process would require crypto exchanges to rely on trust models better suited for the fiat ecosystem. While long-term solutions will need the involvement of multisig and social recovery wallets, Buterin pointed out two alternatives for the short-term — custodial and non-custodial exchanges, as shown below: “In the longer-term future, my hope is that we move closer and closer to all exchanges being non-custodial, at least on the crypto side,” added Buterin.
On the other hand, highly centralized recovery options can be used for wallet recovery for small funds. Related: Crypto self-custody a ‘fundamental human right’ but not risk-free: Community On Nov. 4, Buterin added a new category of milestones to the Ethereum technical roadmap — aimed at improving censorship resistance and decentralization of the Ethereum network.
https://twitter. com/VitalikButerin/status/1588669782471368704 The updated technical roadmap now inserts the Scourge as a new category, which will run parallel to other previously-known segments — the Merge, the Surge, the Verge, the Purge and the Splurge. .
From: cointelegraph
URL: https://cointelegraph.com/news/binance-ceo-cz-begins-working-on-vitalik-buterin-s-safe-cex-ideas