In the wake of the raising pressure on Centralized Exchanges (CEX), Co-Founder of Ethereum, Vitalik Buterin has suggested ways of addressing proof-of-solvency issues. In a discussion, the Co-Founder of Ethereum encouraged the establishment of cryptographic proofs of on-chain funds. According to Buterin, the funds can help Centralized exchanges battle liabilities at the needed time.
The suggestion emanated due to the prevailing crisis that has engulfed the status of Centralized exchanges. Currently, there are doubts about the credibility of Centralized exchanges. The Crisis of FTX has fueled the call for a move away from the use of CEX. This call birthed Buterin to suggest a way forward.
Notably, the tech guru opined that the usage of other options aside from Fiats will empower CEX against future crisis. Further, Buterin recommended Zero-Knowledge Succinct Non-Interactive Argument of Knowledge (ZK-SNARKs). With the innovation, centralized exchanges won’t have the power to withdraw their customer’s funds without prior consent from the depositor. Now, if implemented, CEX won’t have the overall jurisdiction to invest users’ funds in businesses they are not aware of.
Opinion on Merkle Tree
Additionally, He explained that starters can keep users’ assets in a Markle tree and use ZK-SNARK to reveal the value of the assets. Also, Buterin discussed how the Merkle tree technique can help protect users’ assets without revealing their identity.
The discussion about the Merkle tree surfaced when Buterin addressed proof-of-solvency as the previous way of ensuring the safety of investors’ assets. The proof-of-solvency is a publication by CEX containing a list of users and their holdings on a centralized exchange.
Buterin submitted that the combination of Merkle tree and cryptography through ZK-SNARKs would be a game-changer. Worth noting that developers use Merkle trees to encode blockchain data more efficiently and securely.
Binance CEO’s Reaction to the new innovation by Buterin
Meanwhile, Binance CEO, Changpeng Zhao has drummed support for the suggestions of the Ethereum Co-Founder. In a tweet today, Changpeng Zhao expressed his willingness to implement the new proposal. Before now, Changpeng Zhao has often called for CEX to prove to users that their assets are safe with them.
In one of his submissions, the Binance Boss urged other centralized exchanges to publicize their proof of reserve. A trend some CEX has complied with to assure users that their assets are safe. Lastly, CEX has a mountain to climb in the course of regaining investors’ trust and preventing their exodus to Decentralized exchanges and Hardware wallets. If adopted, the suggestions of Vitalik Buterin would go a long way to mend the broken bridge between CEX and investors.