By George Ward
2022 marks a turning point for the crypto industry, considering the number of collapsed exchanges witnessed by the ecosystem and its broader impacts on the prices of digital assets.
Accordingly, there are calls by prominent personalities for changes in the way crypto businesses operate and how to avoid further occurrences.
Ethereum Co-founder Outlines New Ideas
Vitalik Buterin, the co-creator of the second-largest crypto asset, Ethereum, has revealed that he sees a possible solution beyond exploring fiat in ensuring stability for the virtual financial asset ecosystem.
According to Buterin, there is a need to examine other blockchain technologies like Zero-Knowledge Succinct Non-Interactive Argument of Knowledge (zk-SNARKS) to bolster the industry’s overall efficiency.
After a one-on-one conversation with an angel investor, Balaji Srinivasan, alongside crypto exchanges like Kraken, Coinbase, and Binance, the Ethereum co-founder recommended that developers consider creating cryptographic proofs of on-chain funds.
Buterin believes this would go a long way to cover investors’ liability when the need arises. The co-founder referred to the new system as “safe centralized exchanges (CEX).
A careful look at the proposed system shows that with this system in place, crypto exchanges can no longer withdraw funds belonging to depositors without their consent.
Binance CEO Lends Support
The founder of the largest crypto exchange, Binance, Changpeng Zhao, has shown his support for the new ideas proposed by Buterin.
Zhao has been a vocal personality in crypto, as he usually talks about Binance’s drive for transparency. Accordingly, in a Twitter post, the CEO said he is working on Buterin’s new idea.
Furthermore, the previous move to ensure the safety of funds is known as proof of solvency. It requires crypto exchanges to publish the complete list of users on their platforms and their equivalent holdings.
However, the issue of privacy concerns eventually led to the creation of an alternative structure called the Merkle Tree Technique. This new arrangement reduced privacy leak fears.
In response to a question about the Merkle Tree Technique, Buterin stated that the system is just as effective as the proof-of-liabilities if that is the only objective. However, he argued that its privacy mechanisms could be better for users.
Due to this, the Ethereum co-founder chooses zk-SNARKs as the best current situation. Buterin wants exchanges to put users’ deposits into the Merkle tree platform while utilizing the zk-SNARK to determine the actual value of an asset.
He believes adding an extra layer of hashing to the procedure would hide information about the crypto balances of other users. Furthermore, the Ethereum developer discussed the integration of proof of assets to confirm an exchange’s claim of its reserves.
He also weighs the pros and cons of such a move because some exchanges hold some amount of fiat. Ultimately, the process would require digital asset service providers to deploy trust models more suited to the fiat space than the crypto ecosystem.
With the Binance CEO expressing his support for the new system, it is only a matter of time before the world’s largest crypto exchange kicks off another transparency process.