Ethereum co-founder Vitalik Buterin has suggested using zk-SNARKs to verify the reserve data of cryptocurrency exchanges, which, according to him, will make the Proof-of-Reserve (PoR) procedure more efficient.
He has said:
“Whenever a large centralized exchange collapses, the main question that arises is whether cryptographic methods can be used to solve the problem. Instead of relying solely on ‘fiat’ tools like government licenses, audits, corporate governance studies, and biographies of the people behind the platform, companies could create cryptographic proofs showing that the funds stored on the blockchain are sufficient to cover obligations to users.”
According to Buterin, ideally, a system should appear that would not allow the exchange to operate with clients’ funds without their consent. He has stressed that zk-SNARKs technology could help achieve this goal.
He has called the Merkle Tree Proof-of-Reserves procedure “as good as a proof of commitment scheme can be.” However, he has noted that this model has a number of privacy-related problems.
