Recent events in the cryptocurrency markets make some things mandatory. Vitalik Buterin and Changpeng Zhao have signed on. Transparency is what the cryptocurrency industry needs these days, and that transparency shouldn’t be limited to instant proof of reserves. Vitalik Buterin published a recommendation and spoke out loudly the mechanisms that could unsettle bad players in the industry.
Secure cryptocurrency exchanges are more than preventing hacking of security systems. Investors are skeptical of all cryptocurrency exchanges as details of FTX and Alameda’s scams emerge. They are making various requests to find out if they are using the balances they deposited on the platform. No one wants their balance deposited in any exchange to be put at risk by managers.
Binance CEO Changpeng Zhao agreed with Vitalik Buterin that Centralized Exchanges (CEXs) should produce publicly available evidence demonstrating user safety. Of course, Changpeng Zhao initially came up with the idea of Proof of Reserve in response to the disaster that befell FTX users, and several exchanges have adopted this model. However, Ethereum’s co-founder suggested that the model could be improved, and Changpeng Zhao confirmed that the exchange team could implement the idea.
Vitalik, in his article published via HackMD, noted that it is more important for exchanges to prove their solvency than just sticking to reserve data. According to the ETH founder, it was better for the crypto industry to have its own way rather than sticking to fiat-backed systems. Vitalik cited the ability of zk-SNARKs to aid design, as cryptographic technology can provide robustness and privacy to the ecosystem.
Vitalik also stated that the system could turn centralized exchanges into non-surveillance platforms.
“In the future, we may also see cryptographically ‘restricted’ CEXs where user funds are held in something like a validium smart contract. We may also see semi-supervised exchanges that we trust with fiat but not cryptocurrencies.”
Vitalik Buterin thinks that one day, a structure in which user assets cannot be moved by exchanges will come into our lives unintentionally. There have been those who have tried this, but no important step in this direction has come from the big players. However, if we look at the latest statements made by Binance CEO, it is thought that soon the giant stock market will establish a similar trust mechanism.