BitMEX announced this Wednesday, December 1, the availability of the Proof of Liability (PoL) system. This system will allow BitMEX depositors to verify that their individual liabilities are included in the total liability balance, the exchange says on its blog.
“Customer privacy is preserved because account balances are randomly split across multiple leaves of the Merkle tree,” BitMEX said. The exchange noted that it will publish updates on its reserves and liabilities twice a week: on Tuesdays and Thursdays.
For self-verification of liabilities, users must download the latest liabilities “snapshot” and install the open source tool from GitHub, developed by BitMEX.
This is a software suite that allows you to independently verify the solvency of an exchange by auditing that declared reserves exist, as well as verifying that these exceed the liabilities known to users.
Bitmex depositors also have so-called nonces in their accounts, which are arbitrary numbers that allow cross-referencing with the exchange’s published liabilities. The nonce refers to a “one-time use number,” and can be defined as a number that is added to a block cipher that, when repeated, meets the constraints of the difficulty level.
To search for liabilities in the Merkle tree, users employ a “nonce,” or number that appears on each account, as well as a nonce representative of the account is also available. The former provides a “snapshot” of liabilities at a given time, while the account nonce provides access to the full sheet of liabilities.
Bitmex’s new POL system comes after high-profile collapses of the FTX exchange and its partner trading firm, Alameda Research, have spurred calls for greater transparency from centralized exchanges.
Among the exchanges that have submitted proof of reservations are Binance, Bitfinex, Kraken, Huobi and OKX.