Mexican bitcoin (BTC) and cryptocurrency exchange, Bitso, launched a new solvency proof. It is a “zero-knowledge” (ZK) test that, according to the company, “uses mathematical models and cryptographic protocols to prove a certain statement without revealing its content”.
For this, Bitso works together with the company Proven, ensuring that this proof is verifiable and incorruptible.
Think of a ZK proof as a sealed envelope that no one can open except its owner. The owner can prove to anyone that the information contained in the envelope is true by using a specific protocol, known as zk-SNARK. When a verifier runs that same protocol, he or she can confirm that the envelope contains the information it was said to contain without opening it.”
At the moment, Bitso’s proof of solvency with ZK technology only includes bitcoin (BTC) and ether (ETH), but they promise to include more cryptocurrencies in the future.
The company clarifies that a solvency test is not the same as a reserves test, as both reserves and liabilities are taken into account:
It is the result of both the reserves test and the liabilities test with reliable mechanisms to validate that the total amount of assets in custody is equal to or greater than the total amount of liabilities. Additionally, in case the custodian has reserves in cryptocurrencies, it is also required to prove the ownership over the keys of the accounts where the funds are located.
Bitso’s press release.
Proof of reserves of cryptocurrency exchanges became relevant at the end of last year, after the crisis suffered by FTX.
At that time it was shown, that the company led by Sam Bankman-Fried did not have sufficient funds to cover all of its customers’ withdrawals.
Now, the proof of reserves is again becoming relevant due to the claims that the U.S. Securities and Exchange Commission (SEC) made against the exchanges Binance and Coinbase. Among other allegations, the SEC claims that Binance misused its users’ funds by commingling them with its own funds.
Not your keys…
Despite all the evidence that a bitcoin and cryptocurrency exchange can present, it is necessary to remember the bitcoiner maxim that says “if it’s not your keys, it’s not your coins”. The only way to have BTC is to possess the private keys that allow you to sign transactions. This is not allowed by any exchange, but by a self-custody wallet.
Preferably an open source wallet that can be verified by people with programming knowledge should be used.
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