While long-term solutions will require the inclusion of multisig wallets and social recovery, Buterin noted two short-term alternatives: custodial and non-custodial exchanges.
The collapse of several major crypto ecosystems in 2022 showed that the way crypto exchanges operate needs to be changed urgently. Vitalik Buterin, the co-founder of Ethereum, believed in exploring more than just “fiat” methods to stabilize crypto exchanges, including technologies such as zero-knowledge concise non-interactive knowledge argument (zk-SNARK).

After speaking with angel investor Balaji Srinivasan and crypto exchanges such as Coinbase, Kraken, and Binance, Buterin offered options to create cryptographic evidence of network funds, also known as secure centralized exchanges (CEXs), that can fulfill investors’ obligations. if needed. .

The best case scenario in this example would be a system that prevents crypto exchanges from withdrawing money from depositors without permission.

Expressing Binance’s commitment to full transparency, fellow crypto entrepreneur CZ acknowledged the importance of Buterin’s advice, saying:

Vitalik’s new ideas. He’s working on it.”
The first attempt to obtain funds was proof of solvency; where crypto exchanges publish a list of users and their respective assets. However, privacy concerns eventually led to the creation of the Merkle tree method, which reduced concerns about leaking sensitive information. Explaining the inner workings of the Merkle tree implementation, Buterin explained:

“The Merkle tree technique is basically as good as a proof of commitment scheme can be, as long as the goal is to produce proof of commitment. But the privacy features are still not perfect.”
As a result, Buterin bet on crypto through zk-SNARK. To start, Buterin suggested putting user deposits in a Merkle tree and using zk-SNARK to prove the supposed true value. Adding a hash layer to the process will further mask other users’ balance information.

Buterin also discussed the application of proof of existence to confirm exchange reserves, weighing the pros and cons of such a system, given that crypto exchanges hold fiat currencies, and this process would require crypto exchanges to rely on trust models more suited to the fiat ecosystem.

While long-term solutions will require the inclusion of multisig and social recovery wallets, Buterin noted two short-term alternatives: escrow and non-custodial exchanges, as shown below:

Two short term CEX protection options. Source: hackmd.io (via Vitalik Buterin)
“In the long term, at least in the realm of cryptocurrencies, I hope to get even closer to having all exchanges left unattended,” Buterin said. On the other hand, highly centralized recovery options can be used to recover a wallet for small funds.

Related: Cryptocurrency Self-Surveillance Is a ‘Basic Human Right’ But Not Without Risk: Community

On November 4, Buterin added a new category of milestones to the Ethereum technical roadmap aimed at improving censorship resistance and decentralizing the Ethereum network.

The updated tech roadmap adds Scourge as a new category, and it will run in parallel with other previously known chapters (Merge, Surge, Verge, Purification, and Extravagance).

Source: CoinTelegraph