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Crypto Exchange Gate.io Introduces ZK-Protected Proof-of-Reserves Instrument: Review

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Thu, 30/11/2023 - 10:24
Crypto Exchange Gate.io Introduces ZK-Protected Proof-of-Reserves Instrument: Review
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Gate.io, a top-tier cryptocurrency exchange ecosystem, announces the release of the ZK-powered mechanism for the proof-of-reserves procedure. Being a fully open-source tool, the new scheme guarantees an industry-leading level of transparency for Gate.io traders.

Gate.io now leverages zk-SNARKs for proof-of-reserves tool: Highlights

Starting from November 2023, customers of the Gate.io crypto exchange can check the platform's reserves using the ZK-powered proof-of-reserve mechanism.

  • Zero-knowledge technology is integrated into the proof-of-reserves (PoR) procedure on Gate.io cryptocurrency exchange in November 2023.
  • Novel proof of reserves (PoR) covers the 100+ largest cryptocurrencies issuing certificates regularly for enhanced transparency.
  • Gate.io's mechanism for proof of reserves relies on Zero-Knowledge Succinct Non-Interactive Argument of Knowledge, or zk-SNARKs.
  • Implementation of the ZK-powered proof-of-reserves (PoR) mechanism brings significant advances in privacy protection, accuracy of asset tracking and risk reduction for traders, investors and liquidity providers.
  • Gate.io has extra $400 million to safeguard users' assets, apart from 100% proof of reserve for all the users' assets already.

Gate.io pioneered the concept of the proof-of-reserves (PoR) procedure in 2020 by enlisting a third-party auditor to verify exchange wallets, compile user balance data in a Merkle tree and publish anonymized data in encrypted form. Since the new procedure is 100% open source, everyone can audit novel development and check its stability and credibility.

gate.io
Image by Gate.io

What is Gate.io?

Launched in 2013 by Dr. Lin Han, Gate.io is one of the world's longest-running cryptocurrency exchanges. The platform has consistently ranked as one of the top 10 cryptocurrency exchanges based on liquidity and trading volume on CoinGecko, the largest independent crypto segment tracker.

In all, the exchange delivers its services to 13 million users across dozens of countries on all continents. Gate.io launchpad services unlocked fundraising opportunities for a plethora of early stage services. Also, in Q4, 2023, the exchange unveiled its multiproduct noncustodial platform for crypto storage and conversion, dubbed Gate.io Web3.

What is proof of reserves important in crypto market?

Proof of reserves is a protocol in the cryptocurrency world used by exchanges and custodians to verify that they possess enough assets to cover customer balances. This process is crucial for transparency and trust, as it assures users that their funds are safely held and can be withdrawn when needed.

In proof of reserves, a third-party auditor typically examines the company's digital wallet addresses and balances, comparing them against user balances to ensure adequacy. The method often involves cryptographic techniques, allowing the auditor to validate the holdings without revealing sensitive customer information. 

Proof of reserves gained importance in 2022 following the FTX collapse and the bankruptcies of Voyager, Celsius and Three Arrows Capital. By providing a verifiable way to confirm asset holdings, proof of reserves helps to build user confidence, reduce the risk of insolvency and promote ethical practices within the cryptocurrency sector.

What are zk-SNARKs?

zk-SNARKs, or "Zero-Knowledge Succinct Non-Interactive Arguments of Knowledge," are a form of cryptographic proof technology. They enable one party to prove to another that they know a value or possess certain information, without revealing the information itself or interacting with the other party beyond the initial proof. This technology is fundamental in enhancing privacy in blockchain transactions.

In the context of cryptocurrencies like Zcash, zk-SNARKs allow transactions to be fully encrypted on the blockchain while still being verified as valid under the network's consensus rules. This is achieved through sophisticated mathematical techniques that provide a way to ascertain the legitimacy of a transaction without exposing details such as the sender, receiver or transaction amount.

zk-SNARKs are crucial for privacy-focused blockchain applications because they offer strong assurances of data integrity and security without compromising confidentiality. Their implementation, however, is complex and requires a deep understanding of advanced cryptography.

gate.io
Image by Gate.io

Gate.io implements ZK-powered instruments to proof of reserves: What to know

Top crypto exchange Gate.io enhanced its proof-of-reserves (PoR) system with zk-SNARKs to guarantee maximum transparency with zero anonymity and security trade-offs.

Basics

Per the official statement of its team, crypto exchange ecosystem Gate.io implemented a major upgrade to its proof-of-reserves (PoR) procedure. Now it is secured by zk-SNARKs, a cutting-edge zero-knowledge technology.

Since 2020, the exchange broadcasted the indexed and encrypted data about its reserves in the form of a Merkle tree, a data structure in cryptography and computer science, used for efficiently summarizing and verifying large sets of data. At the same time, after the collapses of 2022 that resulted in the billion-dollar losses of traders and investors, Gate.io decided to prepare an upgrade to this mechanism:

While this method does provide security, privacy, and independent verification, it was identified that there was still room for improvement.

As a result, in November, 2023, Gate.io replaced the previous-gen proof-of-reserves mechanism with a new one that employs zk-SNARKs.

Technology

First of all, implementing zk-SNARKs addresses concerns about the previous method, which left open the possibility of including fabricated accounts with negative balances to alter the data. Theoretically, the exchange had the opportunity to cheat by manipulating the data before broadcasting them to the Merkle tree. With the upgrade activated, Gate.io's proof-of-reserves (PoR) procedure works for 100+ major cryptocurrencies available on the platform.

文章配图_en
Image by Gate.io

Proof-of-reserve certificates are constantly updated and published on special web pages within the platform. Users can independently verify the results by themselves even without specific expertise in blockchain and cryptography technologies. In order to meet the diverse needs of users in an ever-evolving market, Gate.io will regularly evaluate the market and gradually increase supported currencies.

While building and activating the new mechanism, Gate.io exchange kept in mind the following enhancements for users:

  1. Privacy protection: Users can conduct asset verification while retaining the privacy and 100% anonymity of assets and identities.
  2. Accuracy: Zero-knowledge proofs ensure higher accuracy in the data broadcasted to the Gate.io user base.
  3. Risk reduction: Various risks, such as data leakage, identity theft, tampering the data and other potential threats, are better mitigated by implementing zero-knowledge proofs of the mentioned type.

Open-source PoR Solution Disclosed to Facilitate Industry Health

The new proof-of-reserves procedure by Gate.io is 100% open source: everyone can check its technical design in the "gate-zkmerkle-proof" folder of Gate.io's GateChain repository on GitHub platform (MySQL database management system is required).

For all cryptocurrency enthusiasts with no tech expertise, all necessary information about how zk-SNARKs improve Gate.io's PoR will be published on the Gate Learn portal.

Wrapping up

In November 2023, cryptocurrency exchange Gate.io activated a novel mechanism for its proof-of-reserves (PoR) procedure. Now it relies on zk-SNARKs, a cutting-edge zero-knowledge technology. Everyone can challenge the PoR data by themselves and verify their credibility, even without cryptography expertise.

With the new upgrade, Gate.io's proof of reserves became more accurate, tamper-proof, comprehensive and cost-effective. By press time, Gate.io reserves exceed user funds' value by over $437 million, the volume of reserves exceeded the net amount of Gate.io wallets by over 15.6%, cryptographically verified data says.

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