Mexican bitcoin (BTC) and cryptocurrency exchange Bitso has launched a new solvency test. This is a “zero-knowledge” (ZK) proof 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 test like 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, they can confirm that the envelope contains the information it was claimed to contain without opening it.”
For now, Bitso’s solvency test 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 reserve testsince 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 the event that the custodian has reserves in cryptocurrencies, it is also required to prove ownership over the passwords of the accounts where the funds are located.
The reserve tests of cryptocurrency exchanges became relevant at the end of last year, after the crisis suffered by the FTX company. At that time it was shown that the company led by Sam Bankman-Fried did not have sufficient funds to cover all the withdrawals of its clients. In an interview with CriptoNoticias, a Bitso manager had said, in November 2020, that they were working to present the most reliable proof of solvency possible.
Nowthe reserve tests are once again relevant due to the lawsuits that the US Securities and Exchange Commission (SEC) filed against the Binance and Coinbase exchanges. Among other accusations, the SEC maintains that Binance misused its users’ funds by mixing them with its own funds.
If they are 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 they are not your keys, they are not your coins”. The only way to have BTC is by owning the private keys that allow you to sign the transactions. That is not allowed by any exchange, but by a self-custody wallet.
An open source wallet that can be verified by people with programming knowledge should preferably be used. CriptoNoticias has developed guides to choose the best bitcoin wallets for different use cases.