BitMEX today revealed its new Proof-of-Liability scheme that would solve the privacy issues that different crypto exchanges run into.
According to reports, the research was conducted by BitMEX Research in collaboration with the BitMEX Wallet team to come up with a new Proof-of-Liability proposal.
Essentially, the protocol in question is involved in the management of balances by cryptocurrency exchanges, along with Proof-of-Assets. This is the ability for exchanges to display a list of user balances that add up to the total liability of the platform.
In this way, users can individually verify that their balance is included in the list and check the solvency of the exchange that is adopting the model.
The problem, according to BitMEX, is that this model is not being adopted in the crypto space precisely because it does not perfectly protect users’ privacy. Indeed, among other possibilities, information harmful to the user’s interests could be revealed, such as the history of their balances or how they have changed over time.
BitMEX’s innovation would produce a solution precisely to guarantee privacy to all that information related to the balance of the crypto-exchange user.
BitMEX and the privacy of the user’s balance information
To build the new Proof-of-Liability scheme, BitMEX relied on the one proposed by Greg Maxwell, which involves the construction of a Merkle tree.
Each leaf of the Merkle tree represents a user’s balance, to which new mechanisms are then added to this construction to improve user privacy.
Here’s how the new solution is described:
“We have described a new proof of liability proposal, which splits user balances into multiple chunks and randomly shuffles these as leaves in a Merkle sum tree. The proposal includes other fields to prevent collisions and a nonce that changes each snapshot. When combined together these innovations allow users to have a higher degree of confidence over the solvency of the exchange, without any significant privacy leakages. The downside to this new scheme is complexity, however the exchanges which adopt this scheme should bear the burden of the complexity and it should be possible to provide a set of tools allowing users to conduct this process themselves with a reasonably low degree of effort”.
BitMEX was recently named the first Official Sleeve Partner of Italian football club AC Milan. The crypto platform is also the first Official Cryptocurrency Trading Partner of the Rossoneri team.