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You can prove presence of assets, you can't prove absence of liabilities, and you can't audit the balance sheet without seeing both sides.
by jdewerd 3y ago
You can prove presence of assets, you can't prove absence of liabilities, and you can't audit the balance sheet without seeing both sides.
- nullc 3y agoYou can, but it's not simple in the context of an ETP, due to all the infrastructure in between the parties with an ownership interest and the assets. If we ignore that: Dumbest version: You give everyone a list of all the liabilities. They make sure they are in there themselves. Anyone left out isn't entitled to the assets in an insolvency, so there is an incentive to check. This isn't very efficient, giving everyone the whole list. But make a hash tree with each node carrying a hash and the sum of liabilities below it. Show each user their log2() sized proof. Much more efficient. This leaks information about the distribution of ownership. Replace the values with pedersen commitment (and range proofs on their sums), and only open the top and bottom ones. There is a fine writeup on the subject here: https://web.archive.org/web/20170928054354/https://iwilcox.me.uk/2014/proving-bitcoin-reserves https://web.archive.org/web/20170928054354/https://iwilcox.m... (Archive.org link because Zak died a couple years ago stomach cancer at age 40 due to an undetected chronic H. pylori infection, and his website didn't out survive him for long)