Stepping into 2024, the crypto space is buzzing with significant events: governments worldwide have started recognizing cryptocurrency as an independent class of assets, TradFi giants have entered the big game, and Bitcoin halving suggests a bull market may be on the horizon.
With market liquidity increasing and people tend to invest their money more boldly, it’s critical to focus on asset security. BeInCrypto sat down with Gate.io founder and CEO Dr. Lin Han to discuss the importance of Proof of Reserves (PoR), the industry’s need for transparency, and the exchange’s unique approach to keeping users’ funds safe.
Proof of Reserves as a New Industry Standard
Gate.io is no newcomer to the Proof of Reserves concept. In 2020, it was one of the first exchanges to conduct PoR using the now-standard method of combining Merkle tree with a third-party auditing firm and independent user validation. Two years later, the platform made its implementation open source following FTX’s collapse. In 2023, the method was upgraded to include regular reporting on more than 170 assets and utilizing ZK-SNARKs for enhanced security and privacy.
ZK-SNARK is an acronym that stands for Zero-Knowledge Succinct Non-Interactive Argument of Knowledge. It’s a cryptographic proof that allows one party to prove it possesses certain information without revealing that information.
But the main problem remains. Even though the 100% PoR has become a benchmark for most centralized exchanges (CEX), it still needs to be easier for the average user to understand and complete a Merkle tree verification. Dr. Han simplifies the verification process, likening it to a collaborative game where millions of users identify data defects.
«Understanding the Merkle tree or zero knowledge technology can be complicated for non-technical people. But the verification process itself is quite simple. When we publish all the data, the source codes, the tools, people can work together to find the defects of our data», — the CEO says. «The first time we introduced this method we didn’t have more advanced technology like today. Users needed to trust us and the audit company. But now it’s much easier with ZK — people know we follow all the rules, as we cannot break them because of the open source code. So they don’t have to trust us, they have to trust technology».
The conversation turns to the broader implications of PoR as an industry standard. Dr.Han predicts its integration into traditional financial markets will foster greater transparency and accountability, setting a new benchmark. However, he noted that this success will largely depend on the crypto community — from data aggregators and media outlets to influencers and average users.
«PoR allows the verification of third-party balances without disclosing sensitive information. This is something that the financial world has never had before. It definitely can and should be industry standard. And it depends on us on how we explain the benefits of this technology to the traditional world. I believe the requirement of having the audited proof of reserve will be a basic requirement for all crypto exchanges. And once it’s done, then, you know, it’s the invisible hand of the markets, when suddenly, all the players will start to pay much more attention to be at the standards and to be transparent».
Balancing Efficiency and Security
Gate.io CEO delves into the debate of centralized exchanges versus decentralized platforms, highlighting the efficiency and user-friendliness of CEX. Despite the allure of decentralized options, he underscores the current reliance on CEX due to low transaction costs and ease of use.
«The CEXes are still very, very efficient. For example, inscriptions are quite hot now, so a lot of people trade BRC-20 tokens. On Bitcoin blockchain, they need to pay a lot for each transaction, for each trade. But on the centralized platform, they pay almost nothing. At the same time, CEXes are very user friendly. Compared to Web3 applications, users only need to log in into their account to have everything. They don’t have to manage the private keys, think about how to keep it safe or synchronize with all the blockchain nodes», — Dr. Han comments.
Nevertheless, he anticipates a gradual shift towards decentralized platforms driven by advancements in infrastructure and UX.
«A lot of things are solving quickly in Web3. Now we have better infrastructure, better wallets, better interfaces. For example, our Web3 Wallet supports more than 40 blockchains, and in the future we’ll merge the other blockchains already supported in Gate.io, so the number will skyrocket to 300. Now users can store and trade the native tokens, like BTC, LTC and DOGE,
