BitMEX unveils liability verification solution

The cryptocurrency exchange BitMEX has unveiled a Proof-of-Liability feature. It enables users to verify the platform’s liabilities to them within the total balance.

[1/4] BitMEX’s PoL System Now Live & Operational

All BitMEX depositors can now verify their individual liability is included in the total exchange liability balance. This self verification process can be conducted without a third party auditor.https://t.co/1z5MJ2nlVK

— BitMEX Research (@BitMEXResearch) December 1, 2022

The company updates the data twice a week: on Tuesdays and Thursdays.

The solution uses a cryptographic algorithm called Merkle tree. To view the information, clients can use the accountNonce value to obtain multiple snapshots, or enter one-time codes for each account snapshot.

Following FTX collapse, the largest exchange by volume, Binance, first disclosed data on its own crypto reserves, and then launched the Proof-of-Reserves feature. The latter allows Bitcoin holders to verify that their funds on the platform are backed by corresponding asset volumes.

For BitMEX, an example of the platform’s liabilities to a holder of roughly 0.1 BTC in an account looks as follows (the funds are reflected as four Merkle-tree leaves):

Following Binance, a number of platforms published reserve data, including Huobi, Bitfinex and Bybit.

Kraken founder Jesse Powell criticized Binance’s Proof-of-Reserves. In his view, the feature does not prove that the exchange holds more bitcoins than its liabilities to customers.

As Ethereum co-founder Vitalik Buterin has said, the use of zk-SNARKs in this case would yield a better result than a Merkle tree.

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