Introducing Private Proof of Solvency

:::info Authors:

(1) Hamid Bateni, Nobitex Labs ([email protected]);

(2) Keyvan Kambakhsh, Nobitex Labs ([email protected]).

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Abstract and 1 Introduction

2 Proof of Liability and 2.1 Commitment

2.2 Merkle Tree

2.3 Leaves Structure

2.4 Proof Statement

3 Proof of Reserve

3.1 Ethereum

3.2 Bitcoin

4 Proof of Solvency

5 Future Works and References

The ”Private Proof of Solvency” project is a groundbreaking solution in the realm of Proof of Solvency, offering a secure, efficient, and privacy-preserving method for crypto custody providers such as centralized cryptocurrency exchanges or enterprise custody providers. By leveraging the inherent state concept of every blockchain and pioneering cryptographic techniques, our approach ensures businesses can prove their reserves without revealing their transactions, addresses, or the total amount of liabilities.

Crypto custody providers currently face the challenge of maintaining numerous addresses for user assets. Conventional methods to create a proof of reserve require the consolidation of these assets into single or multiple known wallet addresses. Our innovative approach eliminates this process by utilizing the inherent state concept of every blockchain.

\ The state, achieved by processing blockchain transactions on the blockchain protocol nodes, holds data such as the balance associated with an address. For instance, Ethereum maintains this state in the Merkle Patricia data structure, while Bitcoin employs a LevelDB database with a key-value structure that keeps the active Unspent Transaction Outputs (UTXOs). In Bitcoin terms, the balance represents the total active UTXOs an address holds.

\ Our project introduces a novel process for businesses to provide proof of reserve:

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1. Create a proof of liabilities tree based on user data on the business database.

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2. Sign a message with the private key of the addresses they want to prove reserve with.

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3. Provide these messages as private input for our Zero-Knowledge Proof (ZKP) circuit.

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4. Submit the output to a contract and announce their new submission for checking.

\ By leveraging ZKP, businesses can prove their reserves without the need to reveal their transactions, addresses, or the total amount of liabilities, thereby maintaining privacy while ensuring the integrity of the process. In essence, the ”Private Proof of Solvency” project offers a robust, privacy-preserving solution that significantly enhances the Proof of Solvency process for crypto custody providers, paving the way for a more secure financial ecosystem.

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:::info This paper is available on arxiv under CC BY-NC-ND 4.0 DEED license.

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