BitMEX announced on Wednesday, December 1, the availability of the Proof of Liability (PoL) system. This system will allow BitMEX depositors to verify that their individual liabilities are included in the total liability balance, the exchange explains on its blog.
“Customer privacy is preserved because account balances are randomly split across multiple leaves of the Merkle tree,” BitMEX said. The exchange noted that Will publish twice weekly updates on its reserves and liabilities.Tuesdays and Thursdays.
For self-verification of liabilities, users need to download the latest “snapshot” of liabilities and install the open source tool from GitHub, developed by BitMEX. This is a suite of software that allows users to independently verify the solvency of an exchange by checking the existence of reported reserves and verifying that they exceed the liabilities known to users.
Balance sheet of an account, obtained by testing liabilities. Source: BitMEX.
The table above shows the balance sheet of a specific account, reflecting 0.1 BTC spread over 4 leaves of the Merkle tree. The total liability, expressed in satoshi, is 69,214 BTC.
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Bitmex depositors also have in their accounts so-called. nonces, which are arbitrary numbers that allow the data to be cross-referenced with the liabilities published by the stock exchange. Nonce refers to a “unique usage number” and can be defined as a number added to an encryption block that, when repeated, satisfies the constraints of the difficulty level.
To search the Merkle tree for liabilities, users employ a “nonce,” which is a number that appears on each account, as well as a nonce representative of the account itself. The former provides a “snapshot” of the liabilities at a given time, while the nonce account provides access to the entire balance of liabilities.
Bitmex’s new PoL system comes after the high-profile collapses of the FTX exchange and its trading partner, Alameda Research, spurred calls for greater transparency from centralized exchanges.