Coinbase
Open-source reserve transparency and privacy-preserving accounting
A development grant to advance Proof of Reserves and privacy-preserving accounting methods, resulting in the ReserveX dashboard.
Named engagement. Client detail on this page is limited to what Sixpence publishes about the relationship.
- Client
- Coinbase
- Sector
- Digital asset infrastructure
- Instrument
- Development grant, $250,000
- Output
- ReserveX dashboard
- Updated
The mandate
Advance the state of reserve verification so that a custodian can prove its position without publishing the commercially sensitive detail that had made custodians refuse to prove anything at all.
The situation
After 2022, the argument for publishing reserve proofs was won. The argument about how to publish them was not. Custodians serving institutional clients had a genuine objection rather than an excuse: a straightforward Merkle scheme with published totals reveals the size of the book, and grouping information can leak a great deal about individual holdings. For a custodian whose clients are themselves regulated entities, that is a confidentiality problem serious enough to prevent publication.
The result was a standoff. The transparency the market wanted required disclosures the market’s participants could not make. Resolving it needed work on the cryptography rather than on the persuasion.
What was built
- 01
Privacy-preserving liability proofs
Constructions that allow a custodian to prove the sum of customer balances, prove no balance is negative, and prove a given customer is included, without revealing individual figures or the distribution.
- 02
ReserveX dashboard
A verification surface that presents reserve position and lets a reader check the proof themselves rather than take a published figure on trust.
- 03
Open method
Methods and implementation published so that the approach could be examined, criticised and reused rather than becoming a proprietary claim about trustworthiness.
How it was approached
The choice to work in the open was the substantive one. A closed verification method asks a reader to trust the verifier, which reproduces exactly the problem the exercise exists to solve. Publishing the method invites the scrutiny that makes the result worth anything.
A verification method nobody can inspect is just another assertion, one layer further from the reader.
The other decision was to treat the reader as the user. Most reserve publications are addressed to sophisticated observers who will never look at them. Building the dashboard so that a customer can verify their own inclusion, unassisted, changes what the publication is for.
Outcome
- Reserve verification that no longer requires a custodian to choose between transparency and client confidentiality.
- A published dashboard where reserve position can be independently checked rather than read.
- Methods available for examination and reuse by others working on the same problem.
Capability transferred
- Open implementation and documented method, owned by the community rather than by a vendor.
- A demonstrated pattern for pairing cryptographic proof with a usable verification surface.
Methods
- Zero-knowledge liability proofs
- Merkle commitment schemes
- Privacy-preserving accounting
- Open-source publication