AND TRUST TERMS
This glossary unpacks various frequently used terms, tools and methods that have
been used the industry to address trust issues.
Transparency
Proof of Reserves
In the context of centralized cryptocurrency exchanges: a
statement, tool, or report showing that assets held the
exchange are equal to or greater than their liabilities to
their customers.
Safekeeping of User Assets
A financial services provider, broker, or other custodian,
storing an asset on behalf of their customers. The
custodian is responsible for the safekeeping of the assets
and implementing the necessary security standards,
without expectation or authorization to use the assets in
any other manner without customer consent.
Merkle Tree
A cryptographic tool that consolidates large amounts of data into a single hash value. It is named after Ralph Merkle, who patented it in 1979. Merkle trees can verify that information blocks belonging to a given dataset have been undamaged and unaltered.
Merkle trees can be used as a tool to verify user balances held on a centralized cryptocurrency exchange providing an anonymized, independently verifiable snapshot of all user balances at a given point in time.
Merkle Sum Tree
A Merkle Sum Tree is a type of Merkle tree that verifies there is no change in the cumulative value or distribution of the leaves’ of the tree – i.e. the blocks of information contained under it.
Merkle Tree Root
The shared hash value of all nodes in a Merkle tree that acts as a cryptographic seal – essentially summarizing all the inputted data belonging to the tree. Any tampering with the data affects the Merkle root, making it obvious and easy to spot.
Merkle Tree Leaf
A block of information contained under a Merkle Tree. In a
PoR Merkle Tree, the leaves contain information about an
individual user’s balance and account information that is
cryptographically stored.
zk-SNARKS
Zero knowledge succinct non-interactive argument of
knowledge: a cryptographic proof of knowledge method
whereone party (the prover) can show evidence to the
other party (the verifier) that they possess a certain piece of
information, without the verifier needing to have that
information or interact with it.
Risk Management
Wrapped Tokens
A cryptographic token issued in parallel to a particular
cryptocurrency (or other digital asset), that allows users to utilize the aforementioned cryptocurrency on a different
ecosystem other than its native blockchain.
The wrapped token issuer sets aside an amount of the
cryptocurrency as collateral, stores it safely, and then “mints”the wrapped token at a 1:1 ratio based on the collateral.
Wrapped tokens thus offer a great interoperability solution allowing users to seamlessly move assets and make use of applications, projects, and opportunities on other blockchains.
Auto liquidation
A risk mitigation measure in crypto margin trading. When the
price of the crypto asset being traded falls below a certain threshold(s), a trader’s leveraged position is forced to partially or fully close, due to the margin not being enough to cover the loss. If the trader is unable to meet the margin call,the exchange closes the position automatically.
SAFU
An emergency user protection reserve which offers protection
to Livecoin users in the event of a security breach.
Responsible Trading Program
A set of policies and materials aiming to discourage and
prevent risky behavior among users of a trading market for high-risk or volatile instruments, such as derivatives. You can see Livecoin’s responsible trading program