Tool to make life easier for Bitcoin exchange auditors
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README.md

Build Status Coverage Status

NPM

Easy Audit

This tool is designed to simplify the job of crypto-currency auditors.

Motivation

This tool is inspired by Olivier Lalonde's PoL and PoA tools:

The reason I wrote my own was because most exchanges seem to request a type of audit which leaks zero information to the public. This tool also expects a data format that does not contain any user-identifying information.

Note that the implementations are not compatible unfortunately.

Installation

npm install -g easy-audit

Usage

Get assets.json from exchange

The exchange operator needs to sign a message with all of their hot and cold wallets. This usually works differently for each exchange, but the resulting format should be something like this:

{
  "blockhash": "000000000000000023d6840808390f0cbefc9ead835daa4dbb5c9d7d0f205eb2",
  "blockheight": 294548,
  "owner": "example.com",
  "message": "example.com : 0000000000000000525d3fe3dcb6e08de102d36b51f466f689e33c869049c547",
  "assets": [
    {
      "asset": "1P8EnMGHjwLYcGbdwGUapGRnff758Ux8iS",
      "signature": "HNNpRss3/45/VhuBLYAIFJ+7LYHqzYxsl0g4c61vPvhR8cdub4ZTFLShObjatwrQAIn3haalqvnQqlH70fTVcv0=",
      "balance": "12450"
    }
  ]
}

The message should be [owner] : [blockheight] where owner is the domain of the exchange being audited and blockheight is the height of the reference block.

All balances should be the total amount of unspent outputs associated with that Bitcoin address at the given block height.

Get liabilities.json from exchange

We also need a list of liabilities. The exchange operator can provide that in the following format:

{
  "accounts": [
    {
      "nonce" : "13550350a8681c84c861aac2e5b440161c2b33a3e4f302ac680ca5b686de48de",
      "balance" : "1234"
    }
  ]
}

The nonce can be generated in any way that the exchange operator prefers, however we recommend the following way:

  • nonce ... SHA256 ( user_email || user_secret )
  • user_email ... A value that is unique to the user and user-chosen
  • user_secret ... A random or pseudo-random 256-bit value that is unique to each user

The user_email and user_secret are known to the user, but not the auditor. This means that the auditor only sees anonymous balances.

Audit assets separately

The assets.json format specified above is compatible with libcoin's cryptoshi.

First, you need to run libcoin to download a blockchain with full persistence:

libcoind --bitcoin --persistence=FULL --debug --log=-
  • --bitcoin ... Use Bitcoin blockchain
  • --persistence=FULL ... Don't prune old transactions
  • --debug ... Print additional information
  • --log=- ... Log to stdout

Once libcoin has reached the reference blockheight, you can run cryptoshi audit:

cryptoshi audit path/to/assets.json

If successful, cryptoshi should print something like:

PASSES audit with 12450 Satoshis

There should be no other messages (warnings or errors.)

Run audit using easy-audit

easy-audit audit path/to/liabilities.json path/to/assets.json

The tool will output something like:

ASSET OWNER: example.com
BLOCK HEIGHT: 294548
ROOT HASH: 25faefe8190e0d179e3029b186e02be644a9c55b786df73ffb33ba270090b022
RESERVE RATIO: 107.31%

This is what you sign and post publicly. For your own reference you may also want to run a verbose audit using the -v parameter.

Once the audit is posted, users may wish to verify they were included in it. The exchange operator should disclose to each user their user_secret, the sibling nodes between them and the root hash and their balance at the reference block height. The user should verify:

  • Their nonce matches SHA256 ( user_email || user_secret ).
  • The balance provided matches what they were holding at the reference block height.
  • Their leaf hash matches SHA256 ( nonce || "|" || balance).
  • The siblings provided connect their leaf hash to the root hash where each internal node is calculated as SHA256 ( left_hash || "|" || right_hash ).
  • The root hash matches the one the auditor signed.

Features

  • Checks input file integrity
  • Ensures assets message uses correct format
  • Generates liabilities root hash
  • Verifies asset signatures
  • Calculates total assets and liabilities
  • Calculates reserve ratio

Currencies supported: Bitcoin

Run tests

npm test

You can also generate a code coverage report:

npm test --coverage

Future plans

  • Support for more currencies
  • Support for Ripple liability proof
  • Support for balance proof against Bitcoin blockchain
  • Calculate how old the reference block is

Limitations

Ideally this tool would be implemented as a zero-knowledge proof (ZKP) that the exchange operator themselves executes and that anyone can verify. Until someone implements that, users have to trust the auditor.

Exchanges can borrow money for an audit, they can buy bitcoins against their customers' fiat balances, they can ask third parties to sign the audit message instead of them signing it and more.

The fact that an exchange is solvent at a given point in time says nothing about their overall exposure to regulatory, technical, financial and other risks. It also says nothing about their integrity.

The liability proof relies on the fact that users actually bother to go through the verification process.

License

This tool is released under the ISC license.