The first step in the proof of solvency process involves the proof of liabilities, which aims to demonstrate the total amount of obligations owed to customers.
A commitment in cryptography is a binding agreement to chosen information that is irreversible and unalterable, akin to sealing a message in an envelope.
The Merkle Tree serves as a commitment scheme for proof of liabilities, with the root representing the commitment and leaf nodes representing individual liabilities.
Using a Merkle Tree allows proof of the existence and integrity of liabilities while maintaining confidentiality until necessary, balancing transparency and privacy.
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