It was the “revolution bigger than the internet” that never happened: in the middle of the last decade, it looked as though blockchain (in short: a list of fixed, secure and shared digital records that help the process of recording transactions and tracking assets) would foment a radical change in our lives.
The vision of a decentralized, invulnerable, reliable computation infrastructure that is not subject to counterfeiting, excited the world of technology. People talked about how last wills and testaments would be preserved on blockchain, until the deceased’s final version, and how bills of lading would be replaced with no danger of forgery.
But that hasn’t happened. The vast majority of the dozens of possible applications mentioned in connection with blockchain technology have remained on paper, or have only just begun to take shape.
"It hasn’t happened because of the speed of the network,” says Eli Ben-Sasson, a founding partner and president of StarkWare, an Israeli startup in the field of crypto. “Blockchain infrastructure today is simply unable to cope with the load of transactions for mass usage, and every application that began to gain momentum on the blockchain has crashed.”
Ben-Sasson cites the familiar story of CryptoKitties, a blockchain network game - with which it is possible to collect and breed virtual cats of a variety of types and personalities. The game became so popular that at a certain stage it overloaded the Ethereum network (a blockchain-based, open code platform).
The infrastructure’s ability to transmit a limited number of transactions is a well-known and painful problem in the crypto world. At the Ethereum network, for example, the limit is 15 such actions per second.
There is another problem that derives from the load on the infrastructure: the cost. The blockchain networks charge a commission for every action, which essentially covers the cost of the computing energy needed to process and validate transactions – what is known as a “gas fee.” Thus, a simple action of transferring money to a wallet can cost tens of dollars.
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Netanya-based StarkWare was born to deal with this situation. “The load on the blockchain and the high costs of transactions are, at the moment, the obstacles on the way to building crypto applications for the masses that could meet the needs of the general public,” explains Uri Kolodny, co-founder and CEO of StarkWare. "The service offered is, at base, one involving compression of transactions on the blockchain network since it is a limited and expensive resource. Our technology enables a more efficient use of the network."
The company, he adds, "was established on the basis of research conducted by Prof. Ben-Sasson and Dr. (Michael) Riabzev from the Technion, as well as on the basis of advanced mathematical models of zero-knowledge proofs. To simplify: It’s like examining a person’s ID at the entrance to a mall instead of searching his bag, and thereby in effect expediting the inspection process.”
How much more efficient is the StarkWare infrastructure?
“It depends on the service,” explains Kolodny. “For example, in issuing an NFP (non-fungible token), the cost we charge is 20,000 times less – 0.2 cents as opposed to about $40. Regarding other applications, the compression is 500 times.
'A call to developers'
StarkWare is commercializing its transaction-compression capabilities: It is providing the infrastructure to crypto trading markets and NFT trading companies to enable them to be fast, competitive and able to charge lower prices, and "increasing the blockchain’s bandwidth."
The company management mentions four clients that are using its technology: Immutable X – the market trading in NFTs used by TikTok and Disney; Sorare, a fantasy soccer site, which has the franchise for digital player cards of the Spanish league; XdYd, a platform for trade in futures contracts in crypto; and Deversifi, a market for trade in digital assets.
Speaking of Sorare, Ben-Sasson says: “This is an example of a market that had gas fee expenditures of $1 million a week, and we have brought their costs down by a factor of 200.” Of XdYd, he adds: “We started with them in August of 2020, with the scope of trade there at $1.3 billion. As of now, it is $186 billion.”
Recently StarkWare launched StarkNet, an open platform for anyone who wants to develop a service on the basis of the company’s efficient blockchain. The developers do not need to enter into a contract with StarkWare, but only pay usage fees, as when using other infrastructures.
“This is a call to developers and entrepreneurs in the open spirit of the crypto world – now they can establish new enterprises as very low costs,” Kolodny says. “For example, Haaretz could build a business model according to which people pay per article, and some of the remuneration would go to the writer. Or a subscriber to Haaretz could share an item with a number of readers, defined in advance, who aren’t subscribers,” he adds. “It is possible to build many creative things on the basis of blockchain.”
StarkWare is an intriguing and unusual company in almost every sense. It was founded in early 2018 by Ben-Sasson, Kolodny, Riabzev and Prof. Alessandro Chiesa, a crypto expert at the University of California, Berkeley – as noted, on the basis of research undertaken at the Technion – Israel Institute of Technology, in Haifa. Before the company was founded, there was a widely reported, legal dispute between the sides, in which the institute argued that Ben-Sasson had established the company “clandestinely,” and not through the accepted process of knowledge commercialization. Ultimately the sides reached a compromise, and this obstacle was removed.
Last March, StarkWare announced a large second-round of fundraising, of $75 million – and garnered $111 million. Now the company is announcing a third round, but there is something unusual about that: Altogether it is raising $50 million and although the sum is smaller, the company is listing a significant increase in its valuation: to $2 billion (before the influx of money).
And there is another interesting thing: Not all the money is going into StarkWare’s coffers. “A large and not symbolic” portion of the sum, according to Ben-Sasson, is secondary – that is, paid to recompense the entrepreneurs.
Do you want to know more? Leading this present funding round is Sequoia, the legendary venture capital fund from Silicon Valley, which invests only sparingly in Israel.
“StarkWare is attacking a profound problem in the crypto world – the scalability of the blockchain infrastructure,” says Mike Vernal, a partner in Sequoia. “We are excited to deepen our relationship with this team, which is developing a basic technology.”
And there is another special thing about StarkWare: It is a profitable, even “very profitable” company, according to Kolodny – something unusual for a young high-tech company with a mere 55 employees. Thus, the fundraising is more strategic than cash-hungry in nature.