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Starkware Wants to Bring Security and Scalability to Crypto Exchanges

An Israeli startup Starkware believes it can solve two of the most pressing issues in crypto trading, the inherent vulnerability of centralized exchanges and the low transactional capacity of decentralized ones. 

The venture was co-founded by professor Eli Ben Sasson, who was a founding scientist for Zcash (ZEC). Besides raising almost $40 million from prominent investors that include Sequoia and Intel Capital, it also received a grant from the Ethereum Foundation.

Oren Katz, VP of engineering at Starkware, said further

“We basically provide a scalability engine for exchanges (or marketplaces). The exchange keeps the order book and does the matching. The users post orders to the exchange. The exchange matches orders and sends the ones to be settled to us (StakWare’s service). We batch a large number of trades together (could be tens of thousands) and prepare a single STARK proof, which attests to the validity of the entire batch. The proof is sent to an on-chain verifier (e.g. once every 15 mins). Once verified, the root state (of all user balances) is updated on-chain.”

For decentralized exchanges, the tradeoff is that decentralization decreases. For the centralized ones, it’s the loss of custody over users’ deposits. This may lead to lower revenue, as they will not be able to trade, lend nor stake users’ crypto. 

Therefore, the system becomes self-custodial which almost completely eliminates the risk of an exchange mismanaging users’ deposits. Its first use-case is the Deversify exchange, an Ether DEX, launched by Bitfinex. 

“We have spoken with all the major crypto exchanges, some get very excited about our solution, some don’t. For some, it’s a bug, for others, it’s a feature. They say ‘people trust us, we have a good reputation”.

In response to the concern that by implementing Starkware’s technology, an exchange is just moving the burden of responsibility to another centralized entity, Katz explained:

“Ask yourself what is the worst thing that can happen if we become malicious? We can’t steal your crypto since we don’t have your keys, all we can do is stop processing transactions.”

Katz summed the value proposition of Starkware: “What we want to provide users is with the user experience, volume and cost of a centralized exchange, but without the counterparty risk.”

Whether major crypto exchanges will embrace this technology is unclear. Holding millions of dollars in cryptocurrency is burdensome, but also is highly profitable. Much will depend on the users’ appetite for risk.

ConsenSys, the Ethereum-focused company founded by Joseph Lubin, announced on Feb. 25 that it will spin off its health division. The new ConsenSys Health company will develop blockchain use cases to tackle issues in the U.S. healthcare industry.

The announcement is part of ConsenSys’ strategy shift of favoring products such as Codefi and Infura, which led the company to spin out several internal projects into independent entities.

ConsenSys Health focuses on applying blockchain to the health industry, citing issues such as rising costs and access to care as some of the areas where blockchain can contribute. Co-founder of Ethereum (ETH) Joseph Lubin commented on the news, saying:

“Spinning off a separate company in this area is an opportunity for us to combine the powerful technology built by ConsenSys with a team of domain leaders to solve the biggest challenges in healthcare.”

The new company will be headed by Heather Leigh Flannery, who was the Global Lead for healthcare at ConsenSys. She is deeply involved in many initiatives combining blockchain with healthcare, serving on the chair of associations such as HIMSS Blockchain in Healthcare Task Force, Blockchain in Healthcare Global and the Healthcare Special Interest Group in the Ethereum Enterprise Alliance.

ConsenSys Health will be specifically targeting the U.S. healthcare market as the most ripe for disruption, citing its high per-capita cost — by far the highest among OECD countries.

According to ConsenSys, blockchain can improve on this by addressing the rising costs of research and administration. Making data sharing safer and faster, expanding access to care and engaging patients directly are some of the initiatives where blockchain can help. Flannery is confident that the use of technology can improve the situation:

“The convergence of many emerging innovations, such as blockchain and machine learning, enables us to approach old problems in new ways. This opens up the possibility for improved patient and provider experiences, new business models, and ultimately, a sustainable and value-based healthcare system.”

Healthcare is one of the central themes of the upcoming 2020 U.S. presidential election. As the primaries for the Democratic presidential nomination continue, most candidates are proposing political approaches to the problem, such as Bernie Sanders’ “Medicare for All.” Though he is currently leading the polls, the proposal is generating immense criticism due to its radical approach.

A technological solution spearheaded by blockchain may become a more acceptable alternative for the public. Of the remaining candidates, only Michael Bloomberg has shown some interest in the cryptocurrency and blockchain space.

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