New Startup Aims to Prove Blockchain Is Fast Enough for Finance

(Bloomberg) -- Spotting a software bug that could have prevented a $55 million theft -- but not alerting anyone in time -- marked a tough period in Emin Gun Sirer’s life. The computer science professor is now trying to use those lessons for a new project, Ava, that’s aimed at making blockchain fast enough for finance.

Ava allows for the creation and trading of digital assets, from new types of cryptocurrencies to claims on stocks or bonds, said Sirer, chief executive officer of New York-based Ava Labs and an associate professor at Cornell University. The company says it has found a faster way for computers on its network to reach agreement, or consensus protocol, and is now set to open up its systems to the public before it begins full operation this summer.

A main limitation blockchain faces is that it is deadly slow compared to centralized payment systems run by Visa Inc. and Mastercard Inc. While Ethereum is evolving to close that gap, a network like Ava could gain an advantage on Wall Street if its test numbers of processing 6,500 transactions per second can be replicated in a live environment. Visa says its network can handle more than 24,000 retail transactions per second, while Bitcoin currently processes about six and Ethereum 15.

“We have a completely new consensus protocol,” Sirer said in an interview. All the computers, or nodes, on a blockchain like Ethereum have to know the same exact information as every other node. Ava is different in that “it’s one node communicating with a small number of nodes,” Sirer said. All Ava nodes communicate in these small batches Sirer calls “gossip networks,” with the effect of spreading like a net.

Ava will allow for developers to wall off a part of the blockchain, such as making services only available in the U.S., Sirer said. That isn’t possible with some other blockchain networks and could appeal to finance firms that have to meet regulatory conditions in different jurisdictions.

Sirer’s team is also going beyond the standard “bug bounty” offer incentivizing people to find errors, saying they intentionally put four bugs in the Ava code before the public release.

That ties back to Sirer’s experience with the DAO, or decentralized autonomous organization, a smart contract that collected about $250 million worth of ether in 2016. Instead of acting as an automated venture capital fund for Ethereum projects, the DAO was hacked. Sirer spotted the bug four days before the attack, but after a graduate student he was working with doubted it was an issue, he didn’t tell anyone.

“That was a case of mis-classifying what was clearly a bug as not being a bug,” he said.

That missed opportunity spurred the aggressive bug bounty in Ava’s launch, he said. One of the bugs has already been found.

“We are roughly 25% of the way in,” Sirer said.

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