With vocal skeptics now abundant, the early, easy days of the blockchain revolution are over. But Ed Felten, a Princeton professor who also served as deputy chief technology officer in the Barack Obama White House, thinks his startup has an answer for some of the database technology’s problems.
He co-founded the six-person Offchain Labs to try to profit from technology called Arbitrum that moves a lot of blockchain transactions into a separate domain. That liberates them from the slow transaction speeds and data-privacy problems that burden the Ethereum Project while still linking with that widely used blockchain foundation, Felten said.
“It is our goal to operate at the speed of native processing — as fast as the computer you have, but in a blockchain setting,” Felten said.
For nontechies, blockchain is about as exciting an innovation as double-ledger accounting, but it could dramatically cut problems like transaction fees, counterfeit concert tickets and paperwork hassles when you sell your house. Adopting it is complicated, though, and skeptics are increasingly vocal, so the blockchain revolution for now hasn’t delivered the goods.
Moving blockchain interactions off the main data record is a years-old idea, but Arbitrum’s special trick is a mechanism that makes such off-chain transactions more fraud-proof to the parties involved. A single entity behaving properly is enough to thwart shenanigans, so it’s simple for a single company or person to keep blockchain deals above board, Felten said.
The sales pitch has convinced some investors. Pantera Capital and others handed Offchain Labs $3.7 million in a seed round of funding, the company announced Wednesday.
Blockchain, an outgrowth of the cryptocurrency movement, offers a mechanism for companies or people to register information like payments, purchases and property records. But unlike traditional centralized databases like those at your credit card company or department of motor vehicles, blockchain information is stored on a distributed group of servers that make it harder to tamper with data, easier to share and validate it, and harder for a single party to control it.
One of Blockchain’s chief virtues, at least in principle, is a mechanism that allows parties that don’t know each other to trust each other. But there’s plenty of blowback now.
Blockchain’s hype problem
“A blockchain probably doesn’t solve the security problems you think it solves. The security problems it solves are probably not the ones you have,” security guru Bruce Schneier wrote in February. “A false trust in blockchain can itself be a security risk. The inefficiencies, especially in scaling, are probably not worth it.”
Felten, though, argues blockchain is like the internet — a technology that suffered from ill-advised early hype but that fundamentally is important.
“There’s a bit of a shakeout. This is the point at which you can’t just buy the name ‘dogfood.com’ and think you’re a big internet company,” said Felten. “The sector is undergoing a transformation right now where you’re seeing some serious investors and serious people coming into the space.”
The Arbitrum technology, which the company co-founders first detailed in a 2018 research paper, is something of a hybrid of two approaches. First are public blockchains like Ethereum that tap into a global network of computers storing and validating transactions. Second are private blockchains that are more limited but can be easier to set up among cooperating partners.
Arbitrum allows sophisticated, automated transactions — called contracts in the blockchain universe — to integrate with the Ethereum blockchain. But it mostly interacts with the slower Ethereum only at the beginning and end of the contract, speeding up the busier intermediate steps, Felten said. Moving some of the work off Ethereum also makes it easier to keep some transaction information private, he added.
Arbitrum is based on open-source software anyone can implement, Felten said, but Offchain Labs expects to take a cut of some transaction fees. Felten serves as director of Princeton’s Center for Information Technology Policy and will continue his work at the university.